Do you know when to get pre-approval for investment loans?

Pre-approval tells you how much you can borrow before you start looking at properties.

For investors in East Perth, where high-density apartments and established townhouses near the Swan River compete for attention, knowing your borrowing limit ahead of time means you can act quickly when the right property appears. Pre-approval for an investment loan works differently than it does for an owner-occupied purchase because lenders assess rental income projections, tax treatment, and portfolio risk before committing to a loan amount.

What a lender checks during investment loan pre-approval

Lenders assess your total debt position, including any existing home loan, personal loans, and credit cards, then calculate how much additional debt you can service once rental income and tax benefits are factored in. Most lenders will shade the expected rental income by 20 per cent to account for vacancies and holding costs, then add that figure to your other income when running serviceability tests. Your loan must pass an interest rate buffer of at least 3.0 percentage points above the loan product rate, meaning if the variable rate is 6.0 per cent, the lender tests whether you can still afford repayments at 9.0 per cent or higher.

Consider a buyer who earns $110,000 annually and already has a $450,000 home loan with monthly repayments of $3,200. They want to buy a two-bedroom apartment in East Perth expected to rent for $650 per week. The lender shades that rental income to $520 per week, or roughly $27,000 annually, and adds it to the buyer's salary. After testing serviceability at the buffered rate and accounting for existing debt, the lender might pre-approve an investment loan of $480,000. Without pre-approval, the buyer would have no certainty about whether a $520,000 apartment was within reach or out of scope.

How rental income shading affects your borrowing power

Every lender applies a haircut to projected rental income to account for periods when the property sits vacant or requires maintenance between tenants. The standard shading is 20 per cent, though some lenders use 25 per cent depending on the property type and location. That shading directly reduces the income figure used in your serviceability calculation, which in turn reduces the loan amount you can access.

In areas like East Perth, where vacancy rates have historically been low due to proximity to the CBD, Optus Stadium, and public transport, the actual rental yield might be strong. The lender's serviceability model does not adjust for local rental tightness. It applies the shading formula regardless of suburb, so your actual rental performance may exceed what the lender assumes, but you cannot borrow on that basis upfront.

Interest-only versus principal-and-interest: which one helps pre-approval?

Interest-only repayments reduce your monthly cash outflow during the loan term, which can improve serviceability and increase the loan amount a lender will pre-approve. An interest-only period typically runs for one to five years, after which the loan reverts to principal and interest unless you request an extension. Lenders must assess your ability to service the loan once it reverts, so the benefit to borrowing capacity is real but not unlimited.

Some investors prefer interest-only because it maximises the tax-deductible component of the loan. Paying down principal on an investment loan reduces the deductible interest over time, whereas keeping the loan balance steady preserves the deduction. Others choose principal and interest from the outset because they want to build equity or plan to sell within a few years and prefer a lower outstanding balance at exit. Neither structure is inherently better for pre-approval, but interest-only will usually result in a higher pre-approved loan amount if serviceability is tight.

Does an existing home loan reduce how much you can borrow for investment?

Your existing home loan is included in the lender's debt-to-income calculation and reduces the amount you can borrow for investment purposes. From February 2026, lenders can only issue 20 per cent of their new investor loans to borrowers with a total DTI ratio of six times income or greater. That limit applies separately to investor lending and does not affect borrowers below the threshold, but it does mean lenders are now more cautious about approving high-DTI investment loans even where serviceability is technically sufficient.

If your total debt, including the proposed investment loan, would push your DTI above six times your gross income, you may still obtain pre-approval, but you will fall within the 20 per cent allocation and face closer scrutiny. Some lenders manage their DTI exposure by pricing higher-DTI loans less competitively or by steering borrowers toward lower loan amounts. Working with a mortgage broker in East Perth gives you access to multiple lenders and helps identify which ones have capacity within their DTI allocation at the time you apply.

