Investment Loan Documents: The Application Checklist

The investment loan documents you gather before you apply do a lot of the heavy lifting. When your paperwork is complete and tidy, a lender can assess you faster and with fewer back and forth requests. This investment loan application checklist walks through the documents for an investment loan, what a lender looks at, and the order to work through it. It is general information only, and what applies to you depends on your circumstances and each lender’s criteria.

This guidance draws on the Australian Securities and Investments Commission, known as ASIC, and its MoneySmart service, the government’s independent money guidance.

What lenders assess on an investment loan

Before a lender offers anything, it works out how much you can borrow by looking at your income, your existing commitments and your credit standing. MoneySmart suggests stress-testing your own numbers by working out what your costs would be if interest rates went up by 2 per cent, so you can see how much room you have.

For an investment loan, a lender also weighs the expected rent and the ongoing costs of holding the property. Those costs can include council and water rates, building insurance, landlord insurance, body corporate fees, land tax, property management fees and repairs and maintenance. None of these are guaranteed numbers, and what a lender accepts depends on its own criteria. You can model your own figure before you apply.

A 20 per cent deposit of the purchase price, plus enough to cover buying costs, helps you avoid lenders mortgage insurance, known as LMI. If your deposit is smaller, LMI may apply, and it could be added to your loan. Whether that suits you depends on your position.

The investment loan documents checklist

Group your investment loan documents into four buckets. Working through them in this order keeps the process calm.

Proof of who you are

• Photo identification, such as a current driver licence or passport
• A second form of identification if the lender asks for it
• Your contact details and residential history

Proof of income

• Recent payslips if you are an employee
• Your most recent tax returns and notices of assessment, especially if you are self-employed
• Evidence of any other income, such as existing rental income or dividends
• A letter from your employer or accountant if your income needs context

Proof of the investment and its rent

• The contract of sale or details of the property you intend to buy
• A rental appraisal or current lease showing the expected or actual rent
• Your estimate of the ongoing costs of holding the property

Proof of your financial position

• A list of your assets, such as savings, shares and other property
• A list of your debts, such as credit cards, car loans and other home loans
• Recent statements for your existing loans and accounts
• Evidence of your deposit and where it came from

If you want a closer look at the income and identity papers a lender asks for, our guide to the documents needed for a home loan application breaks them down in detail.

How the application moves, step by step

The path from documents to settlement follows a clear set of steps. None of them promise an outcome, and each lender runs its own checks.

Pre-approval is not a final yes. It usually lasts 3 to 6 months, and it shows the amount a lender may be willing to consider while you shop. A full assessment still happens once you have a property. Our guide to home loan pre-approval explains what that stage involves.

Choosing the loan that goes with the documents

The documents get you assessed. The loan structure decides what the deal looks like over time, so it is worth weighing a few features as you apply.

A comparison rate is a single figure of the cost of the loan that includes the interest rate and most fees, which makes it a fairer way to compare products than the headline rate alone.

A principal and interest loan means you make regular repayments on the amount borrowed, the principal, plus interest. An interest-only loan means your repayments only cover interest for an initial period, for example five years. At the end of that period the loan changes to principal and interest, and the repayments become higher, so it helps to check you can afford the higher repayments. The table below sets the two side by side.

Interest-only loans may be useful for investors who could claim higher tax deductions from an investment property, though whether that suits you depends on your circumstances and a registered tax agent can confirm the tax side.

A fixed interest rate stays the same for a set period, for example five years. A variable interest rate can go up or down as the lending market changes, for example when official cash rates change. Each has trade-offs, and the right choice depends on your plans for the property.

What a lender weighs on the investment side

Two things shape an investment loan that a standard home loan assessment may not.

First, the rent. You can offset most property expenses against rental income, including interest on any loan used to buy the property. That can change how the numbers stack up, and a registered tax agent or the Australian Taxation Office, known as the ATO, is the source for what you can claim. To see how a purchase sits against the rent and costs, our investor home loans page is the place to start.

Second, the holding risk. A rise in interest rates will mean higher repayments and lower disposable income, and there may be times when you have to cover the costs yourself if you do not have a tenant. A lender factors this in, and so should you when you decide how much to borrow.

If you are weighing your first investment while still buying a place to live, our guide for the first home buyer buying an investment property covers how the two goals fit together.

Frequently asked questions

Talk it through with the team at Finance Lab

Every investment loan application is a little different, and the right documents and structure depend on your position and each lender’s criteria. The team at Finance Lab can help you work through the checklist, compare loans and prepare a clean application. Get in touch when you are ready to start.