Common Mistakes With Investment Loan Pre-Approvals

A pre-approval tells you roughly how much a lender may let you borrow before you start looking at investment properties. It is not a promise to lend, and knowing that early will save you stress and money.

If you live in Raceview and are thinking about buying your first investment property, this guide walks you through the common slip-ups, one step at a time. There is nothing here you need to already know.

What Is an Investment Loan Pre-Approval?

An investment loan pre-approval is a lender's conditional indication of how much you could borrow, based on your income, debts and spending. It is not final until the lender assesses the actual property and confirms your details again.

Think of it as a budget you can shop with. It lets you look at properties in Raceview, Ipswich and nearby suburbs with a realistic ceiling in mind. If you are brand new to the process, our page on getting loan pre-approval explains the basics, and our investment loans page covers the loan itself.

Mistake 1: Treating Pre-Approval as a Final Yes

A pre-approval is not a final approval. The lender still has to assess the property you choose, and your situation must be the same when you apply.

If you change jobs, take on a new credit card or car loan, or the property does not suit the lender's policy, the answer can change. Keep your finances steady between pre-approval and settlement, and talk to your broker before you make any big moves.

Mistake 2: Expecting the Borrowing Amount to Match What You Hope For

Lenders do not only look at today's repayment. Banks regulated by APRA must check that you could still afford the loan if the interest rate were at least 3.0 percentage points higher than the loan's actual rate. That buffer is why your pre-approved amount can feel lower than expected.

Existing debts matter too. Lenders look at your current loans, and for credit cards they may use a notional repayment based on the card limit, not what you actually owe. Closing cards you do not use can lift the amount you can borrow, depending on the lender. Our borrowing capacity page shows how these pieces fit together.

How Is Rental Income Counted?

APRA's guidance expects lenders to apply a minimum 20 per cent haircut to expected rent, so no more than 80 per cent of expected rent is counted. This allows for times when the property is empty. Each lender sets its own policy beyond that.

APRA's guidance also says lenders usually rely less on a rental appraisal than on actual rent received. For a property you have not bought yet, expect the lender to be more careful. Each lender sets its own rules on the evidence it accepts, so ask your broker how your chosen lender treats it.

Mistake 3: Choosing Interest Only to Borrow More

Choosing interest only will not lift the amount you can borrow. Lenders assess interest-only loans as if you will pay principal and interest over the shorter time that remains after the interest-only period ends.

As an illustrative example at 6.75% p.a., consider a buyer with a 30-year loan and a 5-year interest-only period. The lender checks whether they could afford principal and interest repayments over the remaining 25 years. That makes the test tougher, so the maximum loan can be lower than on a standard principal-and-interest loan.

There is a trade-off. With interest only, you are not paying down the loan balance during that period, so you still owe the same amount when it ends, and repayments then step up. Our page on interest only loans goes through this in more detail.

A Worked Example: Two Buyers, Same Income, Different Outcomes

Two buyers with similar incomes can receive different pre-approvals for several reasons, such as existing debts, card limits and each lender's policy.

Consider a Raceview couple planning an investment purchase. Before applying, they have two credit cards with high limits they rarely use and a small car loan. Their broker suggests closing one card, lowering the limit on the other and checking the car loan balance. They apply for pre-approval after making those changes.

The lender now counts less in notional card repayments, so their assessed commitments drop. The result is a higher pre-approved amount than they would have received before the tidy-up. The exact change depends on the lender and your situation, so it is worth a conversation before you apply. A calculator can give you a rough starting point, and your broker can then check it against real lender policy.

Do Tax Rules Change How Much You Should Borrow?

Tax rules can change how useful a rental loss is to you, so it is worth checking them before you set your budget. Interest on a loan used to buy a rental property is generally deductible while the property is rented or available for rent, but only the interest part of a repayment is deductible, not the principal.

From the 2027-28 income year, net rental losses on established residential properties bought after 7:30pm AEST on 12 May 2026 can generally only be used against other residential property income. Properties held at that time, and eligible new builds, are treated differently. These rules are detailed, so speak to your accountant about how they apply to you.

Mistake 4: Forgetting the Costs Beyond the Loan

A pre-approval covers the loan, not everything else you will pay. Stamp duty, legal fees and, if your deposit is small, lenders mortgage insurance can all add up.

Lenders mortgage insurance is generally needed when the loan is above 80 per cent of the property's value, and you pay the premium. Borrowing above that level also needs approval from the insurer as well as the lender. Our page on avoiding lenders mortgage insurance outlines options. These vary by lender and may have trade-offs, so check the eligibility and terms with your lender.

Mistake 5: Letting Pre-Approval Run Out Without a Plan

The validity period of a pre-approval is set by the lender, so confirm it with your broker or lender. If yours expires before you find a property, you may need to reassess, and your circumstances or lender policy may have changed.

Ask your broker how long your pre-approval lasts and what the lender will want to see again if you need to renew it. If you already own property and are thinking about your next purchase, our guides on expanding your property portfolio and buying your first investment property are good places to continue.

If you would like someone to walk you through your own numbers, we are happy to go at your pace. Call one of our team or book an appointment at a time that works for you, and we will explain each step in plain English.

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