Getting approved for a home loan isn't just about having a deposit. Lenders look at a whole picture — and knowing what's in that picture before you apply can make a real difference.
A lot of first home buyers assume the bank will just look at their salary, nod, and hand over the money. In reality, there's a pretty systematic process that happens behind the scenes. The good news is that once you understand it, you can work with it rather than being surprised by it.
How your income gets assessed
For most PAYG employees (that's anyone on a regular salary), income verification is straightforward — a couple of recent payslips and your last tax return and you're basically done.
If you're self-employed, it's been a different story historically. Lenders have traditionally wanted two full years of tax returns to verify your income, which left a lot of sole traders and small business owners in a tough spot, especially if one of those years was a write-off or a slow year.
New for self-employed buyers: A growing number of lenders now offer simplified income verification for self-employed applicants. In some cases, just one year of financials — or even a combination of business bank statements and an accountant's letter — is enough to get assessed. If you've been told in the past that you don't qualify, it's worth getting a fresh look.
Lenders will also count other income types — rental income (at a discounted rate), overtime, bonuses, and government payments — but they apply different weightings to each. Not all income is treated equal.
What is HEM, and why does it matter?
HEM stands for the Household Expenditure Measure. It's basically a benchmark lenders use to estimate your living expenses if they think your declared expenses seem too low.
Here's how it works: you fill out a living expenses section in your application. If your actual declared expenses come in below what HEM says a household like yours typically spends, the lender will use the higher HEM figure instead. They're not trying to catch you out — they're just being conservative about serviceability.
Why it matters for you: HEM varies by household size, location, and income level. A single person in regional Australia will have a lower HEM than a couple with two kids in Sydney. The number the lender plugs in directly affects how much they think you can comfortably repay — which directly affects how much they'll lend you.
Trying to understate your expenses to boost your borrowing capacity doesn't work and can actually flag your application. Honest numbers and a clean picture of your spending will always serve you better.
Your credit score: more than just a number
Your credit score is a snapshot of how reliably you've managed debt and financial commitments over time. Lenders use it as one signal among many, but a low score — or certain marks on your credit file — can shift you from a standard loan to a specialist lender, which usually means a higher interest rate.
Things that can affect your score include missed payments, defaults, multiple credit applications in a short window, and how much of your available credit you're regularly using. The good news is that credit scores aren't permanent. With the right approach, they improve over time.
Worth knowing: every time you formally apply for credit — a loan, a credit card, a phone plan in some cases — it leaves a mark on your file. Multiple applications in a short period can signal risk to lenders, even if each application on its own would be fine. This is one reason it pays to have someone assess your position before you start applying everywhere.
How your other debts eat into your borrowing capacity
This is the one that surprises people the most. It's not just what you owe — it's what you could theoretically spend, even if you're not using it.
| Debt type | Impact on borrowing capacity |
|---|---|
| Personal loan — $15,000 remaining | Reduces borrowing by ~$60–80K |
| Credit card — $10,000 limit (even if you pay it off monthly) | Reduces borrowing by ~$40–55K |
| Buy Now Pay Later — Afterpay, Zip, Humm etc. | Assessed differently by lender — still flagged |
| Car loan — $20,000 remaining | Reduces borrowing by ~$80–100K |
The credit card one catches people off guard. You might only carry a $500 balance month to month, but if your card limit is $10,000, most lenders assume you could max it out and assess you as if you had. Reducing or closing unused credit cards before applying can meaningfully increase what you can borrow.
Buy Now Pay Later is the newer wrinkle. Lenders vary in how they treat it, but regular BNPL usage can flag as a cash flow concern even if the amounts are small. It's worth tidying up before you apply.
Why talking to a broker before you apply is genuinely useful
Here's what a lot of people don't realise: a broker can model out your full financial picture across multiple lenders before a single application is submitted. No credit checks. No marks on your file. Just a clear view of where you stand right now and what would need to change to improve your position.
Sometimes that picture reveals that a bit of restructuring — closing a credit card you don't use, paying down a personal loan, formalising some self-employed income documentation — could meaningfully change what you can borrow or which lenders will look at you. A broker can walk you through exactly what to do and in what order, so that by the time you formally apply, you're in the best position possible.
The practical upshot: you don't have to have everything sorted before you reach out. In fact, getting a review done early — before you've made any moves — means you can get genuinely good guidance on what to prioritise. Some of those changes can happen quickly and make a real difference to what you qualify for.
Run your numbers first with our calculators, then let's talk through what they mean for your situation.
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