Home Loans: What Income and Employment Lenders Check

Most PAYG professionals assume their salary is enough to secure a home loan. Lenders assess your income and employment in far more detail than you might expect, and the documents you provide can make the difference between pre-approval and decline.

Income verification is not about confirming you earn what you claim. It determines how much you can borrow, what loan structures are available, and whether your employment is considered stable enough to support a 25 or 30 year commitment. A full-time employee on a salary package with bonuses, allowances, or overtime will be assessed differently to a full-time employee on a flat salary, even if they both earn the same amount each year.

How Lenders Assess PAYG Income

Lenders assess PAYG income using payslips, tax returns, and employment contracts. Your base salary is assessed at 100% of its value. Overtime, bonuses, allowances, and commissions are assessed at a percentage, typically between 50% and 100%, depending on how long you have been receiving them and whether they are guaranteed or discretionary. Two recent consecutive payslips and your most recent Notice of Assessment from the ATO are standard requirements. Some lenders also request an employment contract or letter from your employer confirming your position, salary, and employment start date.

Consider a borrower earning a base salary of $95,000 plus overtime averaging $18,000 per year over the last two years. If the lender assesses overtime at 80%, the borrower's total assessed income would be $109,400 rather than $113,000. That difference reduces their borrowing capacity by several tens of thousands of dollars.

Why Employment Tenure Matters

Lenders want to see stability. If you have been in your current role for less than six months, most lenders will assess your application more conservatively. Some will decline it outright unless you have remained in the same industry or profession and the move represents career progression. A probation period does not prevent you from applying, but it may reduce the number of lenders willing to approve your application.

If you started a new role within the last three months and are still on probation, expect to provide a letter from your employer confirming your probation end date and the permanency of your role. If you changed industries entirely, you may need to wait until you have completed probation and received several payslips before applying.

What Lenders Consider Unstable Employment

Casual and contract roles are not automatically excluded, but they are assessed differently. A casual employee with a consistent roster over two years and no break in employment may be assessed at 80% of their average income. A contractor on a 12 month fixed-term contract with no indication of renewal may be declined by some lenders, while others will assess them as PAYG if the contract includes entitlements such as leave.

If your employment contract specifies a fixed end date and does not include a renewal clause, some lenders will treat your income as temporary and reduce the amount they are willing to lend. Others will not lend at all unless you can demonstrate a pattern of consecutive contracts over several years.

Income That Cannot Be Assessed

Some types of income cannot be included when calculating your borrowing capacity, even if they appear on your payslip. Reimbursements for expenses such as car allowances, phone allowances, or travel are generally not assessed as income. Rental income from a property you own may be assessed at 75% to 80% of the gross rent to account for vacancies, maintenance, and management costs. Centrelink payments, parental leave payments, and other government benefits are usually excluded unless they are permanent in nature, such as the Disability Support Pension.

In a scenario where a borrower includes their car allowance as income without realising it will be excluded, their borrowing capacity calculation at the bank may return a figure several hundred thousand dollars lower than they expected. Knowing which components of your income can be assessed avoids disappointment later in the process.

How the Serviceability Buffer Affects Your Application

Lenders must assess your ability to service a home loan at an interest rate that is at least 3.0 percentage points above the loan product rate. This is called the serviceability buffer. If you are applying for a loan with a variable rate, the lender will assess your repayments at that rate plus 3.0%. If you are applying for a fixed rate loan, the same buffer applies during the assessment, even though your repayments during the fixed period will be lower.

The buffer is set by APRA and applies to all authorised deposit-taking institutions. It exists to confirm that you can still afford your repayments if interest rates rise. The buffer does not apply after settlement, only during the approval process. Some non-bank lenders are not subject to APRA's prudential standards and may apply a smaller buffer, but they typically have stricter income and deposit requirements.

What to Prepare Before You Apply

Your payslips should cover the most recent two full pay cycles. If you are paid fortnightly, provide the last two fortnightly payslips. If you are paid monthly, provide the last two monthly payslips. Your Notice of Assessment should be the most recent one issued by the ATO. If you lodged your tax return recently and have not yet received your Notice of Assessment, some lenders will accept a letter from your accountant or a copy of your lodged return, but most will wait for the ATO to issue the Notice.

If you receive overtime, bonuses, or commissions, provide evidence that these payments are regular and ongoing. A single bonus payment in the last financial year is less valuable to a lender than consistent overtime across 12 months. If your income has changed recently due to a promotion or pay rise, provide a letter from your employer confirming the new salary and the effective date.

Debt-to-Income Lending Limits

From 1 February 2026, APRA introduced a debt-to-income lending limit that restricts how much banks can lend to borrowers with a total debt-to-income ratio of six times or greater. Each bank can lend up to 20% of new owner-occupier loans and up to 20% of new investor loans to borrowers in this category. If your total debt, including the new home loan, is more than six times your gross annual income, you may fall into this category.

For a borrower earning $110,000 per year, a total debt of $660,000 or more would trigger the six times threshold. This does not mean you will be declined, but it does mean the bank has less flexibility to approve your application if your income or deposit is marginal. Non-bank lenders are not subject to this limit, which can make them a more suitable option for borrowers with higher debt-to-income ratios.

When to Speak to a Broker

If your income includes components beyond base salary, if you have recently changed jobs, or if your employment is casual or contract-based, speaking to a broker before you apply can clarify which lenders will assess your income favourably. Different lenders apply different policies to overtime, bonuses, probation periods, and casual employment. A broker who works with PAYG professionals regularly will know which lender is most likely to approve your application based on your specific circumstances.

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