When you apply for a home loan, lenders ask you to list your living expenses in detail. Then they check your bank statements and compare your figures against a benchmark. Get it wrong and you could be declined, delayed or approved for less.
What lenders ask about
Most lenders break expenses into categories like:
- Groceries and household supplies
- Utilities (electricity, gas, water, phone, internet)
- Transport (fuel, registration, insurance, public transport)
- Insurance (health, life, home, contents)
- Education and childcare
- Medical and personal care
- Clothing
- Entertainment, dining out and subscriptions
- Rent or board (if it will continue after you buy)
- Child support or maintenance paid
What is HEM?
The Household Expenditure Measure (HEM) is a benchmark of typical living costs for households of different sizes, incomes and locations. Lenders use it as a minimum.
If you declare expenses below HEM, the lender uses HEM. If you declare expenses above HEM, the lender uses your figure.
So understating expenses won't help you borrow more. It may simply mean the lender relies on HEM anyway, and if your statements show higher spending, you'll get questions.
Why bank statements matter
Lenders review your recent bank statements, usually three months. They look for:
- Spending that matches what you declared
- Regular commitments you didn't list (gym, subscriptions, BNPL)
- Gambling transactions
- Overdrawn accounts or dishonoured payments
- Large unexplained transfers
You don't need to live like a monk for three months. But be honest, and expect questions about anything unusual.
Expenses that will stop after you buy
Some costs end when you buy, such as rent. Tell your broker so they can exclude them. Others might change, such as moving closer to work and saving on fuel. Lenders usually only accept changes you can reasonably show.
Discretionary vs essential
Lenders know you can cut back on dining out or holidays. Some lenders separate "discretionary" from "essential" expenses and treat them differently. But a lender won't ignore a pattern of high spending just because you promise to stop.
Tips for preparing
- Track your spending for three months before applying. Banking apps often categorise transactions for you.
- Cancel unused subscriptions.
- Pause gambling apps, even small amounts.
- Avoid BNPL in the lead-up.
- Be accurate. Under-declaring can be treated as misrepresentation.
- Explain one-offs. A wedding, a medical bill or a holiday can be explained.
How much do expenses affect borrowing?
Every extra $100 a month in assessed expenses reduces what a lender will lend by roughly $11,000 to $12,000 at current assessment rates. So a $500 monthly reduction in assessed expenses could lift borrowing power by around $55,000 to $60,000.
Frequently asked questions
Do lenders look at my partner's expenses if they're not on the loan?
They may ask about shared household costs. If you live together, lenders often assess living costs for the whole household.
Is private school counted?
Yes, school fees are counted as a commitment, often on top of HEM.
Will lenders count my Afterpay balance?
Many lenders now treat BNPL as a debt or regular expense. See our post on BNPL and your home loan.
Want your expenses presented properly before you apply? Call Finfident on 0424 545 654. We'll review your statements with you so there are no surprises.
This article is general information only and doesn't take into account your objectives, financial situation or needs. Figures, rates and scheme rules are current as at October 2026 and can change. Finfident Finance Brokers (ABN 94 679 280 801) is Credit Representative 569374 of Outsource Financial Pty Ltd (ACN 131 090 705), Australian Credit Licence 384324.