What Income Counts? How Lenders Assess Your Pay

The short answer

Your income on paper isn’t always your income to a lender. Each lender decides how much of your overtime, bonuses, commission or business profit it will count, and how much history it needs to see.

The same payslip can be assessed very differently from one lender to the next. Knowing the rules, and the myths, can make a big difference to how much you can borrow.

Base salary and new jobs

Myth: “You need six months in your job before you can get a loan.”

This is an outdated rule. Most lenders need just one to two recent payslips, and some lenders will assess you from day one, even while you’re on probation.

• Haven’t started yet? Some lenders will approve on a signed employment contract alone. This is usually for permanent roles, often where you’ve worked in the same industry, and some will ask for your first payslip before settlement.
• Permanent part-time: counted at your contracted hours.
• Salary sacrifice: some lenders add it back to your income. A novated lease is treated as a debt.

Example: Priya accepts a new permanent role starting in six weeks. She doesn’t need to wait. She can get pre-approved now with her contract and start house hunting.

Casual income

• The usual rule: most lenders want at least six months in your current role.
• Less time in the role? Some lenders will accept less, as long as you moved from a similar casual role with only a short gap between jobs.
• Consistency counts: income is usually averaged from year-to-date, so steady hours help.

Example: Josh has been a casual chef at his current restaurant for two months. Before that, he worked as a casual chef elsewhere for two years, with just a week off between jobs. Many lenders would make him wait, but some would assess him now.

Overtime, shift penalties and allowances

Myth: “Overtime is always shaded to 80% and averaged over the full year.”

Some lenders do it that way, but it’s far from the only option.

• 100% accepted: some lenders count overtime in full for specific industries, such as nurses, police, paramedics and other essential services.
• Recent earnings: some lenders annualise just your last three months of overtime, rather than averaging the whole year. That’s great news if your hours have recently increased.
• Allowances: car and travel allowances vary widely, so it’s worth checking which lenders count them.

Example: Tom is a nurse earning $95,000 base. He picked up regular overtime three months ago, worth around $2,500 a month. A lender that averages over the year might count only part of it, or very little. A lender that annualises his last three months at 100% counts around $30,000 extra, which can add well over $100,000 to his borrowing power.

Bonuses and commission

• The usual rule: most lenders want two years of history and use either the average or the lower of the two years.
• Latest year only: some lenders will simply use your most recent year, which helps if your income has grown.
• Recent commission: some lenders can annualise commission from just your last three or six months.
• One-offs: payments like sign-on bonuses generally don’t count.

Example: Mia works in sales. She earned $20,000 in commission two years ago and $40,000 last year. A lender using the lower year counts $20,000, and one using the average counts $30,000. A lender using her latest year counts the full $40,000.

Self-employed income

• The usual rule: most lenders want two years of trading history. They use the average of the two years, or the lower year.
• Did you know? Some lenders will use just your latest year, which is a big help if your business is growing.
• Alternative documents: some lenders can assess you on declared income, an accountant’s letter or your BAS statements, instead of full tax returns. These loans can have higher rates or need a bigger deposit.
• Add-backs: lenders can add back items like depreciation, interest and one-off expenses, which lifts your assessable income.

Example: Lisa runs a building business. Her profit was $80,000 two years ago and $140,000 last year. A lender using the lower year assesses $80,000, and one using the average assesses $110,000. A lender using her latest year assesses the full $140,000, which can make a six-figure difference to her borrowing power.

Quick wins: make more of your income count

• Match the lender to your pay: if overtime, commission or bonuses make up a big part of your income, choose a lender that counts more of it.
• Time your application: apply once your latest year’s income is up, or once recent overtime is on your payslips.
• Don’t wait on a new job: a signed contract may be enough to get pre-approved.

What to prepare before you apply

Having these ready can speed things up. Exact requirements vary by lender, and we’ll confirm what you need.

Why we ask for both bank statements and payslips: some lenders don’t need bank statements, but we ask for them anyway, for two reasons:

• A better income picture: your recent salary credits can sometimes paint a better picture of your income than your payslips alone. This helps us find lenders that annualise your recent earnings, such as new overtime or a pay rise, in your favour.
• Smoother answers to lender questions: reviewing your statements upfront lets us check your living expenses before the lender does. If a lender questions your declared expenses, or spots something in your statements, we can respond quickly with the full picture.

Everyone

• Photo ID, such as a driver’s licence or passport
• Recent bank statements for your savings and everyday accounts
• Statements for any existing loans, credit cards or Buy Now Pay Later accounts

Employees

• One to two recent payslips
• Your latest income statement from myGov
• Your employment contract, if you’re starting a new job

Self-employed

• Personal and business tax returns, and notices of assessment
• Business financial statements
• Recent BAS statements, or an accountant’s letter if you’re applying with alternative documents

Not sure how your income stacks up?

With access to over 40 lenders, our team of lending specialists can match your income to the lender that counts the most of it, and walk you through every step from the beginning, to settlement and beyond.

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General information only. This article does not consider your objectives, financial situation or needs and is not credit, financial or tax advice. Lender policies vary and change regularly. Examples are illustrative. Seek advice from a licensed credit adviser and your accountant before acting. Insight Property Finance.