If you're a self-employed professional or someone looking to build wealth through property investment, understanding the investment loan approval process is critical to your success. Many property investors stumble at the approval stage, not because they lack the financial capacity, but because they're unaware of what lenders look for when assessing an investment loan application.
Let's talk about how you can position yourself for approval and access investment loan options from banks and lenders across Australia.
Understanding Investment Loan Approval Requirements
When you're buying an investment property, lenders assess your application differently than they would for an owner-occupied home loan. They'll examine your borrowing capacity based on several factors including your income, existing debts, the rental income the property will generate, and your overall property investment strategy.
For self-employed borrowers, the approval process requires additional documentation. Lenders typically want to see:
- Two years of tax returns and financial statements
- Evidence of consistent income
- Business Activity Statements (BAS)
- A clear trail of your business income
The loan to value ratio (LVR) plays a crucial role in your approval. Most lenders prefer an LVR of 80% or less for investment properties. If your investor deposit is smaller and your LVR exceeds 80%, you'll likely need to pay Lenders Mortgage Insurance (LMI), which protects the lender but adds to your upfront costs.
Investment Loan Products and Features That Matter
Not all investment loan products are created equal. Understanding the investment loan features available helps you choose the right structure for your financial goals.
Interest Only vs Principal and Interest
Many property investors opt for interest only loans because they keep your investment loan repayments lower, which can maximise tax deductions. With an interest only investment loan, you're only paying the interest portion for a set period (usually 1-5 years), which means the loan amount remains the same.
Principal and interest loans have higher repayments but reduce your debt over time, building equity faster. Your choice depends on your property investment strategy and tax position.
Variable Rate vs Fixed Rate
A variable interest rate moves with the market, meaning you could benefit from interest rate discounts when rates drop, but your repayments increase when rates rise. Fixed interest rate loans provide certainty for a set period, protecting you from rate increases.
Many investors use a split loan strategy, combining both variable rate and fixed rate portions to balance flexibility with certainty.
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Book a chat with a Finance & Mortgage Broker at Makara Finance today.
Calculating Investment Loan Repayments and Rental Income
When assessing your investment loan application, lenders don't count 100% of the rental income. They typically apply a 'shading rate' of around 70-80% to account for vacancy rates and potential periods without tenants. This is where calculating investment loan repayments becomes important.
For example, if your rental property generates $600 per week, lenders might only count $420-$480 in their serviceability calculations. Understanding this helps you plan the right loan amount and investor deposit.
Your need for rental income versus your ability to service the loan from other income sources will determine how much you can borrow. Self-employed professionals often have additional income streams that strengthen their investor borrowing capacity.
Maximising Tax Benefits and Claimable Expenses
One of the key investment loan benefits is the ability to maximise tax deductions on your investment property. Understanding what constitutes claimable expenses can significantly impact your return on investment.
You can typically claim:
- Investment loan interest payments
- Property management fees
- Maintenance and repairs
- Insurance premiums
- Depreciation on the building and fixtures
- Body corporate fees
- Stamp duty (in some cases)
- Advertising for tenants
Negative gearing benefits occur when your investment property expenses (including your investment property rates and loan interest) exceed your rental income. This loss can be offset against your other taxable income, reducing your overall tax liability and helping you build wealth through property while receiving tax advantages.
Leveraging Equity for Portfolio Growth
Once you've secured your first investment property finance, the equity you build becomes a powerful tool. You can leverage equity from your existing properties to fund your investor deposit for additional properties, accelerating your portfolio growth towards financial freedom.
An equity release allows you to access the increased value in your property without selling it. This creates passive income opportunities and builds your wealth over time. However, lenders will reassess your borrowing capacity each time, considering all your properties and their rental returns.
Investment Loan Refinance Opportunities
The investment loan market is constantly changing, with lender policies and investor interest rates fluctuating. An investment loan refinance might be worth considering if:
- You can secure a better rate discount on your investment property loan
- Your current lender's investment loan interest rate is higher than market rates
- You want to access equity for further property purchases
- You need to switch between interest only and principal and interest
- Your financial circumstances have improved and you can negotiate better terms
Refinancing your rental property loan can also help you consolidate debts or access features that better suit your current property investment strategy.
Common Mistakes to Avoid
Self-employed investors often make avoidable mistakes that delay or prevent investment loan approval:
- Not declaring all income properly - Ensure your tax returns accurately reflect your earning capacity
- Insufficient documentation - Keep detailed financial records well before applying
- Overlooking serviceability - Calculate whether you can service the loan if vacancy rates increase
- Choosing the wrong loan structure - Match your investment loan options to your investment goals
- Ignoring the total cost - Factor in stamp duty, legal fees, building inspections, and potential LMI
- Not considering future portfolio growth - Select lenders who will support multiple investment properties
Working with experienced mortgage brokers who understand investment property finance and the self-employed market can help you avoid these pitfalls.
Getting Your Investment Loan Application Approved
Your path to building wealth property starts with proper preparation. Before submitting your investment loan application:
- Review your financial position and gather documentation
- Understand your borrowing capacity for investment purposes
- Research properties that will generate solid rental returns
- Consider your long-term property investment strategy
- Explore different investment loan features that align with your goals
- Calculate the true cost including all fees and charges
At Makara Finance, we work with self-employed professionals and investors who are serious about building wealth through property. We help you access investment loan options from banks and lenders across Australia, finding investment loan products that match your unique circumstances and goals.
Whether you're purchasing your first rental property loan or expanding an existing portfolio, having the right finance partner makes all the difference. We understand the challenges self-employed borrowers face and know which lenders offer the most favourable terms for property investors.
Call one of our team or book an appointment at a time that works for you. Let's discuss your property investment strategy and find the investment property finance solution that sets you up for long-term financial freedom.
