How Banks Assess Your Income: PAYG, Overtime, Bonuses and Allowances
The bank doesn't just look at how much you earn, they look at how you earn it and depending on your situation, the same salary can produce different results at different lenders.
In Episode 34 we unpacked borrowing capacity and how the bank decides how much they'll lend you and we touched on the fact that income is one of the biggest drivers of your borrowing capacity. So this resource will go deeper on that.
In this resource we're covering:
PAYG income, including what happens if you've recently changed jobs or you're still on probation
Overtime and allowances, and why the lender you choose can make a difference to your borrowing capacity
Commission and bonus income, and why the bank doesn't just take the full amount
Second job income and what the banks are really looking for
Parental leave and what you need to have in place to move forward
This resource supports Episode 35 of the First Home Unlocked Podcast: How Banks Assess PAYG, Overtime, Bonus & Allowance Income.
PAYG Income: What You Need to Know
If you're working in a permanent full-time or part-time role this is the simplest income type for banks to assess. They'll look at your last two payslips, confirm what you're earning and that becomes your assessable income.
What Happens If You've Just Changed Jobs
This is where it gets a bit more nuanced because the bank needs to be confident your income will continue. If you've switched roles but you're still working in the same industry you've been in for years the bank isn't usually worried. You've got the experience and the track record and if for some reason this role didn't work out you'd likely find another job in your field without too much trouble.
But if you've made a complete career change and you're doing something brand new, the bank will want more evidence that this income is sustainable. Usually that means providing your employment contract and waiting until you've got at least three to six months of payslips showing consistent income. Different lenders have different requirements here so it's worth checking what's possible for your specific situation before you make any big moves.
One thing to flag early is if you're thinking about going from PAYG employment to self-employment that's a completely different conversation with a lot more requirements from the banks. We'll break down self-employed income in a future resource but just know it's not a simple switch from the bank's perspective.
Should You Change Jobs Before or After Buying?
This is a question we get sometimes and honestly it depends on your situation. If your new role has a lower base salary but higher commission or bonus potential the bank might not be able to count that extra income yet which could reduce your borrowing capacity compared to your current stable salary.
Sometimes it makes more sense to buy first while your borrowing capacity is at its highest and then make the career move after settlement. You'll still be able to afford the repayments (that's not the issue) but the bank might not have lent you as much if you'd already switched jobs.
The key here is to have a conversation with a broker before you do anything. Banks are absolutely fine with people changing jobs, worker mobility is normal and expected, but understanding how it affects your borrowing capacity before you hand in your notice can save you a lot of stress down the track.
What About Probation?
A lot of first home buyers assume they need to finish probation before they can apply for a loan and while that's true in some cases it's definitely not always the case.
If you've changed jobs within the same industry and you've got a decent deposit (say 20% or you're using the First Home 5% Deposit Scheme) most lenders won't even blink at the fact you're on probation. They can see you've got experience and the risk to them is low.
Where probation becomes more of an issue is if you're borrowing above 80% and paying Lenders Mortgage Insurance outside of the government schemes. In those situations most banks and LMI providers want probation completed before they'll approve your loan.
The best approach is to check with a broker before you assume you need to wait. We can look at your full situation, your deposit, the pathway you're using, and tell you whether probation is going to be a roadblock or not. Often we can structure things so you don't have to wait at all.
Overtime and Allowances: Not All Banks Count Them the Same Way
If you work in industries like healthcare, emergency services, construction, hospitality or retail there's a good chance a chunk of your income comes from overtime or penalty rates. Now that income can make a real difference to how much you can borrow but not all banks count it the same way.
Some lenders are really generous with overtime income and others take a more conservative approach. The lender you choose can literally mean tens of thousands of dollars difference in borrowing capacity.
How Banks Split Overtime Into Two Categories
Banks treat essential services workers differently to everyone else when it comes to overtime.
If you're a nurse, doctor, paramedic, firefighter, police officer, aged care worker or in a similar role many lenders will count 100% of your overtime income because they know overtime in those industries is built into the way the work operates. It's consistent and it's expected.
