Why do different banks assess home loan applications differently?

Every Australian bank has unique lending rules for income types, HECS treatment, rental income shading, DTI caps, credit-score minimums, expense benchmarks and employment requirements. This causes significant differences in approval outcomes and borrowing power across lenders.

How can Matcheroo AI help me get approved for a home loan?

Matcheroo AI compares your financial profile against lender policies to identify the banks most likely to approve your application. It highlights where your income type is best accepted, where your borrowing power is highest and which lenders have more flexible rules for your situation.

What Do Banks Look At When Approving a Home Loan in Australia?

Q: What do banks look at when approving a home loan in Australia?

Banks assess borrowing capacity, income stability, living expenses, credit score, employment history, debts, DTI limits, savings patterns, dependants, property type and banking behaviour. Each Australian lender applies different rules, which is why approval results vary between banks.

When applying for a home loan in Australia, banks don’t just look at your income or savings — they analyse dozens of factors to determine whether you can safely afford the loan. Australian lenders use strict approval frameworks built around serviceability, credit behaviour, stability, spending habits, debt levels, and property risk.

Whether you’re buying in Sydney, Melbourne, Brisbane, Perth, Adelaide or regional areas, banks apply the same core principles, although each lender has its own internal rules. This page explains exactly what banks look at when approving a home loan, why these checks matter, and how Matcheroo AI helps borrowers match with lenders whose policies suit their profile.

1. Your Borrowing Capacity (Serviceability)

The #1 factor banks look at is whether you can afford the loan on paper.

Banks run your details through a serviceability calculator that considers:

Your income
Your debts
Your living expenses
Number of dependants
Loan amount
Loan term
Proposed repayments

They also apply a stress-test interest rate, usually:

Actual rate + 3% buffer

If you cannot afford repayments at the higher assessment rate, the loan is declined.

Serviceability varies massively between Australian banks — which is why borrowing power can differ by $50k–$200k+between lenders.

2. Your Income Type and Stability

Australian lenders assess not just how much you earn, but how reliable and consistent your income is.

Different income types are treated differently:

Strongest (fastest approvals)

Full-time PAYG
Part-time with stable hours
Government or permanent employment

More complex assessment

Casual employment
Multiple jobs
Overtime
Bonuses
Commission income
Allowances

Most complex (longest verification)

Self-employed
Contractors
Company directors

Banks often require:

Payslips
Income statements
Tax returns
Business financials

Stable, consistent earnings = higher approval likelihood.

3. Your Spending and Living Expenses

Banks analyse 3–6 months of statements, including:

Groceries
Entertainment
Uber / food delivery
Childcare
Insurance
BNPL transactions
Gym memberships
Recurring subscriptions
Gambling behaviour

Banks compare your spending to national HEM benchmarks (Household Expenditure Measure).

If your spending is higher than the benchmark, the bank must use the higher figure — reducing borrowing power and sometimes causing declines.

4. Your Existing Debts and Financial Commitments

Banks assess:

Credit cards (at full limit, not balance)
Car loans
Personal loans
Afterpay / Zip / BNPL
Store cards
Overdrafts
HELP / HECS
Other mortgages

A single $20k credit card limit can reduce borrowing capacity by $50k–$90k, depending on the lender.

5. Your Credit Score and Credit Report

Banks carefully examine your credit report for:

Late payments
Defaults
High credit utilisation
Frequent enquiries
BNPL behaviour
Joint credit issues
Identity mismatches

Strong credit = smoother approval.

Weak credit = extra checks or immediate decline.

6. Your Savings History and Genuine Savings

Lenders want to see:

Consistent saving
Evidence of budgeting
Reduced spending before application
Stable balances
Not relying solely on gifts

Some banks require genuine savings of at least 5% for certain loans — meaning money saved from your own income over time.

This is especially important for buyers in:

Sydney
Melbourne
Brisbane

— where property prices are higher and deposits must be substantial.

7. Your Employment Stability

Employment history is a major factor. Banks want to see:

At least 3–6 months in your current job
No unexplained employment gaps
Consistent industry history
Completion of probation (preferred)

Recently changing industries or being early in probation may trigger a decline at sensitive lenders.

8. Your Dependants and Family Structure

More dependants = higher living expenses = lower borrowing power.

Family-based expenses have a big impact on approval in Australia.

9. Your Debt-to-Income (DTI) Ratio

Most Australian banks apply a maximum DTI cap around 6.

Example:
Income = $100,000
Max total debt allowed ≈ $600,000

If your proposed loan exceeds the bank’s DTI threshold, the application may be declined regardless of strong income or credit.

10. The Property You Are Buying

Banks also assess the security of the loan:

Valuation of the property
Location
Zoning
Building type
Flood or bushfire risk
High-density restrictions
Rural property limitations

A property can fail even if the borrower is perfect.

11. Your Deposit Size and Loan-to-Value Ratio (LVR)

Lower LVR = lower risk for the bank.

Banks prefer:

20% deposit (no LMI)
Strong LVR position
Savings from income rather than gifts

Higher LVR loans (especially above 90%) undergo much tighter scrutiny.

12. Your Recent Banking Behaviour

Banks look for:

Overdrawn accounts
Dishonours
Gambling patterns
BNPL overuse
Large unexplained transfers
Irregular income fluctuations

Clean statements = faster approval.

Why Different Banks Assess You Differently

Every Australian lender has its own internal rules for:

Income acceptance
Overtime and bonus policies
HECS treatment
Rental shading
HEM calculations
Credit score thresholds
DTI caps
Employment rules

This is why one bank may decline you while another approves you for $100,000 more.

How Matcheroo AI Helps You Get Approved

Matcheroo AI compares your profile across multiple Australian lenders and identifies:

Which banks accept your income type
Where your borrowing capacity is highest
Which lenders have better HECS treatment
Which banks allow higher DTI
Which calculate lower living expenses
Where casual or bonus income is fully accepted
Which lenders are more flexible with credit history

This dramatically increases approval likelihood by matching you to the banks that suit your scenario.

Summary: What Banks Look At When Approving a Home Loan