Do Banks Use 100% of Rental Income for a Home Loan?

Using 100% of Rental Income for a Home Loan

Banks and lenders do not always use 100% of rental income when assessing a home loan.

Many lenders reduce rental income before using it in the borrowing calculation. This is often called rental shading.

For example, if an investment property earns $600 per week, the lender may not use the full $600. They may use 80%, 75% or another percentage to allow for vacancy, property management fees, repairs and other costs.

This can surprise investors who expect their full rent to improve borrowing power.

This guide explains how Australian lenders may assess rental income, rental appraisals and investment property income, based on current policy research.

What is rental income shading?

Rental income shading is when a lender uses less than the full rental income in your home loan assessment.

For example:

• actual rent is $600 per week
• lender uses 80% of rent
• assessed rent becomes $480 per week

The lender is not saying you will only receive $480. They are using a more conservative figure for serviceability.

This helps allow for costs and risks such as:

• vacancy periods
• property management fees
• repairs
• maintenance
• council rates
• strata fees
• insurance
• land tax
• unexpected expenses
• rent reductions

Rental shading is one reason an investment property may not improve borrowing power as much as expected.

Do lenders use 100% of rental income?

Some lenders may use 100% of rental income in certain situations, but many do not.

Based on current policy research, lenders may use different approaches, including:

• 100% of verified rent
• 90% of verified rent
• 80% of verified rent
• 75% of verified rent
• lower of rental appraisal and lease income
• lower of current rent and market rent
• actual rent minus property expenses
• lender calculator treatment instead of a simple percentage

The rental income figure used by one lender may be very different from the figure used by another.

Why lenders do not always use full rent

Lenders know that rental income is not the same as guaranteed salary.

Even a strong investment property can have costs and interruptions.

A lender may reduce rent because:

• tenants may move out
• the property may sit vacant
• repairs may be required
• rent may not always be paid on time
• management fees reduce net income
• strata or body corporate costs may be high
• insurance and rates need to be paid
• the property may need maintenance
• market rent may fall

The lender wants to assess whether the borrower can afford the loan even if the property does not produce perfect income all year.

How much rental income do banks use?

There is no single rule across all lenders.

Some lenders may use most or all of the rent. Others may use a more conservative figure.

Common rental income treatments include:

• 100% of rent
• 90% of rent
• 80% of rent
• 75% of rent
• 70% of rent, in some higher-risk cases
• the lower of lease and rental appraisal
• net rental income after expenses
• actual declared rental income from tax returns

This can affect borrowing power, especially for investors with multiple properties.

Example of rental income shading

Suppose you own an investment property rented for $700 per week.

That equals $36,400 per year in gross rent.

A lender using 100% may assess:

• $700 per week
• $36,400 per year

A lender using 80% may assess:

• $560 per week
• $29,120 per year

A lender using 75% may assess:

• $525 per week
• $27,300 per year

The difference between 100% and 75% treatment is $9,100 per year of assessed income.

That can materially affect borrowing power.

Does rental shading affect borrowing power?

Yes, rental shading can reduce borrowing power.

If the lender uses a lower rental income figure, the loan may look less affordable in their calculator.

This can matter if you are:

• buying an investment property
• refinancing an investment loan
• using rent from an existing investment property
• building a property portfolio
• trying to borrow near your maximum capacity
• relying on rental income to pass servicing
• using interest-only loans
• consolidating debt
• accessing equity

A higher actual rent does not always mean the lender will use the full amount.

Related research: Do Credit Card Limits Affect Your Home Loan Borrowing Power?

Current rental income vs proposed rental income

Lenders may treat current rental income and proposed rental income differently.

Current rental income is income from a property you already own and lease.

Proposed rental income is expected income from a property you are buying.

For current rental income, the lender may ask for:

• lease agreement
• rental statement
• bank statements showing rent credits
• tax return rental schedule
• managing agent letter

For proposed rental income, the lender may ask for:

• rental appraisal
• valuation report with estimated rent
• managing agent estimate
• signed lease, if already arranged
• contract of sale

The evidence available can affect how much rent the lender uses.

What is a rental appraisal?

A rental appraisal is an estimate of how much rent a property may earn in the current market.

It may be prepared by:

• property manager
• real estate agent
• valuer
• lender panel valuer
• rental department of an agency

A lender may use a rental appraisal when:

• the property is being purchased
• there is no tenant yet
• the lease has not started
• the current rent is outdated
• the property is newly built
• the property is being converted to investment use
• the borrower is refinancing and rent needs to be confirmed

The lender may not use the highest appraisal if it looks unrealistic.

