Two applicants can earn exactly the same income and walk away with very different approvals, simply because one is paid a flat salary and the other relies on overtime, bonuses or commission. Lenders treat variable pay with more caution than base salary, and the rules differ from one lender to the next. Knowing how your income is likely to be assessed helps you estimate your borrowing capacity before you apply for a home loan.
Why Lenders Treat Variable Income Differently
Base salary is predictable. Overtime, bonuses and commission depend on how much work is available, how the business performs and how individual targets play out, so they can fall as easily as they rise. Lenders respond by asking for a longer track record and, in many cases, counting only part of the income.
The result is a gap between what you earn and what the lender assesses. On a strong year of variable pay, that gap can be large enough to change the price range you can shop in.
How Overtime Is Assessed
Most lenders count overtime, but many shade it, typically including around 80% of the amount rather than the full figure. Some lenders also want to see that overtime has been earned consistently for a period, often two years, before they will include it at all.
Policy can be more flexible where overtime is a regular, built-in part of the role, such as for many nurses, paramedics, police and shift workers. Some lenders will include a higher share of overtime for these occupations or accept a shorter history. The evidence usually comes from recent payslips showing year-to-date earnings and your latest income statement from the ATO.
What Does Shading Look Like in Practice?
Take an employee on a $90,000 base salary who earned $20,000 in overtime last year. A lender that shades overtime at 80% would assess income of $106,000. A lender that requires two years of overtime history, where the borrower only has one, may assess just the $90,000 base. That $16,000 difference in assessed income can translate into tens of thousands of dollars of borrowing capacity.
How Bonuses Are Assessed
Bonuses are usually averaged over two years, and some lenders use the lower of the two years if the bonus has fallen. A small number of lenders will accept a single year of bonus history with supporting evidence, while others exclude discretionary bonuses entirely.
Lenders often ask for an employer letter confirming the bonus structure, along with payslips or income statements showing the payments. A bonus that is contractual, tied to a defined formula in your employment contract, is generally viewed more favourably than one that is entirely at the employer’s discretion.
How Commission Income Is Assessed
Commission is treated much like a bonus, with most lenders wanting a two-year history and averaging the income across that period. Where commission makes up a large share of total pay, some lenders ask for tax returns or a full income history in addition to payslips, because a single strong quarter can be misleading.
Borrowers whose commission has grown strongly may find the averaging works against them, since a lower earlier year pulls the figure down. Lenders that weight the most recent year more heavily can produce a better result in that situation.
Allowances and Other Variable Pay
Regular allowances, such as shift or site allowances, are often treated more generously than overtime because they form part of the ongoing pay structure. Some lenders count them in full if they appear consistently on payslips. Irregular payments, such as one-off incentives or back pay, are usually excluded.
Changing Jobs Can Reset the Clock
Moving to a new employer can affect how variable income is assessed, even if the role is similar. A lender may not count overtime or bonus income from the new job until it has been earned for a period, and some lenders want you to be past any probation period before approving a loan at all. If you are planning both a job change and a property purchase, the order in which they happen can matter.
Why Comparing Lenders Matters More for Variable Pay
Because shading rates, history requirements and treatment of bonuses all differ, applicants with variable income see some of the widest spreads in borrowing capacity between lenders. The same payslips can support a noticeably larger loan at one lender than another.
A broker can match your income structure to lenders whose policy suits it and show you the assessed figure before you apply, which avoids an application at a lender whose rules work against you.
Key Takeaways
- Lenders treat overtime, bonuses and commission more cautiously than base salary, and policies differ between lenders.
- Most lenders count overtime but many shade it to around 80%, and some require a two-year history before including it.
- Some lenders are more flexible for occupations where overtime is a regular part of the role, such as nursing and policing.
- Bonuses and commission are usually averaged over two years, and some lenders use the lower year or exclude discretionary bonuses.
- Changing employers can reset how long variable income has been earned, affecting what a lender will count.
- Comparing lender policy matters more for variable income than almost any other borrower type.