For everyone else working outside essential services, banks usually shade your overtime income down to 80%. So if you earned $15,000 in overtime last year they'll only count $12,000 of it. They're building in a buffer to protect themselves in case your overtime drops off.
Also on top of shading the income most banks also want to see at least six months of overtime history before they'll use it at all. Some lenders are more flexible and will accept three months of year-to-date figures but that varies from lender to lender.
A Real Example of How Lender Choice Matters
I worked with a first home buyer recently who was earning a base salary of $120,000 working in the mines. They'd earned $15,000 in overtime over the first four months of the year and it was showing clearly on their payslips.
When we looked at two different lenders here's what happened:
Lender A had a strict policy that required six months of overtime history. Because this buyer only had four months of history, the lender excluded the overtime entirely. Their assessed income: $120,000.
Lender B was more flexible. They were happy to accept three months of year-to-date overtime and they shaded it to 80%. So they took that $15,000 in overtime, counted $12,000 of it and brought the total assessed income up to $132,000.
That $12,000 difference in how the lender assessed the income translated to roughly $65,000 more in borrowing capacity.
Same person, same income, completely different outcome depending on which bank we used.
Why This Matters Beyond Just the Numbers
It's not always about borrowing the absolute maximum. Sometimes it's just about having options.
Maybe you don't want to spend $65,000 more but knowing you could borrow that extra amount means you're not locked into only looking at properties at the very bottom of your budget. It means if you find a property that ticks all the boxes and it's slightly over what you thought you could afford you've got the flexibility to make it work.
Sometimes the lender that gives you the higher borrowing capacity might have a rate that's five basis points higher than the cheapest lender in the market. But if that small difference in rate means you can access a better quality property or a location that suits your life better, it's absolutely worth it.
The point is to understand all your options before you make a decision. Work out which lenders give you the best borrowing capacity and which ones give you the best rate and structure, and then choose the one that actually suits what you're trying to achieve.
What About Allowances?
Allowances work pretty much the same way as overtime. If you're getting shift allowances, car allowances, location allowances or anything similar, banks will usually count some or all of that income.
Essential services workers tend to get 100% of their allowances included and everyone else gets shaded to 80%, just like overtime.
Commission and Bonus Income: What the Bank Counts
If part of your income comes from commissions or bonuses the bank treats it differently to your base salary and the reason is pretty simple, it's that it is not guaranteed.
Your base salary is locked in and it hits your account every pay cycle. Commission and bonuses fluctuate depending on performance, business conditions, and a whole lot of other variables. So banks want to see history before they'll use that income. They will want to see a track record that shows you've been earning it consistently and they'll then usually shade it down to 80% to account for the fact it might not always be there.
How Long Do You Need to Show Commission or Bonus Income?
If you earn commission that gets paid regularly (say monthly or quarterly) most lenders want to see at least 6 to 12 months of history before they'll count it.
Bonuses are trickier because they're usually paid once a year. Most banks want to see two full years of bonuses before they'll include it in your assessable income. But there are some lenders who'll work with just one year of bonus history which can make a big difference if you've recently moved into a role with bonus potential.
Should You Budget for Your Full Commission or Just What the Bank Counts?
This is where it gets personal because everyone thinks about money differently.
Some people are conservative and they don't count commission or bonuses as part of their budget until it's actually sitting in their bank account. They treat it as extra money, not core income. Other people are more optimistic and they assume it's always going to be there because they've been earning it year after year.
The reality is probably somewhere in the middle. If you've been earning solid commission or bonuses for years and you're confident you'll keep earning at least a baseline amount it makes sense to factor that into your budget. But you also need to be realistic about what happens if it drops off or if there's a gap while you switch jobs.
The key is to build enough buffer into your budget that you're not stretched if your variable income has a bad month or quarter. You need to be able to make your mortgage repayments comfortably on your base salary and treat commission and bonuses as what accelerates your savings or pays down debt faster, not what keeps the lights on.