What if the rental appraisal is higher than the lease?

If the rental appraisal is higher than the signed lease, the lender may use the lower lease amount.

This is because the lease shows actual income being received, while the appraisal is only an estimate.

For example:

• lease is $600 per week
• rental appraisal says $650 per week
• lender may use $600 per week before shading

A lender may prefer verified income over projected income.

What if the lease is higher than the rental appraisal?

If the lease is higher than the rental appraisal, the lender may still use the lower figure.

A lender may be cautious if the rent looks above market.

They may ask:

• is the tenant related to the borrower?
• is the rent sustainable?
• is the lease arm’s length?
• does the valuation support the rent?
• has the rent actually been received?
• could the property be re-let at that level?

If the rent is unusually high, the lender may use market rent instead.

Can rent from a family member be used?

Rent from a family member may be accepted by some lenders, but it can be assessed carefully.

The lender may ask:

• who is the tenant?
• are they related to the borrower?
• is there a formal lease?
• is rent paid regularly?
• does the rent match market rent?
• are payments shown in bank statements?
• is the arrangement likely to continue?
• has the income been declared for tax?

Family rent may be treated differently from rent paid by an unrelated tenant under a standard lease.

Can Airbnb or short-stay rent be used?

Some lenders may consider Airbnb or short-stay income, but many assess it differently from normal rent.

A lender may use:

• standard market rent instead of Airbnb income
• income shown in tax returns
• platform statements
• a reduced percentage of short-stay income
• a longer income average
• no income if it does not meet policy

Short-stay income can be higher than standard rent, but it may also be more seasonal and less predictable.

Can boarder income or room rent be used?

Boarder income or room rental income may be accepted by some lenders, but it is often harder to use than standard rental income.

A lender may ask for:

• written room rental agreement
• bank statements showing payments
• evidence of payment history
• tax return evidence, where relevant
• details of the person paying board
• confirmation that the income will continue

Informal cash payments are usually harder to use.

Related research: Can You Use Boarder Income or Room Rental Income for a Home Loan?

Can granny flat income be used?

Granny flat income may be considered by some lenders if it is regular and properly verified.

A lender may look at:

• whether the granny flat is approved
• whether it is self-contained
• whether there is a lease
• whether rent is paid regularly
• whether income appears in bank statements
• whether rent is declared for tax
• whether the property remains acceptable security

Approved granny flat income may be stronger than informal room rental income.

Can foreign rental income be used?

Some lenders may consider foreign rental income, but it can be more complex.

The lender may ask for:

• foreign lease agreement
• rental statements
• bank statements
• tax returns
• proof of property ownership
• translated documents
• currency conversion
• evidence of expenses

Foreign rent may be shaded, converted to Australian dollars or excluded depending on lender policy.

How do lenders treat rental expenses?

Some lenders shade gross rent instead of separately deducting every expense.

Others may include specific investment property costs.

Expenses may include:

• rates
• strata fees
• insurance
• property management fees
• maintenance
• land tax
• body corporate fees
• repairs
• vacancy allowance
• interest on existing investment loans
• principal and interest repayments, where relevant

The lender’s calculator may include expenses differently from your own cash-flow spreadsheet.

Do lenders use negative gearing benefits?

Some lenders may consider negative gearing benefits, while others may be more conservative.

Negative gearing treatment depends on:

• borrower income
• tax position
• property expenses
• lender policy
• whether the property is existing or proposed
• whether the borrower owns multiple properties
• whether the loan is interest-only or principal and interest

A lender may not give the same benefit that an investor expects from their accountant’s tax projection.

Can rental income from multiple properties be used?

Yes, lenders may use rental income from multiple investment properties.

But portfolio investors can be assessed more conservatively because each property adds commitments as well as income.

A lender may review:

• rent for each property
• loan repayments for each property
• property expenses
• current loan limits
• interest-only expiry dates
• rental statements
• tax returns
• overall debt level
• exposure to one location or property type
• vacancy risk

Rental income helps, but each property also brings costs and debt.

Why investors get different borrowing power from different lenders

Investors can receive very different borrowing-power outcomes from different lenders.

