If you’re self-employed, you already know the timing problem. Your business is doing well this year, but the tax return that proves it won’t be lodged for months. For many borrowers, a letter from their accountant is what bridges that gap.
Here’s what an accountant’s letter loan is, what lenders typically want the letter to confirm, and how to avoid the small mistakes that cause delays.
What is an accountant’s letter loan?
It’s a type of low-doc (or alt-doc) home loan where the lender assesses your income using a letter or declaration from your accountant, instead of, or alongside, your most recent tax returns. The accountant confirms your income and certain facts about your business, and the lender relies on that professional confirmation as part of its assessment.
Some lenders accept an accountant’s letter on its own. Others want it together with your BAS, business bank statements or a signed income declaration. Either way, the lender still has to be satisfied you can afford the loan.
What the letter usually needs to confirm
Every lender has its own wording, and many have a template they want your accountant to use. Most ask the accountant to confirm some or all of the following:
- Your income, usually a figure for the current or most recent financial year
- Your business details, such as your ABN, business structure and how long the business has been trading
- How long they’ve known you or acted as your accountant
- That your tax affairs are in order, including lodgements and any ATO debts or payment plans
- That they’re independent of you, for example not a relative or a business partner
Some lenders also ask the accountant to confirm the income figure is “reasonable” for your industry, or to state that they’re not aware of anything that would affect your ability to repay.
Who can sign it?
Most lenders want the letter signed by a qualified accountant who is also a registered tax agent, and many specify membership of a professional body such as CPA Australia, Chartered Accountants ANZ or the IPA. The accountant will usually need to have looked after your affairs for a minimum period, often a year or more. A bookkeeper, or an accountant who is a family member, is generally not accepted.
Remember that your accountant is putting their professional name to the letter. Many will only sign if they’ve seen enough of your records to be comfortable with the figure, so give them time and the information they need.
Other things lenders look for
- An active ABN, commonly for at least 12 months, sometimes 2 years
- GST registration if your turnover is $75,000 or more a year, which is the ATO’s registration threshold
- A believable picture overall. Your declared income should sit comfortably with your assets, debts and lifestyle. A high income with few savings, for example, will draw questions.
- A deposit and a clean credit history. Many lenders want a 20% deposit or more for low-doc loans, though some will lend higher with lenders mortgage insurance.
Common mistakes that slow things down
- Using a generic letter instead of the lender’s own template or required wording
- An income figure that doesn’t match your BAS or bank statements
- The letter missing the accountant’s registration or membership details
- Not disclosing an ATO payment plan the lender later finds
- Getting the letter before choosing a lender, then needing a new one
The simplest fix is to choose the lender first, then give your accountant that lender’s exact requirements.
Rates and refinancing later
Accountant’s letter loans are usually priced a little higher than standard full-doc loans, and fees can be higher too. The gap tends to narrow with a larger deposit and a strong credit history. Once your tax returns are lodged and show your real income, it’s worth reviewing whether you can refinance to a full-doc loan with a sharper rate.
A typical scenario
Take a café owner in their fourth year of trading. They’ve opened a second site, and income is well up on the last lodged return, but the new return won’t be ready for several months. Their accountant of five years prepares a letter on the chosen lender’s template confirming the current year’s income, that BAS lodgements are up to date and that there’s no ATO debt. Combined with six months of BAS, the lender assesses the higher income, and the purchase goes ahead with a 20% deposit.
This is an illustrative example only. Every situation, lender and outcome is different.
Frequently asked questions
Will my accountant charge for the letter?
Many do, as it takes time and they’re putting their name to it. Ask about the cost up front so there are no surprises.
Can I use an online accountant I’ve never worked with?
Some lenders accept it, but many want an accountant who has acted for you for a set period. Check the lender’s policy before paying for a letter.
Can I get an accountant’s letter loan if I have an ATO debt?
Possibly. An ATO payment plan that’s being kept up to date doesn’t always rule you out, but it must be disclosed, and the repayments will be counted in your budget.
How long is an accountant’s letter valid for?
Lenders usually want it to be recent, often dated within the last few months. If your application is delayed, you may need an updated letter.
Get the letter right first time
The right lender and the right wording can save weeks. We can match you with lenders that suit your situation and give your accountant exactly what they need, so the letter only has to be written once.
General information only. This article doesn’t consider your objectives, financial situation or needs, and isn’t credit or tax advice. Home loans are arranged by Stratium Finance Group Pty Ltd (ABN 65 696 556 804), Corporate Credit Representative 578600 of Yellow Brick Road Aggregation Pty Ltd, ACL 390261. All loans are subject to lender approval, terms, conditions, fees and charges.
