What Do Lenders Look for in a Home Loan Application?

Applying for a home loan can be one of the most exciting (and nerve-wracking) steps in your property journey. Whether you’re a first home buyer or upgrading to your next place, it helps to understand exactly what lenders are looking for. While each lender has its own criteria, there are several key areas they assess to determine your ability to repay the loan and manage the financial responsibility that comes with homeownership.

Income & Employment: The Foundation of Your Application

The first thing lenders assess is how much you earn and how stable that income is. Full-time employment with a regular salary is viewed most favourably, but part-time, casual, or self-employed income may also be considered if it’s consistent and well-documented. Being in the same job for at least six to twelve months can strengthen your application, while frequent job changes or irregular income may raise concerns. If you're self-employed, having at least two years of solid financial records is ideal.

Your Credit Score and Financial History

Your credit score tells lenders a lot about your financial habits. A strong credit score - typically above 650 - signals that you manage credit responsibly and make repayments on time. Lenders will also review your repayment history on any credit cards, loans, or bills, along with checking for past defaults or bankruptcies. Reducing credit card debt and limiting unnecessary credit applications in the months before you apply can help you present a stronger case.

Living Expenses and Spending Behaviour

Your day-to-day spending habits matter more than you might think. Lenders review your bank statements, usually over the last three to six months, to see where your money goes. That includes essentials like rent, groceries, utilities, and insurance, but they also take note of discretionary spending like entertainment, dining out, shopping, and subscription services. If your outgoings are high, or if your spending fluctuates a lot, it could impact your borrowing capacity. Being mindful of your spending in the lead-up to your application can improve your chances.

Deposit and Savings History

While some lenders accept deposits as low as 5%, a larger deposit of 10–20% is more favourable. Not only does it reduce the size of your loan, but it also lowers the lender’s risk, potentially leading to a better interest rate. Lenders also like to see evidence of ‘genuine savings,’ meaning funds you've saved over time rather than received as a lump-sum gift. If you’re eligible for a first-home buyer grant or scheme, this can often count towards your deposit as well.

Your Existing Debts and Debt-to-Income Ratio

Lenders don’t just look at your income, they consider your financial commitments too. This includes any personal loans, car finance, student loans, credit card limits, and even Buy Now, Pay Later services. All of this factors into your debt-to-income (DTI) ratio. A high DTI can signal to a lender that you may struggle to manage additional repayments. Paying off small debts or reducing your credit card limit (even if it’s unused) can improve your borrowing power.

The Property You Want to Buy

It’s not just your finances under review, lenders also assess the property itself. They want to ensure it’s a sound investment. This means the property must meet minimum standards and be located in an area with stable or growing value. Lenders may be cautious about very small apartments, properties in remote areas, or homes needing major repairs. If you're looking at something a bit unusual, it’s worth checking with your broker to ensure it meets lender requirements.

How to Improve Your Loan Approval Chances

If you’re getting ready to apply, there are a few things you can do to make your application stronger. Keep your income steady and avoid major job changes during the process. Cut back on non-essential spending and pay off as much existing debt as you can. Build a deposit over time, showing consistent saving behaviour, and maintain a healthy credit score by paying bills and loans on time.

Choosing the right property can also make a big difference, so do your research and avoid homes that may be hard to resell or finance.

Final Thoughts: Be Loan-Ready in 2025

Understanding what lenders look for takes the guesswork out of your home loan application. By preparing early, improving your financial habits, and knowing what red flags to avoid, you give yourself the best chance of success.

If you’re unsure how your application stacks up, speaking with a mortgage broker can make all the difference. We can help you find a lender that fits your financial profile and guide you through the entire process, from pre-approval to settlement.

How We Can Help

We assess your financial position and credit profile before you apply, helping you understand exactly what lenders will see. We compare a panel of lenders to find the one that best suits your situation and help you present your application in the best possible light. Whether you’re applying for your first home loan or refinancing, we’re here to make the process as stress-free as possible.