This can happen because lenders may differ on:

• rental shading percentage
• assessment rate
• existing loan repayment calculation
• treatment of interest-only loans
• credit card limits
• living expenses
• negative gearing
• property expenses
• tax benefits
• trust or company structures

The same investor can pass with one lender and fail with another.

Can rental income help you buy your first investment property?

Yes, proposed rental income can help when buying your first investment property.

The lender may include some of the expected rent in the assessment, subject to policy.

This may improve borrowing power, but the lender will also include the new investment loan repayment and property expenses.

A first-time investor should prepare for:

• deposit requirements
• LMI, if borrowing above 80%
• interest rate differences
• rental shading
• investment property expenses
• vacancy risk
• tax implications
• cash-flow changes after settlement

Buying an investment property is not assessed only on the rent.

Related research: Can You Use Investment Income from Shares or Managed Funds for a Home Loan?

What documents do you need for rental income?

The documents depend on whether the rent is current, proposed, local, foreign, standard or non-standard.

You may need:

• lease agreement
• rental statement
• rental appraisal
• managing agent letter
• bank statements showing rent credits
• tax return rental schedule
• valuation report
• Airbnb statements, where relevant
• boarder agreement, where relevant
• foreign rental documents, where relevant
• translated documents, where relevant
• proof of expenses

The cleaner the evidence, the easier the income is to assess.

10 common mistakes investors make with rental income

1. Do not assume the lender will use 100% of rent.
2. Do not use the highest rental appraisal without checking policy.
3. Do not assume Airbnb income is treated like standard rent.
4. Do not forget strata fees and property expenses.
5. Do not rely on rent from a family member without evidence.
6. Do not ignore vacancy risk.
7. Do not assume negative gearing will be fully included.
8. Do not rely on your own spreadsheet instead of lender servicing.
9. Do not forget existing investment loan commitments.
10. Do not apply before checking how the lender shades rental income.

How to improve your chances before applying

Before applying with rental income, it helps to prepare the evidence clearly.

Useful steps include:

• collect current lease agreements
• collect rental statements
• get rental appraisals for proposed purchases
• keep bank statements showing rent credits
• prepare tax returns where rental income is declared
• confirm strata and property expenses
• check if the rent is market-based
• document non-standard rental income carefully
• avoid relying only on short-stay income projections
• review all investment loan repayments
• compare lender policy before submitting the application

The goal is to make the rental income easy for the lender to verify and use.

Should you wait before applying?

Sometimes waiting can help.

Waiting may improve your application if:

• the property has only just been leased
• rental evidence is incomplete
• a lease is about to be signed
• tax returns will soon show rental income
• the rental appraisal is not ready
• short-stay income needs more history
• boarder income has only recently started
• your investment expenses are unclear

But waiting is not always necessary.

You may be ready to apply if:

• rent is already being received
• lease documents are available
• rental statements are clear
• a rental appraisal is ready
• property expenses are known
• the loan still passes with shaded rent
• the right lender can use the income

A broker can compare whether applying now or waiting would give you better options.

Example scenarios

Scenario 1: Standard investment property with lease

You own an investment property rented for $650 per week.

You have a signed lease and rental statement.

The lender may use the verified rent, then apply its rental shading policy.

Scenario 2: Buying a property with no tenant yet

You are buying an investment property that is currently vacant.

The lender may ask for a rental appraisal and may use a shaded amount of expected market rent.

Scenario 3: Airbnb income above market rent

Your short-stay property earns more than a standard lease would.

Some lenders may still use standard market rent or a reduced amount rather than full Airbnb income.

Scenario 4: Multiple investment properties

You own three investment properties.

The lender will assess rental income, loan repayments and expenses across the full portfolio.

So, do banks use 100% of rental income?

Some lenders may use 100% of rental income in certain cases, but many use a reduced figure.

The strongest applications usually have:

• verified rental income
• current lease or rental appraisal
• realistic rent figure
• clear property expenses
• manageable investment loan repayments
• stable borrower income
• clean credit conduct
• property type accepted by the lender
• a loan that still passes with shaded rent

Rental income can help borrowing power, but it is rarely as simple as using the full weekly rent.

Need help working out your rental income borrowing power?

A mortgage broker can help compare how lenders may assess rental income, rental appraisals, Airbnb income, boarder income and investment property expenses.

We can review your rent, property costs, loan repayments, deposit, income and borrowing position before you apply.

If you are buying or refinancing an investment property, speak with a mortgage broker who understands how different lenders assess rental income.