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At A Glance
- Lenders may not use all of the income you receive.
- Overtime, bonuses and commission can be treated differently.
- Casual income and second jobs may still count.
- Centrelink payments depend on the payment and lender.
- Rental income is usually adjusted for servicing.
- Different lenders can produce different borrowing outcomes.
- Good evidence can help support non-standard income.
A Dollar Is a Dollar, Right?
On the face of it, you’d think income would be pretty simple. If you receive $100,000 a year, surely the lender assesses you on $100,000. Right? Right?
Not necessarily.
Depending on where the income comes from, a lender may use all of it, take only a percentage, average it over a period or leave some of it out altogether.
That process is often referred to as shading. It’s basically the lender allowing for the fact that some types of income can be less predictable or come with costs attached.
So you might genuinely receive $100,000 a year across salary, overtime, bonuses, government payments, rent or other sources, while the income available for servicing ends up being lower.
That’s why I need to work out which parts of your income we can use, how much different lenders are prepared to recognise, and what that does to your borrowing capacity.
Table of Contents
Your Base Salary Is the Easy Part
If you’re employed on a permanent basis and earning a fixed base salary, that part of the income assessment is usually fairly straightforward.
The lender can generally see what you’re earning from your payslips and employment details, and there’s less guesswork involved than there can be with variable or less predictable income.
The interesting part starts when your income doesn’t fit neatly into one fixed salary.
Overtime, bonuses, commission, casual hours, second jobs and other income can all need a closer look before we know how much of it a lender is actually prepared to use.
Variable Income Can Produce Different Answers
If your income varies, different lenders can treat it differently.
If you regularly earn overtime, bonuses or commission, a lender may want to see how long you’ve been receiving it and whether there’s a consistent pattern behind it.
Rather than simply taking the latest figure at face value, they may average the income over a period or only use a percentage of it for servicing.
A recent increase can also be treated differently from income you’ve been earning consistently for a year or two.
Two lenders can look at the same payslips and employment history and come up with different figures for how much of that income they’re prepared to use.
This is where careful lender choice can make a noticeable difference. I want to understand the history behind it before deciding which lender is likely to give us the strongest result.
Casual Income and Second Jobs Can Still Count
Casual work and second jobs don’t automatically rule you out of a home loan, but lenders may want to see a bit more history behind the income.
With casual income, things like how long you’ve been in the role, how consistent your hours have been and whether the income has been reasonably stable can all affect how much a lender is prepared to use.
Second-job income can be similar. If you’ve only just picked up the extra work, some lenders may be more cautious than they would be if you’ve been doing it consistently for a longer period.
The important thing is that this income can still be helpful and strengthen your borrowing position. We just need to understand how established it is and which lenders are comfortable with it.
Centrelink and Government Payments Depend on the Payment
Seeing “Centrelink” on a bank statement doesn’t tell me enough. We need to know what the payment actually is.
Different government payments can be treated very differently by lenders. Some may be considered as part of your income, particularly where they’re ongoing and expected to continue, while others may be reduced or not used for servicing at all.
Family Tax Benefit is a good example of why the detail matters. A lender may look at the type of payment, how much you receive, your family circumstances and how long the payment is expected to continue before deciding what, if anything, it can use.
Temporary or short-term payments can be harder to rely on because the lender may not be comfortable treating them as ongoing income over the life of the loan.
So the question isn’t simply whether you receive Centrelink. It’s what you receive, why you receive it, how long it’s likely to continue and which lenders are prepared to recognise it.
Rental Income Isn’t Usually Taken at Face Value
Rental income can look straightforward on paper, but lenders generally won’t use every dollar of rent you receive.
If a property brings in $700 a week, for example, they may apply a percentage to that figure rather than simply multiplying it by 52 and treating the full amount as usable income. Generally, the percentage used is around 80%, but that can be more or less depending on the lender.
That gives the lender some room for things like vacancies, property expenses and the fact that rental income isn’t always perfectly consistent.
Different lenders can apply different percentages and assessment methods, so the same investment property can contribute a different amount to borrowing capacity depending on where we apply.
Other Regular Income Can Help
There are other types of regular income that may also be considered, depending on the lender and how well they can be supported.
Child support or maintenance payments are one example. Some lenders may be willing to use them where there’s a clear history of payment and a reasonable expectation that they’ll continue.
The same can apply to certain allowances or other recurring income sources. What counts, how much can be used and what evidence is needed can vary quite a bit.
If you receive income outside your normal wage or salary, it’s worth exploring how we can use it to support your application. Even if one lender won’t use it, another may treat it more favourably.
Self-Employed Income Is a Different Conversation
Self-employed income is assessed differently again, and it can become a much bigger conversation than a single section here.
Depending on the lender and the type of loan, they may want tax returns, financial statements, business activity information or other evidence before deciding how much income they’re prepared to use.
There are also lenders and products that can work with alternative forms of income verification in the right circumstances.
The important point is that business income isn’t usually treated the same way as a straightforward PAYG salary, so it needs to be looked at on its own merits.
The Income Needs Evidence Behind It
Once we know what income you receive, I also need to collect the evidence we’ll use to support it in the application.
That might mean payslips, employment history, bank statements, Centrelink statements, rental evidence, tax documents or something else depending on where the income comes from.
I’m not asking for documents just to make the file thicker. I’m trying to work out which income we can genuinely put forward, how strong the evidence is and which lenders are likely to accept it.
This is also one of the reasons brokers ask so many questions about your finances. The more accurately I understand where the money is coming from, the better I can judge how a lender is likely to treat it.
What To Take Away
If your income comes from more than a standard salary, don’t assume it won’t count. But don’t assume every lender will use all of it either.
What matters is how much of that income we can support with evidence, how each lender is likely to treat it, and what that means for your borrowing capacity.
If your income isn’t straightforward and you want to know what a lender may actually use, get in touch and we can work through it with you.
Tom is the founder of BrightCredit and a finance broker focused on borrowing situations that are not straightforward. His writing helps Australians understand credit, loans, and the details that can affect their borrowing options in a clearer, more practical way.