Accountant Letter For A Home Loan
Why does a bank need a letter from your Accountant?
When assessing a loan application the lender needs to be certain that they are assessing your income and other aspects of your loan application in the correct way.
A letter from your accountant will help clarify these issues and can often allow lenders to bend their guidelines to accept home loans that they would otherwise decline.
Accountant letter template
You can ask your Accountant to use this sample letter as a template. All they need to do is copy it onto their letterhead, amend the details, print, sign and fax to us, your mortgage broker.
This sample letter is used when the bank requires a letter confirming that a business is trading at a profit as the bank has not seen financial statements or tax returns for the business.
To Whom It May Concern:
Re: John Smith & Smith Family Printing Pty Ltd
We confirm the following details regarding John Smith and his company Smith Family Printing Pty Ltd:
- We act as the accountant for both John & Smith Family Printing Pty Ltd.
- We confirm that to the best of our knowledge Smith Family Printing Pty Ltd is trading at a profit and can pay all liabilities that it has.
This information is true to the best of our knowledge and has been confirmed from independent enquiries with our customer and our own records.
Should you require any additional information please do not hesitate to contact our office on 02 0000 0000.
Johnston Accounting Pty Ltd
If you are using us at the Home Loan Experts to arrange your loan then you can call us on 1300 889 743 or enquire online for assistance with your letter.
Other types of accountant letters
There are many different reasons why a bank may request an accountant’s letter, and so there are many different templates that you may need to use.
We have included text that you may need for the most common accountant’s letters below.
Due to privacy legislation many accountants will not talk to the bank directly or to your mortgage broker, so you will have to request your accountant to write a letter for the bank.
By providing him with the template he will have less work to do, so will write the letter faster & charge lower fees, if any, for the letter.
Some common clarifications that banks may ask for are:
- Business not trading: We confirm that to the best of our knowledge Smith Family Printing Pty Ltd is no longer trading and has no liabilities of significance.
- One off expenses: We confirm that Smith Family Printing Pty Ltd had a bad debt to their largest client in the 2009/2010 financial year which they were forced to write off. This is a one off event and is unlikely to occur again. It would be appropriate to add back this expense when calculating the customer’s ability to service a new loan.
- Change in income between financial years: The profit generated by Smith Family Printing Pty Ltd significantly increased between the 2008/2009 and 2009/2010 financial years. This is because John Smith was not working for over 6 months of the year due to a personal issue that required his attention. For this reason it would be appropriate to use the figures from the 2009/2010 financial year when assessing John’s ability to service a new loan.
- Change in income due to start up expenses: The profit generated by Smith Family Printing Pty Ltd has significantly increased between the 2008/2009 and 2009/2010 financial years. This is because 2008/2009 was the first year of the businesses operation and so there were one off start up expenses, initial advertising costs and a smaller existing customer base. For this reason it would be appropriate to use the 2009/2010 financial years income to assess John’s ability to service a new loan. Based on recently lodged BAS and independent inquiries with the director it would appear that this level of income is likely to continue or increase.
- New business in the same industry as a previous job: We confirm that John Smith was previously employed as an IT consultant for 10 years before starting his own business in the same industry. Although John’s business has only been trading for one year it has already generated a substantial income and has a loyal customer base. Based on enquiries with the director and recently lodged BAS it would be reasonable to expect the income from John’s business in the next financial year to be equal to or better than that in the most recent 2009/2010 financial year.
- Contractor with no major expenses: We confirm that John Smith is operating as a sole trader that contracts to an IT business. He is paid an hourly contract rate and has no major expenses such as staff, tools or rent that other types of businesses may incur. For this reason it would be reasonable to assess his income in a similar method to that of someone who is employed on a PAYG basis.
- Change in ABN / Business structure: We confirm that Smith Family Printing Pty Ltd is the same business that was previously using John Smith’s sole trader ABN. Although this is a new entity, the business is essentially the same. John has been self employed in this business for over 6 years. For this reason it would be reasonable to assess these two entities as the same business when assessing John Smith’s ability to service a new loan.
