Understanding home loan eligibility

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July 1, 2022

While there isn’t a magic formula to home loan eligibility, there are certain factors most good lenders take into consideration when looking at a home loan application. Here’s what you need to know before you apply and what you may be asked to provide in support of your application.

Servicing the loan

Lenders use many of the factors below to determine whether you may be able to comfortably afford to borrow and repay the loan. In home loan jargon terms, this is called your ‘serviceability’.

Good to know is that all lenders abide by the Australian Prudential Regulation Authority (APRA) rules stating they can’t let people borrow more than they can afford to repay.

Employment

Most lenders will want to see you have a steady job with regular income. The evidence to provide varies depending on the nature of your employment.

PAYG guide:

Phone call to your employer.
Payslips from the last 2 pay cycles.
Bank statements.
PAYG Summary or Group Certificate (for income such as bonuses).

Self employed guide:

Tax returns from the past 2 years.

Income and debts

Your income and expenses play a significant role in determining your home loan serviceability.

As a guide:

All income streams – including government payments, investment income.
Regular household expenses – rent, bills, car, insurance.
Discretionary spending – like petrol, groceries, holidays, pet food, alcohol.
Current debt – personal loans, credit cards, store finance, pay later products.

Grants and schemes

If you’re eligible for government schemes like the below, the lender will take this into consideration when assessing your application.

Australian Government 5% Deposit Scheme – helping first home buyers and single parents purchase a home.
Australian Government Help to Buy Scheme – helping make home ownership more achievable for more Australians.

Credit history

Your credit history is a record unique to you. It shows how you have managed debt in the past and your history of credit applications. It’s worthwhile getting a copy of yours before you apply so you know exactly where you stand and can fix any issues that could paint you in a less-than-favourable light.

Where to get yours:

‍Equifax – or call 13 83 32‍
Illion – or call 13 23 33‍
Experian – or call 1300 783 684

Existing debts

Lenders factor in outstanding debts when determining your ability to repay a home loan. And not just what you owe. With credit cards for example, it’s your limit too.

So you may wish to consider lowering existing card limits, especially if you don’t use them, and paying down any old personal loans or buy later facilities.

Your deposit

The more you can show the lender that you have a track record in saving money, the better your application could look. Some lenders, like us, even acknowledge larger deposits by offering loans with lower interest rates.

Your LVR

LVR stands for ‘Loan to Value Ratio’. It’s a term used at the assessment stage of home loan approvals and is a shorthand way of describing how much you are applying to borrow compared with the value of the property. Generally speaking, your deposit contribution would need to be above 5% to be eligible for a home loan. Though many lenders require 20% or more.