Lenders assess an investment loan application on both your capacity to repay and the property offered as security. The lender's valuation sets the LVR, and some lenders and LMI insurers have criteria for particular property types or locations. If you and your partner understand how that assessment works, you can walk in prepared and avoid nasty surprises.
Buying together is exciting, and it can also feel a bit overwhelming. You are two people with two incomes, two sets of debts and, often, two slightly different ideas about risk. This guide walks through what lenders look at, so the two of you can make a calm decision about your next step.
How Does a Lender Assess an Investment Loan Application?
A lender checks that you can afford the repayments now and if rates rise. Banks regulated by APRA must test new borrowers at a rate at least 3.0 percentage points above the loan's actual rate.
That buffer applies to new borrowers, including those applying for an investment loan. It is a big reason your borrowing power can look lower than you expect. Lenders also look at your existing debts, including credit cards. For cards, they can use a notional repayment based on the card limit, not what you actually owe. A couple with two cards might find that closing unused limits before applying lifts their borrowing power.
You can get a rough starting point with our borrowing capacity calculator. Treat the result as a guide only, because each lender applies its own policy.
How Is Rental Income Counted?
Lenders usually count only part of the expected rent. APRA's view is that a prudent lender includes no more than 80 per cent of expected rent, to allow for times when the property is empty.
That 20 per cent cut is about vacancy. It is not an allowance for management fees, repairs or other holding costs, so those still reduce what you have left each month. Lenders also tend to rely less on a rental appraisal than on actual rent already being received. What evidence a lender accepts for a new purchase varies, so ask before you commit to a property.
Interest Only or Principal and Interest: What Changes for Your Application?
Choosing interest only does not increase how much you can borrow. Lenders assess an interest-only loan as if you will be paying principal and interest over the shorter remaining term, once the interest-only period ends.
As an illustrative example at 6.75% p.a., consider a 30-year loan with a 5-year interest-only period. The lender would test your ability to repay principal and interest over the remaining 25 years, which is a higher repayment than a 30-year assessment. That is why borrowing power on interest only can come out lower.
The trade-off is that your balance does not fall during the interest-only period, so you owe the same amount when repayments step up. Our interest only loan page explains the features, and the interest only mortgage calculator lets you compare the two repayment types side by side.
Deposit, LVR and Lenders Mortgage Insurance
Lenders generally require lenders mortgage insurance (LMI) above 80 per cent loan to value ratio (LVR), so a deposit of at least 20 per cent of the property value is commonly needed to avoid it. Each lender sets its own policy, and costs such as stamp duty are extra. LMI is a premium paid by the borrower, and the amount and payment options vary by lender and insurer.
The 80 per cent mark is the point above which LMI is generally required, not a legal limit. Borrowing above it needs approval from both the lender and the LMI insurer under their own criteria. Each lender sets its own maximum LVR, and you must still meet serviceability. The cost is the LMI premium, which depends on the loan amount and LVR. If you already own a home, you might use equity as part of your deposit. Our equity release page explains how that works. The risk is that you are borrowing against your home, which raises your total debt.
If a smaller deposit is your situation, see no LMI home loans for the options and trade-offs.
A Worked Example: Two Incomes, One Investment Loan
A couple with one existing home loan may be able to improve an application with preparation, depending on the lender's policy. Here is an illustrative scenario.
Consider a couple who each earn a steady salary and want to buy a unit to rent out. They have a car loan and two credit cards with high limits. Their first lender check shows a lower borrowing amount than they hoped for.
Their broker suggests three things. They cancel the unused card limits, they pay out the car loan from savings, and they apply with a lender that accepts a rental appraisal for a new purchase. They also model repayments at the illustrative rate of 6.75% p.a. to check the cash flow still works if the unit sits empty for a few weeks.
The outcome is a higher assessed borrowing amount and a clear monthly buffer. The trade-off is that they use up some of their savings to clear the car loan, so they keep a cash reserve in an offset account. The result will differ for every couple, because lenders set their own policies.
What About Tax and Negative Gearing?
Interest on a loan used to buy a rental property is generally deductible, but the principal part of your repayment is not. Rules on negative gearing changed in 2026, so the date you buy matters.
Properties held at 7:30pm AEST on 12 May 2026 keep full negative gearing. Eligible new builds acquired after that date can also keep it. From the 2027-28 income year, net rental losses on established homes bought after that time can only be used against other residential property income, such as rent or capital gains. Rent-related costs like council rates, insurance and management fees are also generally deductible while the property is rented or available for rent.
These rules are general information only and no outcome is certain. Speak with your accountant about how they apply to you before you buy.
Documents, Timing and Who to Talk To
Applying through a broker lets you compare options from the lenders on the broker's panel, and a broker can match your situation to a lender's policy. The main cost to remember is that no lender approval is certain until it is formally given.
If you are new to this, our buying your first investment property page covers the wider picture. If you already own an investment loan and are wondering about a switch, see investment loan refinancing. Refinancing can involve discharge, valuation and other fees, so weigh those costs first.
Call one of our team or book an appointment at a time that works for you. We will go through your numbers together and talk through your options in plain English.
Frequently Asked Questions
Does choosing interest only increase how much I can borrow?
No. Lenders assess interest-only loans on principal and interest repayments over the shorter remaining term, so borrowing power is usually lower, not higher.
How much of the rent do lenders count in an investment loan application?
APRA's view is that lenders should count no more than 80 per cent of expected rent. Each lender sets its own policy on what rental evidence it accepts.
Do I need a 20 per cent deposit for an investment loan?
Lenders generally require LMI when the LVR is above 80 per cent, so a deposit of at least 20 per cent is commonly needed to avoid it. It is not a legal limit. Borrowing above 80 per cent needs approval from both the lender and the LMI insurer, each lender sets its own maximum LVR, and costs such as stamp duty are extra.
Is the interest on an investment loan tax deductible?
Interest on money borrowed to buy a rental property is generally deductible, but the principal part of repayments is not. Check with your accountant about your situation.