How deposit size and LMI affect investment loan pre-approval

Most lenders require a minimum 10 per cent deposit for investment loans, though some will lend at higher loan-to-value ratios if you pay for Lenders Mortgage Insurance. LMI is calculated on a sliding scale and becomes more expensive as the LVR increases. At 90 per cent LVR on a $500,000 investment loan, the LMI premium might sit between $15,000 and $20,000 depending on the lender and your credit profile. That cost can be capitalised into the loan amount, but doing so increases your borrowing and may push you closer to serviceability limits.

Pre-approval at a higher LVR is possible, but you will pay for it through LMI and often through a higher interest rate. Lenders price investment loans based on perceived risk, and higher LVR loans are treated as riskier. If you have access to equity in your home, you might use that equity as part of your deposit to keep the investment loan LVR below 80 per cent and avoid LMI altogether. Equity release requires a valuation of your existing property and increases the debt secured against your home, but it can be a more cost-effective way to fund the deposit than borrowing at 90 per cent LVR on the investment property.

Can you use equity from your home to fund the investment deposit?

You can use equity in your existing home to fund part or all of the deposit on an investment property. Lenders will assess the combined LVR across both properties and test your ability to service both loans, including the portion of your home loan used to release equity. If your home is worth $700,000 and you owe $350,000, you have $350,000 in equity. Most lenders will allow you to borrow up to 80 per cent of your home's value without LMI, meaning you could access up to $560,000 in total debt against that property, leaving $210,000 available to release.

Using equity can speed up the purchase process because you do not need to wait for savings to accumulate, but it does increase your total debt position and reduces the buffer you have if property values decline. The interest on the portion of your home loan used to fund the investment deposit is generally tax-deductible because the funds are used for income-producing purposes, but you should confirm that treatment with your accountant before proceeding. Structuring loans correctly from the outset avoids complications later when you prepare your tax return. If you are considering equity release for an investment purchase, investment loans in Perth page covers the structuring options in more detail.

How long does investment loan pre-approval last?

Pre-approval is typically valid for three to six months depending on the lender. During that period, your borrowing capacity is locked in based on the income, debt, and deposit information you provided at the time of application. If your circumstances change during the pre-approval period, such as a reduction in income, an increase in debt, or a change in employment, you must notify the lender because those changes may affect your eligibility when you proceed to formal approval.

Pre-approval does not lock in the interest rate. Rates are set at the time of formal approval and settlement, not when pre-approval is issued. If rates rise between pre-approval and formal application, your serviceability may be affected, though most lenders build enough buffer into the pre-approval assessment that small rate movements do not invalidate the approval. If rates fall, you benefit from the lower rate at settlement.

What happens if you apply without pre-approval?

You can make an offer on an investment property without pre-approval, but you carry the risk that the lender declines your application or approves a lower loan amount than you expected. In that scenario, you may need to request an extension to the settlement date, negotiate a lower purchase price, or forfeit your deposit if the contract does not include a finance clause. Most investment property contracts in Western Australia include a 14-day finance clause as standard, giving you two weeks from the contract date to obtain formal loan approval. That timeframe is tight if you have not done any preliminary work with a lender.

Pre-approval compresses that risk into a controlled process that happens before you commit to a purchase. It does not guarantee final approval, because the lender will still conduct a full valuation and verify your information at the formal application stage, but it does confirm that your income, deposit, and debt position are sufficient to support the loan amount you are seeking. For investors targeting high-demand areas like East Perth, where stock turns over quickly and competition can be strong, pre-approval is a practical step that keeps your offer credible.

Do you need pre-approval if you are refinancing an investment loan?

Pre-approval is less common for refinancing because you already own the property and know the outstanding loan balance. The process is more straightforward than a purchase application, but you should still confirm your eligibility before formally applying to refinance, especially if you want to release additional equity or change loan structures at the same time. Some brokers will run a preliminary assessment to confirm that the refinance will deliver the outcome you are expecting, whether that is a lower rate, access to equity, or a shift from principal and interest to interest-only. If you are refinancing an investment loan to fund another purchase, that preliminary assessment functions much like pre-approval for the new lending. More detail on this is available on the investment loan refinancing page.

Call one of our team or book an appointment at a time that works for you. We will run through your income, debt, and deposit position, identify which lenders are most likely to support your investment loan application, and arrange pre-approval before you start looking at properties.

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