Income and employment: your path to home loan approval

Published 15 May 2026 · Updated 15 May 2026 · 6 min read · By Shane Heness, mortgage broker

Nearly every application that gets declined for income would have been approved somewhere else. That is not a criticism of lenders, it is a description of how the market works. Each one sets its own servicing policy, and those policies diverge much further than the advertised rates do.

PAYG income: not as simple as it looks

A salaried employee with two years in the same job and no variable income is the easiest file in lending. Almost nobody actually looks like that.

Indicative of the range across the LoanBuddy panel at September 2026. Individual lender policy varies and changes. Not a quote.

Work through what that table means for a real household. A nurse on a base of $85,000 who earns $118,000 with penalties and overtime is assessed on $118,000 by one lender and around $101,500 by another. At typical assessment settings, that gap is worth roughly $150,000 of borrowing capacity. Same payslips, same person, different answer.

Employment stability: what lenders are actually asking

The question behind the employment test is not how long you have been somewhere. It is whether your income is likely to continue.

Probation

Probation is not the obstacle most people assume. A number of lenders approve borrowers on probation where the move is within the same industry and the income is stable or higher. What they are looking for is continuity of earning capacity, not continuity of employer.

Changing jobs mid-application

This is the version that causes real damage. A lender approves based on your employment, and a change before settlement means the file is reassessed. Where the new role is in the same industry at similar or higher pay, it is usually manageable with an employment contract and a letter. Where it is a career change or a move to contracting, it can undo the approval entirely. Tell your broker the day it happens, not the week of settlement.

Casual and contract work

Casual income is counted by most lenders after six to twelve months with the same employer, often with some shading. What matters most is consistency of hours. A casual with two years of steady hours at one employer presents far better than someone with three months across two employers, regardless of the annual figure.

Fixed term contractors are treated differently again. Some lenders assess them as PAYG where the contract has been renewed at least once. Others treat any contract role as self-employed, which changes the documents required entirely.

Self-employed income

Self-employed applications turn on add-backs. Your tax return is prepared to minimise taxable income. Your loan application needs to show income. Add-backs bridge the two by putting back expenses that are not genuine ongoing cash costs.

The last two rows are where six-figure differences in capacity come from. A family trust distributing $180,000 to a spouse who is not on the loan is counted in full by some lenders and ignored entirely by others. That single policy difference decides plenty of applications.

Without two years of returns

Alt doc lending verifies income through BAS statements, business bank statements or an accountant declaration instead of tax returns. Most alt doc lenders want at least twelve months of ABN registration and six months of GST registration, cap the loan at around 80 per cent of the property value, and price above standard rates. Once two years of returns exist, most borrowers refinance to full doc pricing, which typically saves one to two percentage points.

Government and other income

Family Tax Benefit, Child Support, Carer Payment, Age Pension, Disability Support Pension and rental income are all counted by some lenders and not others, and the differences are large enough to decide single income applications.

• Family Tax Benefit is commonly counted where children are under a certain age, often 11 or 13, because the payment will continue for the loan's early years.
• Child support is counted by some lenders where there is a formal assessment and a consistent payment history, usually twelve months.
• Rental income is shaded by around 20 per cent by most lenders, though the shading percentage varies and a few apply a lower haircut.
• Investment and dividend income is usually counted where there is two years of history, averaged.

What actually strengthens an application

Ranked by how much difference each one makes.

1. Choosing the right lender. Worth more than everything below it combined on most files with variable income.
2. Closing unused credit card limits. Lenders count the limit as if fully drawn, at roughly 3.8 per cent of the limit per month. A $30,000 unused limit costs around $150,000 of borrowing capacity.
3. Two years of evidence for variable income. Group certificates and an employer letter turn shaded overtime into counted overtime with several lenders.
4. Clean bank statements. Three to six months are read closely. Dishonours, buy now pay later accounts and regular gambling all get noticed.
5. Not changing jobs mid-application. If a change is coming, tell your broker before it happens.

The practical order

Work out what your income actually looks like to a lender before you start looking at property. That means a proper conversation about the structure of your earnings, not uploading payslips to a calculator. Then match the file to the lender that reads it most favourably, get a genuinely assessed pre-approval, and go looking.

Our home loans page sets out where lenders diverge, or book a free call. Bring two payslips and your last tax return and we can usually give you a realistic read on the first call.

Frequently asked questions

Written by Shane Heness

Owner and mortgage broker at LoanBuddy, Parramatta NSW. Eight years as a mortgage broker and a property investor since 2015. Credit Representative #528658 under Australian Credit Licence #389328.