Top tips to strengthen your investment loan application

Your investment loan application is assessed under different rules than your home loan.

Lenders apply higher risk weights to investor borrowing, which means you'll need to demonstrate stronger serviceability even if you're buying in a suburb with solid rental demand like Lara. The rental income you expect to receive is typically discounted by at least 20 per cent when lenders calculate your capacity to service the loan, and in some cases that discount can reach 30 per cent depending on the property type and location. Understanding what lenders look for before you apply means you can position your application to address their concerns upfront.

How lenders calculate your borrowing capacity for investment property

Lenders assess your ability to service an investment loan by adding the proposed loan repayment to your existing commitments, then subtracting your income plus a portion of the expected rental income. Most lenders will assess your loan serviceability at a rate that sits at least 3.0 percentage points above the actual loan product rate, which is a buffer set by the Australian Prudential Regulation Authority. Rental income is shaded, meaning only 70 to 80 per cent of the expected rent is counted as income in the calculation. A property in Lara might rent for $450 per week, but the lender will only credit you with $315 to $360 of that when working out whether you can afford the loan. That rental shading, combined with the serviceability buffer, means your borrowing capacity for an investment property can be 20 to 30 per cent lower than it would be for an owner-occupier loan at the same interest rate.

Consider a buyer who earns $95,000 per year and wants to borrow for a two-bedroom unit in Lara while continuing to live in their current home. The rental income might cover most of the loan repayment on paper, but once the lender applies the shading and tests serviceability at a rate above 6 per cent, the borrower's capacity might fall short unless they can show additional savings buffer or reduce other debts before applying. In our experience, paying down a car loan or credit card limit before lodging the application can unlock enough capacity to get the investment loan across the line.

What deposit do you need for an investment loan

Most lenders require a minimum 10 per cent deposit for investment loans, but borrowing above 80 per cent loan-to-value ratio will trigger Lenders Mortgage Insurance. LMI premiums are higher for investor loans than for owner-occupier loans at the same LVR, and the premium is calculated on the full loan amount. If you're buying at 90 per cent LVR, the LMI premium alone can add several thousand dollars to your upfront costs. Some lenders will allow you to capitalise the LMI premium into the loan amount, which keeps your cash outlay lower but increases the total amount you're borrowing and the interest you'll pay over the life of the loan.

If you already own property, you may be able to use equity in your home to fund the deposit rather than saving cash. Lenders will typically allow you to borrow up to 80 per cent of your home's value without needing LMI on that portion, meaning you could release equity to cover the deposit and still keep your home loan within that threshold. Your borrowing capacity will still be tested across both loans, so you'll need to demonstrate that you can service the combined debt plus your other commitments.

Interest-only or principal-and-interest repayments

Interest-only repayments are more common on investment loans because they keep the monthly cost lower and maximise the tax deduction in the early years. Lenders will typically offer interest-only periods of up to five years, after which the loan reverts to principal-and-interest unless you apply for an extension. Not all lenders will extend interest-only periods beyond five years, and those that do may require evidence that your financial position has improved or that the property has performed as expected. An interest-only loan at an 80 per cent LVR is treated as a standard loan under the prudential framework. An interest-only loan above 80 per cent LVR with a term longer than five years, or with no specified end date, is classified as non-standard and attracts a higher risk weight, which can affect both pricing and whether the lender will offer it at all.

Switching to principal-and-interest repayments reduces your loan balance over time and can improve your serviceability for future borrowing, but it also increases your monthly repayment and reduces the amount you can claim as a deduction. The choice depends on whether your priority is cash flow now or building equity for the next purchase.

How rental income is verified and assessed

Lenders will ask for a rental appraisal or evidence of current rent if the property is already tenanted. The appraisal needs to come from a licensed property manager or real estate agent and should be dated within the last three months. If you're buying a property that's tenanted, you'll need to provide a copy of the lease agreement showing the rent amount and lease term. Lenders generally won't give full credit for rent that's above market, even if a lease is in place, because they need to assess what happens when that lease ends. A property in Lara's older suburban pockets near Flinders Avenue might have long-term tenants paying below-market rent, while a newer estate closer to the train station could command higher weekly rent due to proximity to the Geelong line and freeway access. Lenders will compare the rent stated in your application to their own valuation and may reduce the figure if it sits outside the range their valuer considers sustainable.

If you're purchasing a property that requires renovation or is currently vacant, lenders won't credit any rental income until the property is tenanted and you can provide a signed lease. That means you'll need to service the full loan repayment from your other income until the property is rented, which can reduce your borrowing capacity significantly.