If your income is mostly commission or bonus, work out the minimum baseline you need to earn each month to cover your mortgage comfortably and make sure you've got buffers built in for the months where things are quieter than expected.
Second Job Income: Can You Realistically Keep It Up?
If you're working two jobs the bank's main question is can you actually sustain this long term?
A second job you've been doing for six to twelve months tells a much stronger story than one you just picked up three months ago. Also the type of work matters too, a permanent part-time role is going to be assessed more favourably than a casual role because there's more stability and commitment from the employer's side.
One thing a lot of people don't realise is that many lenders cap your total combined working hours at 60 per week. The reason is pretty logical, banks are assessing you on a 30 year loan term and working 60+ hours a week just isn't sustainable for most people over that kind of timeline. So they'll only count the income they genuinely think you can keep earning without burning out.
Be Honest With Yourself About What's Sustainable
Look, we get it. Borrowing capacity is tight and every extra dollar of income you can show the bank helps. But you need to be realistic about whether you can actually keep both jobs going.
If you're only working two jobs to boost your borrowing capacity so you can get approved and you know deep down there's no way you'll keep it up after settlement, that's a problem. Not because the bank won't lend to you (they probably will based on your current situation) but because you're setting yourself up to be stretched financially when that second income disappears.
We see this sometimes with people on parental leave too. They're fully using their income to get approved, then they go back to work, then they have another baby (which was always part of the plan) and suddenly they're under real financial stress because that income they were relying on is gone.
The bank might lend you the money based on what you're earning right now but the real question is, can you actually afford it based on what your life is realistically going to look like over the next few years?
Parental Leave: You Can Still Buy, But You Need the Right Documents
If you're currently on parental leave or you're planning to take leave in the next 12 months you can absolutely still apply for a home loan. It just requires a bit more planning and the right paperwork.
The key document you need is a return to work letter from your employer. Most lenders will assess your borrowing capacity based on your return to work income, not what you're currently receiving in parental leave payments.
What Needs to Be in the Return to Work Letter
The letter needs to be on official company letterhead, signed by someone with authority (usually HR or your manager) and it needs to clearly state:
Your role when you return
Your hours (full-time, part-time, specific days)
Your income
Your confirmed return date
If any of those details are missing or vague the lender might not accept it so it's worth making sure it's done properly from the start.
You'll Also Need Savings to Cover the Gap
Beyond the letter, lenders want to see that you've got savings to cover the income shortfall while you're on leave.
If you don't have those savings sitting on top of your deposit, you'll need to reduce your deposit amount to account for the shortfall. So if you were planning to put down a 10% deposit you might only be able to use 8% because the rest needs to be held back to cover your expenses while you're on leave.
Speak to a Broker Early If You're Planning Parental Leave
If you're on parental leave right now or you know you'll be taking leave in the next year, the earlier you talk to a broker the better. The structure of your application matters and getting the right documents together upfront makes the whole process smoother.
Beyond just the paperwork, you need to think about your budget. When that income drops off, do you have enough buffer in your savings and your budget to cover your mortgage repayments and still live comfortably? Planning for that now means you're not scrambling later.
Final Thoughts
Here's what matters: banks don't all assess income the same way. The same salary, the same overtime, the same commission can produce completely different borrowing capacity results depending on which lender you're working with.
But it's not just about income in isolation. Banks are looking at your full picture: your income type, your employment history, how long you've been in your industry, your deposit size, your LVR, and everything we talked about in Episode 34 around debts, expenses, and credit history.
That's why two people earning the exact same amount can walk away with completely different borrowing capacity outcomes. It's not just what you earn, it's how the bank sees the risk in your overall situation.
This is exactly why it's worth speaking to a broker before you make any big decisions. We work with banks every day. We know which lenders are generous with overtime, which ones are flexible on probation, which ones will count one year of bonus history instead of two. We can look at your situation and match you to the lender that's going to give you the best outcome, not just the cheapest rate.
You don't need to figure this out on your own.
Book a Get to Know You Chat and we'll walk through your income, your deposit, your goals and work out which lenders are going to put you in the best position.
