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Why do lenders ask for payslips when you apply for a home loan? | RateCity
When you apply for a home loan, the lender wants to assess whether you can comfortably afford the repayments or not. But how do they go about checking your income and confirming that you earn enough to service a mortgage?
The answer depends on the nature of your job or how you earn your income. For instance, if you receive a regular payment (or salary) from your employer, it’s relatively easy to prove your income to a lender.
Usually, most lenders are satisfied with two recent, consecutive payslips, showing the amount of money you’re paid and your year-to-date (YTD) income. This helps them calculate whether you’ve been earning consistently throughout the financial year. The payslip also shows your employment status, your pre and post-tax earnings, and lists any monetary allowances, bonuses and incentive-based payments you may have received.
This gives lenders a pretty clear picture of your overall income from the job, which makes it easier to assess your loan serviceability and the risk in lending you money.
How many payslips will I need to provide to qualify for a home loan?
Most lenders require you to provide two or three consecutive payslips to qualify for a home loan. The payslips must be recent, and the latest one should not be older than four weeks from the application date. Lenders generally don’t accept handwritten payslips. They expect you to provide computer-generated payslips using an accounting system and covering important information, such as:
- Your name and YTD income
- Your employer’s name and Australian Business Number (ABN) or Australian Company Number (ACN)
- Your taxable income and net income
- All the deductions, including tax, superannuation payments, and salary packaging expenses
If you’ve recently started working with the employer, you may be asked to provide a letter from your employer or accountant substantiating your employment and income. You may also be asked to provide a copy of your most recent tax return.
Can I qualify for a home loan without payslips?
If you’re self-employed, freelancing, or working on a contractual basis, you may not be in a position to provide payslips to verify your income. In such a situation, you may opt for a low doc home loan that allows you to provide a different set of documentation to verify your income.
Instead of payslips from your employer, you could provide your invoices, bank statements, and tax records to qualify for a low doc home loan. Additionally, a letter of declaration from your accountant confirming your current and projected income may be submitted.
If you’re considering this option, keep in mind that you may be charged a higher interest rate and fees or require a larger deposit for this type of loan. Less verification may mean that the lender is taking on more risk by providing you with a low doc home loan.
Consequently, they may levy a higher interest rate or fees to compensate for the higher risk. Low doc loans are usually offered to borrowers with a good credit score but without any standard proof of income like payslips to substantiate their income. If your credit rating is average, you may find it helpful to discuss your situation with a broker and see whether you qualify for a non-conforming home loan.
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Product database updated 24 Apr, 2024
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