Why some lenders decline investment loans in certain postcodes

Lenders maintain postcode and property type restrictions based on their own risk appetite and portfolio composition. A postcode might be restricted because the lender already has high exposure to that area, or because recent sales volumes or vacancy rates have moved outside the lender's policy settings. Lara sits within the 3212 postcode and has seen steady demand from renters working in Geelong's northern industrial areas and from families looking for larger homes at a lower price point than Geelong's inner suburbs. Most mainstream lenders will accept security in Lara without postcode restrictions, but if you're buying a unit in a complex with high investor ownership or a property on a smaller battleaxe block, some lenders may require a larger deposit or decline the application altogether.

Working with a broker who knows which lenders will accept your specific property type and location means your application goes to the right place first time. We regularly see buyers apply directly to their current bank only to be declined due to postcode policy, then come to us after they've already lost time and, in some cases, missed their finance clause deadline. Applying to a lender with appetite for your scenario from the outset keeps your credit file clean and your settlement on schedule. You can learn more about how we match your situation to the right lender on our investment loans page.

Debt-to-income limits and how they affect investors

From 1 February 2026, lenders can only write up to 20 per cent of their new investor loans to borrowers with a debt-to-income ratio of six times or more. Your DTI is calculated by dividing your total debt by your gross annual income. If you earn $100,000 and you're applying for a $650,000 investment loan while holding a $200,000 home loan, your total debt is $850,000 and your DTI is 8.5. That application will fall within the lender's restricted pool, and if the lender has already written close to 20 per cent of their investor loans above the DTI threshold that quarter, your application may be declined even if you meet all other serviceability criteria. The limit applies to each lender separately, so moving your application to a different lender can sometimes resolve a DTI decline, but your broker needs to understand where each lender is sitting relative to their quarterly cap before submitting.

Paying down existing debt before applying, or applying with a co-borrower who has additional income, are the two most direct ways to bring your DTI below six and avoid the restriction altogether.

What documents you'll need to lodge your application

Investment loan applications require the same core income and identity documents as any other loan, plus property-specific documents including a rental appraisal, a copy of the contract of sale, and in some cases a depreciation schedule if you're relying on those deductions to demonstrate serviceability. If you're self-employed, lenders will ask for two years of tax returns and often two years of business financials or ATO portal income confirmation. If you're taking an interest-only loan or borrowing above 80 per cent LVR, expect the lender to ask for a more detailed explanation of your investment property strategy and evidence that you can service the loan when it reverts to principal-and-interest.

Lenders are required to assess your ability to meet the loan repayments not just during the interest-only period, but over the full term of the loan assuming principal-and-interest repayments at the assessed rate. That's why some investors are surprised to be declined for an interest-only loan even when the interest-only repayment is lower than the rent. The lender isn't testing whether you can afford the interest-only repayment at today's rate, they're testing whether you can afford the principal-and-interest repayment at a rate three percentage points higher.

Negative gearing and how recent tax changes affect your application

Negative gearing allows you to offset the loss from your investment property against your other income, which reduces your taxable income and your overall tax bill. For properties you already own or properties you exchange contracts on before the legislation took effect in May 2026, negative gearing continues to work the way it always has. For established properties purchased after that date, losses can only be offset against income from other residential property, not against salary or wages, from the 2027-28 income year onward. Eligible new builds remain exempt and continue to allow full negative gearing.

Lenders don't distinguish between properties that qualify for full negative gearing and those that don't when assessing your application, because the lending decision is based on cash flow and serviceability, not tax treatment. However, the change does affect the after-tax cost of holding the property, which influences whether the purchase makes sense for your circumstances. If you're buying an established property in Lara and you were relying on the tax refund from negative gearing to cover part of your holding costs, you'll need to factor in that from the 2027-28 financial year, any loss will be quarantined and carried forward rather than refunded annually. You can still claim all the same deductions, including interest, property management, insurance, council rates and depreciation, but the timing of the tax benefit changes unless you have other residential property income to offset the loss against.

Refinancing an existing investment loan to access equity or improve your rate

If you already own an investment property and the value has increased, you may be able to refinance to release equity for your next purchase or to move to a lower rate. Lenders will revalue the property as part of the refinance and calculate how much you can borrow based on the updated value. Most lenders will allow you to borrow up to 80 per cent of the property's current value without LMI, so if your property was worth $500,000 when you bought it and it's now worth $580,000, you could potentially access an additional $64,000 in equity while staying within that threshold.

Refinancing also gives you an opportunity to restructure your loan, for example by splitting a portion to a fixed rate if you want certainty on part of your repayment, or by moving from principal-and-interest to interest-only if your priority is freeing up cash flow. The application process is similar to a new investment loan and your serviceability will be reassessed based on your current income, commitments and the updated loan amount.

Call one of our team or book an appointment at a time that works for you. We'll walk you through the application process, help you understand how much you can borrow, and connect you with lenders who have appetite for your scenario and property type in Lara.

Frequently Asked Questions