🎧 EP 290 - What Banks Look At Before Approving Your Home Loan
You've done the maths. You know your income, you've been saving consistently, and you've probably used a calculator to estimate how much you can borrow for a home loan. Then you sit down with a lender or mortgage broker, and the number comes back completely different from what you expected.
So what changed?
In this episode, Veronica and Meighan are joined by mortgage broker Jack Elliott to explain how banks assess home loan applications and why your borrowing capacity is about much more than your salary. From your income and savings to your debts, spending habits and even the property you're buying, they unpack the many factors that lenders consider before approving a home loan.
If you've ever wondered what affects borrowing capacity, why two lenders can produce different results for the same borrower, or how to improve borrowing capacity before you apply, this episode is packed with practical insights that every first home buyer should know.
Here's what we cover and why it matters:
💰 Why your income is only part of the picture
Many buyers assume their home loan borrowing capacity is simply based on their annual income. While your income is one of the biggest factors, it's only one piece of the puzzle.
Jack explains that lenders also assess how stable and reliable your income is. They'll consider whether you're a PAYG employee, casual worker, contractor or self-employed, as well as how long you've been earning that income. Overtime, bonuses and commission can also be included, but different lenders have different policies about how much they'll recognise.
Understanding how banks assess home loan applications can help you avoid surprises and better prepare your finances before applying for a loan.
🏦 Why different lenders can offer different borrowing limits
One of the biggest takeaways from this episode is that there isn't a universal formula for calculating borrowing capacity.
If you've ever asked yourself, "How do banks calculate borrowing power?", the answer is that every lender has its own lending policies and risk appetite. Two banks can assess the exact same borrower—with the same income, deposit and financial situation—and still arrive at completely different borrowing limits.
That's why comparing lenders can be just as important as improving your financial position. Working with a mortgage broker who understands different lender policies can help you find an option that's suited to your circumstances rather than relying on a single bank's assessment.
💵 How your savings and deposit affect your application
Saving a deposit is an important milestone, but lenders also want to understand where those savings came from.
Jack explains the concept of genuine savings, when lenders require them, and why holding your savings consistently over time can strengthen your application. The episode also covers gifted deposits, guarantor loans and how your loan-to-value ratio (LVR) can influence the lending options available to you.
Your deposit may not directly increase your mortgage borrowing capacity, but it can reduce the lender's risk and open up more loan products that better suit your situation.
💳 The debts that quietly reduce your borrowing capacity
One of the most eye-opening parts of the episode is how different debts affect your borrowing power.
Many buyers don't realise that credit cards, personal loans, car loans, HECS and Buy Now Pay Later services such as Afterpay and Zip Pay can all reduce home loan borrowing capacity. In fact, one of the biggest misconceptions is how credit cards are assessed.
If you've ever wondered, "Do credit cards affect borrowing capacity?", the answer is yes. Lenders generally assess your credit card limit—not just the balance you currently owe—because they assume you could access that credit at any time. Even an unused credit card with a high limit could reduce the amount you're able to borrow.
The episode also explores how different banks assess HECS debt and why paying it off isn't always the best strategy. Depending on your situation, keeping those funds as savings or increasing your deposit may deliver a better outcome than paying off your HECS balance.
📊 What banks really see in your bank statements
Your spending habits tell lenders a lot about your financial behaviour.
Jack explains how banks use the Household Expenditure Measure (HEM) as a benchmark when reviewing your application, but they'll also compare it against your actual spending. If your expenses are significantly higher, that can reduce your borrowing capacity.
The discussion also covers what lenders may notice when reviewing bank statements, including regular gambling transactions, large unexplained transfers or spending patterns that suggest financial stress.
Understanding what affects borrowing capacity isn't just about increasing your income—it's also about demonstrating consistent financial habits that give lenders confidence in your ability to manage a mortgage.
🏡 Why the property itself is also assessed
Many first home buyers assume that once they're approved, any property is fair game. In reality, lenders assess the property as carefully as they assess the borrower.
Jack explains how property valuations work, why some homes are considered higher risk than others, and how lender security policies can influence whether finance is approved.
Small apartments, high-density developments and certain regional properties may be viewed differently depending on the lender. That's why it's important to involve your mortgage broker before making an offer, so any potential issues can be identified early.
🪙 Borrow the amount that's right for you—not just the amount you're offered
Just because a lender approves a certain amount doesn't mean you need to borrow it all.
Throughout the episode, Veronica, Meighan and Jack reinforce the importance of separating your maximum borrowing capacity from your personal comfort level. Your budget should reflect your lifestyle, future goals and financial buffers—not simply the highest number a bank is willing to approve.
Ultimately, understanding how banks assess home loan applications isn't about borrowing more. It's about making informed decisions, choosing the right lender and buying with confidence.
🎯 By the end of this episode, you'll have a clearer understanding of what affects borrowing capacity, why lender choice matters, and the practical steps you can take to strengthen your home loan approval. Whether you're just starting your property journey or preparing to apply for finance, you'll be better equipped to understand how much you can borrow for a home loan and make decisions that support your long-term financial goals.
Episode Highlights:
03:25 – How Banks Assess Your Income
09:38 – What Banks Look For in Your Savings
12:19 – How Debts Affect Your Borrowing Capacity
17:16 – How Banks Assess Your Spending Habits
21:08 – What Banks See in Your Credit History
25:26 – Why the Property Matters to Your Home Loan
30:12 – Just Because You Can Borrow More Doesn't Mean You Should
33:30 – When to Speak to a Mortgage Broker
09:38 – What Banks Look For in Your Savings
12:19 – How Debts Affect Your Borrowing Capacity
17:16 – How Banks Assess Your Spending Habits
21:08 – What Banks See in Your Credit History
25:26 – Why the Property Matters to Your Home Loan
30:12 – Just Because You Can Borrow More Doesn't Mean You Should
33:30 – When to Speak to a Mortgage Broker
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Co-Founders
Veronica Morgan & Meighan Wells
Veronica & Meighan are both licensed real estate agents who exclusively help buyers. Together they have nearly 40 years experience as property professionals.
Veronica is principal of Sydney based Good Deeds Property Buyers and is also co-host of The Elephant in the Room property podcast as well as Location Location Location Australia on Foxtel and author of Auction Ready: how to buy property at auction even though you're scared s#!tless!
Meighan is the multi award winning principal of Brisbane based Property Pursuit, chairperson of the REIQ Buyers Agent Chapter & a regular media commentator.