- Family employees: We confirm that Anna Smith is employed by Smith Family Printing Pty Ltd which is owned by her father John Smith. She has been working for Smith Family Printing Pty Ltd for only four months and as such there has been no group certificate issued. We confirm that her income is $40,000 p.a. as shown on her payslips.
- Loan purpose confirmation: We confirm that to the best of our knowledge John Smith is using the proposed loan from ABC Bank to invest in shares.
- Discretionary trust distributions: We confirm that John Smith is the sole director & shareholder of the trustee company and also the appointer for his discretionary trust. He has full control of the current and future distribution of income from the trust.
He has chosen to distribute income from the trust to his mother and his sister to reduce his taxable income.
- Low doc loan accountants letter (Example 1): Re: John Smith, I have acted as an accountant and tax agent for the above mentioned client since 1/1/2000. The client is involved in the IT consulting industry. The income stated by the applicant, John Smith, on the self-certification form of $100,000 p.a. is gross profit after expenses and before income tax, is considered to be in line with previous financial year’s income level. if you have any further queries please do not hesitate to contact me on 02 0000 0000.
- Low doc loan accountants letter (Example 2): I understand that the Borrower has applied for a loan of $100,000, through ABC Bank, repayable by monthly instalments of $416.66 over 30 years at an interest rate of 5% per annum variable interest only. I know the Borrower’s income and expenditure and based on that knowledge and my understanding of the Borrower’s financial position I am of the opinion that the Borrower is able to repay the loan in accordance with its term and can do so without substantial hardship. I am not aware of any factors which may affect the Borrower’s ability to make the repayments or which may cause substantial hardship to the Borrower to make repayments. I confirm that the Borrower is a registered tax payer with the Australian Taxation Office (‘ATO’) and have lodged their most recent tax return for ATO assessment of income tax.
For more information please refer to our low doc loan with an accountant’s letter page.
There are many more possible situations where the lender may require a letter from your accountant.
We always try to discuss your situation with the lender’s credit manager to try to avoid wasting your accountant’s time by requesting a letter.
Some lenders, for example Rams Home Loans, La Trobe Financial or MKM Capital, have their own low doc loan accountants letter template for you to use.
If you are having trouble drafting a suitable accountant letter please call us on 1300 889 743 or enquire online for assistance.
Bank requirements for accountant letters
Australian lenders have similar requirements for accountant letters, and will often ask for a letter to be amended if it does not meet their requirements.
Your accountant letter should be:
- On your accountant’s company letterhead, including contact numbers, the firm’s ABN and any industry memberships / CPA qualifications
- Contain the name of person who signed the letter
- Contain the name of person who the letter is about, as well as their company (if applicable).
- Should confirm that the firm acts as the accountant for the person who the letter is about.
- Most accountants will require some kind of disclaimer to be in the letter to protect them from legal action.
Most lenders will accept a faxed copy however some will require your mortgage broker to hold the original on file.
Adding a disclaimer
Some accountants are unwilling to write a letter confirming the particulars of your situation. Normally this is because they are concerned about potential legal action.
Whilst obviously no accountant will sign a letter confirming something that is not true, it is unreasonable for an accountant to refuse to sign a letter that is true.
Banks will normally accept a disclaimer being added to the bottom of the lender. The wording of the disclaimer can be however the accountant sees fit. For exmaple:
“This information has been confirmed via independent enquiries with the above mentioned client. Whilst we believe the information to be true to the best of our knowledge, we accept no liability regarding the accuracy of this information or any loss incurred by any person or company who relies upon the information in this letter.”
Do you need help with your home loan?
If you need the services of a mortgage broker to help get your loan approved then why not talk to us at the Home Loan Experts? Please call us on 1300 889 743 or enquire online to speak to one of our experienced brokers.