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How do banks treat bonus income for a home loan?

Bonus income includes things like overtime, lump sum bonuses and freelance income. When reviewing your home loan application, every lender has a different policy for assessing bonus income.

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When they assess your ability to repay a home loan, lenders ask you to provide information about your employment, income, assets and liabilities. If you receive money on top of your fixed income, such as bonuses, commissions, allowances or overtime, it can actually boost your borrowing capacity.

But by how much depends on the lender. Let's walk through how bonus income works and how lenders assess it.

Sources of bonus income and how they are assessed by lenders

Depending on your occupation, you may rely upon several sources of bonus income. Because bonus income isn't always "fixed" and may fluctuate from month to month, some lenders may not include any or all of your bonus income when they determine your capacity to repay a loan.

Many lenders prefer you to have a reliable and predictable source of income, so for some lenders, your bonus income may be disregarded altogether.

More on those lenders in a moment, but first, here's how bonus income is calculated and assessed.

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Which banks accept bonus income?

Unfortunately this isn't an easy question to answer, as it changes all the time. Banks and lenders routinely update and change their loan policies and criteria, based on their own internal risks and priorities.

For instance, some banks have policies that are really supportive of first home buyers, and others don't, so their loan criteria often requires a larger deposit in order to qualify for a loan.

If bonus income forms a big part of your income and getting it approved is going to be crucial to your loan getting approved, it could be worth working with a mortgage broker. They work with different lenders every day, and can help match you up to a lender that has a policy most suitable to you and your situation.

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Bonus income home loan application tips

To encourage your bank or lender to include your bonus income when you apply for a home loan, there are a few things you can do:

  • Gather evidence. This is crucial. Regardless of what type of bonus income you earn, the more evidence you can provide, the greater your borrowing power will be. Bank statements, tax returns, payment summaries, letters from your employer and more can all support your case.
  • Regular is better. As a general rule, bonus income you receive regularly and consistently will be viewed much more favourably than extra money you receive haphazardly. This is because lenders like to know that you will be able to rely on this predictable source of income to help you make your mortgage repayments.
  • Choose your lender wisely. Some lenders have more flexible lending criteria than others when it comes to accepting sources of bonus income, so you may have substantially greater borrowing power with one lender compared to another. A mortgage broker may be able to help you find the right lender for your needs.
  • Plan ahead. As already mentioned, banks want to see evidence of your income. If your previous history is haphazard, look for opportunities to create evidence and demonstrate a consistent income pattern over the next 6-12 months, so you can build a good track record for your bank. For instance, if you get an annual bonus from your employer, ask them if they'd consider paying it out quarterly instead.
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