Your income matters, but not always in the way you think.
Lenders look at more than just the number on your payslip when you apply for a home loan. They assess how stable your employment is, where your income comes from, and whether you can prove it consistently. For first home buyers working with a small deposit, understanding these requirements can mean the difference between securing finance and having your application rejected.
Employment Type Changes What You Can Borrow
Permanent employees typically qualify for the highest loan amounts because lenders view their income as the most stable. Casual and contract workers can still borrow, but most lenders require at least six to twelve months of consistent employment history with the same employer or in the same industry.
Consider a buyer who works casually in hospitality and has been with the same venue for nine months. If their payslips show consistent hours averaging 30 per week, many lenders will assess that income at full value. If hours fluctuate significantly between 15 and 40 hours per week, some lenders will average the income over six months while others may reduce it by 20% to account for variability. The same buyer applying after just three months of employment would struggle to find a lender willing to approve the loan, regardless of how high their weekly earnings are.
Probation Periods Can Delay Your Application
Most lenders will not assess your full income until you have passed your probation period, even if you are in a permanent role. Some lenders make exceptions if you have been working in the same industry for several years and your probation period is standard, typically three months.
If you have just started a new permanent job and are still within your probation period, waiting another month or two to apply can significantly improve your borrowing capacity. Lenders want certainty that your employment will continue, and probation represents a period where either party can terminate the arrangement more easily.
Self-Employed Borrowers Need Two Years of Tax Returns
If you operate your own business or work as a sole trader, most lenders require two full years of tax returns before they will assess your income. They use the average of those two years, and if your income is trending downward, some lenders will only use the lower year.
This requirement catches many self-employed first home buyers off guard, particularly those who have recently left permanent employment to start their own venture. Even if your business is generating strong income, without two years of financials lodged with the ATO, your options become limited. A small number of lenders offer low doc loans that require less documentation, but these typically come with higher interest rates and may not be suitable for buyers with a small deposit.
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Overtime and Bonuses Are Not Always Counted
Lenders treat overtime, bonuses, and commission differently depending on how regular and predictable they are. If overtime appears on every payslip for the past six to twelve months, most lenders will include it. If bonuses are discretionary and vary each year, many lenders will either exclude them entirely or average them over two years and apply a reduction.
A buyer earning a base salary of $70,000 plus an annual bonus that has ranged from $5,000 to $15,000 over the past three years might find that lenders only assess $7,000 to $10,000 of that bonus income, or none at all. This directly affects how much they can borrow, and in some cases, it can reduce the loan amount by $50,000 or more.
Second Jobs and Side Income Require Proof of Consistency
If you rely on a second job or side income to boost your borrowing capacity, lenders will want to see that income has been consistent for at least six months, and ideally twelve. They will also want to understand how sustainable it is alongside your primary employment.
Income from a side business, freelance work, or gig economy platforms like Uber or Airtasker can be included, but you will need to provide bank statements showing regular deposits, tax returns if the income is declared, or a letter from your accountant confirming the income stream. Lenders are cautious about including income that might disappear once you take on the financial commitment of a mortgage.
Parental Leave and Career Breaks Affect Assessment Timing
If you have recently returned from parental leave or a career break, lenders generally want to see that you have been back at work for at least three months before they will assess your income at full value. Some lenders are more flexible, particularly if you have returned to the same employer and the same role.
This timing matters for first home buyers who are planning to purchase soon after returning to work. Waiting an additional few months to build a consistent payslip history can make the application process smoother and increase the range of lenders willing to approve the loan.
Rental Income from Investment Properties Is Discounted
If you already own an investment property and are using the rental income to help qualify for an owner occupied home loan, lenders will typically only count 70% to 80% of that income. This discount accounts for vacancy periods, maintenance costs, and the possibility that tenants may not always pay on time.
For first home buyers who have been renting out a room in a property they own, this income is harder to use. Most lenders will not accept boarder or lodger income unless you can demonstrate a formal lease arrangement and consistent payment history over at least six months.
Centrelink Payments Are Assessed Differently Across Lenders
Some lenders will accept certain Centrelink payments as part of your income, while others will not. Family Tax Benefit, Child Care Subsidy, and Parenting Payment can sometimes be included, but each lender has different policies.
If Centrelink payments make up a significant portion of your household income, working with a mortgage broker who understands which lenders will assess that income can save you from multiple rejected applications. Not all income is treated equally, and applying to the wrong lender can result in a decline that then appears on your credit file.
Foreign Income Requires Additional Documentation
If you earn income in another currency or from an overseas employer, lenders will require more documentation to verify and assess it. You will typically need employment contracts, payslips, bank statements showing the income being deposited, and sometimes a letter from your employer confirming ongoing employment.
Lenders will convert foreign income to Australian dollars and may apply a buffer or discount depending on currency volatility and the stability of your employment arrangement. For expat loans or non-resident borrowing, the requirements become even more specific, and fewer lenders participate in that space.
Recent Pay Increases Can Strengthen Your Application
If you have recently received a pay increase, lenders will generally assess your income at the new higher rate as long as it is reflected on your most recent payslips. You may need to provide a letter from your employer confirming the increase if it has only just taken effect.
This can be particularly useful for first home buyers who have been waiting to build their deposit and have since progressed in their career. A higher income not only increases your borrowing capacity but can also improve your loan to value ratio if your deposit stays the same, potentially reducing or eliminating Lenders Mortgage Insurance.
Understanding how lenders assess your income and employment puts you in a stronger position when you apply for a home loan. The clearer and more consistent your income, the more lenders will compete for your business, and the more likely you are to secure a loan that works for your situation.
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Frequently Asked Questions
How long do I need to be in a job before applying for a home loan?
Permanent employees typically need to have passed their probation period, usually three months. Casual and contract workers generally need six to twelve months of consistent employment history with the same employer or in the same industry before lenders will assess their income at full value.
Can I use overtime and bonus income to borrow more?
Lenders will include overtime and bonuses if they are regular and predictable. Overtime that appears on every payslip for six to twelve months is usually counted, while discretionary bonuses may be averaged over two years or excluded entirely depending on the lender.
Do self-employed buyers need to wait two years before applying?
Most lenders require two full years of tax returns from self-employed borrowers before assessing their income. Some low doc loan options exist for those with less documentation, but these typically come with higher rates and may not suit buyers with a small deposit.
Will lenders count my Centrelink payments as income?
Some lenders will accept certain Centrelink payments like Family Tax Benefit or Parenting Payment, while others will not. Each lender has different policies, so it's important to apply with a lender that will assess the specific type of payment you receive.
What happens if I'm still on probation at my new job?
Most lenders will not assess your full income until you have passed probation, even in a permanent role. Some lenders make exceptions if you have been working in the same industry for several years and your probation period is standard, but waiting until probation ends generally improves your borrowing capacity.
