Most couples looking to buy their first home together eventually consider whether an investment property might come first.
The decision usually follows a conversation about rent, house prices in your preferred suburb, or watching friends buy somewhere affordable and rent closer to work. An investment property can build equity while you continue renting where you want to live, but the finance works differently to an owner-occupied home loan, and lenders assess your application with different rules.
This article walks through the common mistakes first-time property investors make when applying for an investment loan, so you can avoid them.
Borrowing Without Knowing How Rental Income Is Assessed
Lenders do not treat your expected rental income dollar-for-dollar when calculating how much you can borrow. Most lenders apply a shading factor, using only 80 per cent of the gross rent to account for vacancy periods and maintenance costs. Some lenders use 70 per cent, and a handful may allow 100 per cent if you provide a signed lease and meet specific criteria.
Consider a couple earning a combined income of $130,000 who want to purchase a two-bedroom unit expected to rent for $480 per week. At 80 per cent shading, the lender treats that as $384 per week, or roughly $20,000 per year. If the couple also has $1,800 in monthly living expenses and a car loan repayment of $650 per month, the reduced rental income may limit their borrowing capacity by $40,000 to $60,000 compared to what they initially calculated. Knowing this before you start looking at properties lets you adjust your budget or deposit to match what lenders will actually approve.
Underestimating the Deposit You'll Need
An investment loan typically requires a larger deposit than an owner-occupied home loan. Most lenders set a maximum loan-to-value ratio of 90 per cent for investment purchases, meaning you need at least a 10 per cent deposit plus costs. Some lenders cap investor lending at 80 per cent LVR unless you pay Lenders Mortgage Insurance, and a handful will not lend above 80 per cent to investment borrowers at all.
If you borrow above 80 per cent LVR, you will pay LMI, and the premium is higher for investment loans than for owner-occupied loans at the same LVR. On a $500,000 purchase with a 10 per cent deposit, LMI might add $15,000 to $20,000 to your upfront costs, depending on the lender and your circumstances. You also need to budget for stamp duty, which in Victoria is calculated at the higher investor rate if the property is not your principal place of residence, plus conveyancing, building and pest inspections, and any strata reports if you are buying a unit.
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Choosing the Wrong Loan Structure for Your Tax Position
An interest-only loan keeps your repayments lower during the interest-only period, which can improve cash flow and may increase your deductions if you are negatively gearing the property. A principal-and-interest loan reduces your debt over time and builds equity faster, but the higher repayment reduces the deduction you can claim.
Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, negative gearing rules change from 1 July 2027. If you purchase an established dwelling on or after 7:30pm AEST on 12 May 2026, you will not be able to offset rental losses against your salary or other non-rental income. Losses can only be carried forward to offset future rental income or capital gains from residential property. Eligible new builds are exempt from this rule, meaning you can still negatively gear a new dwelling that increases the total housing supply.
If you are buying an established property and expect rental losses in the first few years, the tax treatment changes the value of choosing interest-only. Your broker can model both structures using your actual income, expected rent, and the timing of your purchase to show which approach suits your circumstances. Do not assume interest-only is always the right choice just because it is common among investors.
Forgetting to Factor in Debt-to-Income Limits
From 1 February 2026, lenders must limit the proportion of new investment loans they write at a debt-to-income ratio of six times or more to 20 per cent of their investor lending portfolio. This cap applies separately to investment loans and owner-occupied loans.
If your total debt, including the new investment loan, will exceed six times your gross household income, some lenders may decline your application or require a larger deposit to bring the ratio down. A couple earning $130,000 combined would hit the six-times threshold at $780,000 in total debt. If they already have a car loan of $30,000, their maximum borrowing for the investment property before hitting the DTI cap is $750,000. Even if serviceability calculations suggest they could afford more, the DTI limit may prevent approval unless they increase their deposit or pay down existing debt first.
Applying Before Your Employment or Income Is Clear
Lenders assess investment loan applications more carefully than owner-occupied loans. If you have recently changed jobs, are in a probation period, or have irregular income, you may face additional scrutiny or a decline.
Most lenders want to see at least three to six months in your current role, and some require twelve months if you are self-employed or earn commission or overtime that you want included in your income assessment. If you are a casual employee, many lenders require twelve months of payslips with the same employer to treat your income as ongoing. Applying before you meet these thresholds usually results in either a decline or a conditional approval you cannot satisfy, and a declined application stays on your credit file.
If your circumstances are borderline, your broker can identify which lenders have more flexible employment policies or can assess your income using tax returns or other documentation. Waiting another few months is often the difference between approval and decline.
Picking a Property Type That Limits Your Borrowing
Some property types are considered higher risk by lenders, and this affects how much you can borrow or whether the lender will approve your application at all. Apartments in buildings over three storeys, studio apartments under 50 square metres, properties with serviced apartment arrangements, and regional properties in postcodes the lender considers volatile are all examples where lending policy may be more restrictive.
If you apply for a studio apartment in a high-rise building in Docklands, some lenders will cap your LVR at 70 per cent, require a larger deposit, or decline the application outright. Others may approve the loan but apply a higher interest rate or refuse to include rental income in the servicing calculation. Knowing which lenders will support the property type you are considering lets you choose a property that matches both your budget and the lending policy, rather than finding out after you have signed a contract that finance is difficult or expensive.
Not Reviewing Your Loan Structure After Settlement
Once your investment loan settles, the property begins generating rental income, and your tax position changes. If you later decide to buy an owner-occupied property, the way you structure that purchase and any refinancing of your investment loan will affect your deductions.
Interest on borrowings is only deductible to the extent the funds are used to produce assessable income. If you refinance your investment loan and draw extra funds for private purposes, such as a deposit on your own home, the interest on that additional borrowing is not deductible. Keeping your investment and owner-occupied borrowing in separate loan accounts preserves your deductions and gives you flexibility if you want to pay down non-deductible debt faster.
Your broker should review your loan structure before you make any changes to your borrowing, sell a property, or take on new debt. Many investors inadvertently reduce their deductions by refinancing without understanding how the ATO treats mixed-purpose loans. An annual review also ensures you are still on a competitive rate and that your loan features, such as offset accounts or redraw, match how you are using the property.
Getting your first investment property finance right means understanding how lenders assess rental income, structuring your loan to match your tax position, and making sure your deposit, employment, and property choice all meet lending policy before you commit. Call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
How much deposit do I need for an investment property?
Most lenders require at least a 10 per cent deposit for an investment property, though some will only lend up to 80 per cent LVR without charging Lenders Mortgage Insurance. You also need to budget for stamp duty at the investor rate, conveyancing, and inspection costs.
Do lenders count all my rental income when calculating borrowing power?
No, most lenders apply a shading factor and only count 80 per cent of the expected rent to account for vacancies and maintenance. Some lenders use 70 per cent, which can reduce your borrowing capacity by tens of thousands of dollars.
Can I still negatively gear an investment property purchased in 2026?
It depends on when and what you buy. Properties purchased before 7:30pm AEST on 12 May 2026 can still be negatively geared under existing rules. Established properties purchased after that date cannot offset rental losses against salary from 1 July 2027, but eligible new builds remain exempt.
What is the debt-to-income cap for investment loans?
From 1 February 2026, lenders can only write up to 20 per cent of new investment loans at a debt-to-income ratio of six times gross household income or higher. If your total debt exceeds six times your income, you may need a larger deposit or face a decline.
Does the type of property I buy affect my investment loan approval?
Yes, some property types such as studio apartments, high-rise units, or serviced apartments are considered higher risk. Lenders may cap your LVR, charge a higher rate, or decline the application depending on the property and location.
