Nov 9, 2018 11:00:54 AM

How Lenders Assess Mortgage Applications

Topics: Mortgage Broker, Lenders, Home loan rates, Australia Mortgage, Home Loan Advice 22

Every lender has its own method and formulae for determining an applicant’s credibility and lender-ability. While the criteria may differ from lender to lender, there are a few factors that all lenders use to profile their clients. Take a look at what these are, and we also share a list of guidelines to ensure your mortgage application is error-free.

Borrowing power
Understandably, your ability to meet your monthly or fortnightly mortgage repayments and still have enough left over for your daily expenses is a significant factor for lenders. Banks have a responsibility to ensure prospective borrowers can actually afford their loan, and they can refuse them if they determine that the applicant will be burdened by debt by taking on a loan.

Lenders will usually look at an applicant’s annual, monthly or disposable income to determine borrowing power, and will generally lend about 3 to 5 times an applicant’s gross annual income.

LVR – Loan to Value Ratio
The LVR is used by lenders to assess risk and is defined as a percentage of the loan value against the actual value of the property. An application with a low LVR, which is lower than 80 per cent, is perceived as a much lower risk and is hence seen by lenders as a more attractive application. The higher the LVR, the greater the perceived risk to the bank.

Credit rating
Your credit rating – or FICO score – is an important factor in your application as it represents a summary of your credibility in terms of managing your finances and how responsible you are in paying back your debt. A credit rating is made up of a weighting of various things including your payment history, any outstanding debt, the length of your credit history, any new accounts, and the type of credit you’ve applied for.

Fiscal character
Lenders will look closely at your bank statements in order to get a better understanding of your spending and saving habits. The kind of lifestyle you lead and whether or not it fits your budget may be called into question. Your monthly incomings and outgoings are compared, and any debt such as personal loans, credit cards, student loans and insurance is carefully scrutinised.

An error-free application
Securing finance can be tricky which is why it’s so important to ensure you present at first glance the best application you can. That means ensuring your application is free from any errors. Here are a few points to consider:

  • Be honest about your finances and don’t try to hide anything.
  • Declare all of your expenses up front.
  • Avoid changing jobs at the same time as applying for a mortgage to ensure you present a stable employment record.
  • Get the paperwork right from the start – ask a mortgage broker to assist with your application if you’re unsure of the necessary criteria.
  • Be realistic in how much you can actually afford to borrow – you may need to lower your expectations slightly in order to get into the property market to begin with.
  • Get pre-approval before you go looking at properties.
  • Research lending criteria so you have a clear understanding of your obligations.
  • Shop around for the best finance deal and compare your options.
If you are in the market to buy your first home, it’s worthwhile obtaining pre-approval first. Talk to one of our mortgage brokers who will go over your finances and help you find the right deal.


While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

Finservice Pty Ltd (Mortgage Express) is authorised as a corporate credit representative (Corporate Credit Representative Number 397386) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 123 600 000 | Full member of MFAA | Member of Australian Financial Complaints Authority (AFCA).