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5 min read May 22, 2023

How to Write a Letter of Explanation for a Mortgage

A letter of explanation for a mortgage is a crucial part of your mortgage application process. It helps you clearly explain your financial situation to lenders and improve your home approval chances.

The Basics Of Underwriting

Underwriting refers to evaluating and assessing the risk associated with a mortgage loan application. While applying for a home mortgage, the lender assigns an underwriter to review the borrower’s application.

The lender would approve the loan once the borrower meets the necessary criteria to qualify for it.

What’s A Letter Of Explanation?

A letter of explanation is a document given to the lender along with the mortgage application. It provides an explanation regarding specific circumstances, events, or issues related to a loan application.

Further, it is used to address any discrepancies, gaps, or unusual elements in the application that may require further explanation. The letter helps underwriters and lenders understand the borrower’s situation and make an informed decision.

Why Do I Need To Provide A Letter Of Explanation?

You may have to provide a letter of explanation in various situations. Here are some common reasons:

  • Clarification of Financial Information: Lenders or underwriters may request a letter of explanation. Moreover, you must clarify any discrepancies, or unusual financial information in your application. Information like changes in income, large deposits or withdrawals, or outstanding debts.
  • Employment History: Also, you need to explain any gaps in your employment history or career path. This will allow the lenders to understand your work situation and stability.
  • Credit Issues: If there are negative items or mistakes on your credit report, a letter of explanation can assist you in smoothly navigating the application process. It will provide context, explanation, or evidence of any such circumstances impacting your creditworthiness.
  • Mortgage Application: When you apply for a mortgage, a letter of explanation will address specific requirements or conditions imposed by the lender. Situations like the source of your down payment, a history of house renting, or any other factors that need clarification.
  • Legal or Personal Matters: Additionally, some cases may demand a letter of explanation to explain legal matters. This includes bankruptcy, divorce, or other significant life events which would have affected your financial situation.

Furthermore, a letter of explanation allows you to provide additional context, clarification, or supporting documentation.

How To Write A Letter Of Explanation

Writing a letter of explanation can be a straightforward process if you follow a structured approach. Here is what should be in a letter of explanation:

  • Address the letter to the appropriate recipient, such as the underwriter, loan officer, or the relevant party involved. Include their name, title, company, and address.
  • Start the letter with a polite and professional salutation, such as “Dear [Recipient’s Name].”
  • In the opening paragraph, clearly state the purpose of the letter. Explain that you are providing a letter of explanation along with your application.
  • Provide background information regarding the situation or issue that requires explanation.
  • Explain the circumstances to provide a clear and detailed explanation of the circumstances or events in question. Moreover, be honest, transparent, and provide all relevant information. If applicable, include dates, names, or any supporting documentation that can substantiate your explanation.
  • Acknowledge responsibility involving any mistakes or shortcomings on your part. Demonstrate that you have learned from the experience and will work to avoid similar issues in the future.
  • If the situation calls for an apology, express sincere remorse and apologize for any inconvenience, confusion, or misunderstanding caused.
  • Provide any supporting evidence or documentation that can support your explanation. This may include bank statements, pay stubs, legal documents, or any other relevant paperwork.
  • Conclude the letter with a polite closing. Closing such as “Thank you for your understanding” or “I appreciate your attention to this matter.” is recommended.
  • Lastly, end the letter with a professional sign-off, such as “Sincerely” or “Best regards.”
  • Before sending the letter, review it for grammar, spelling, and clarity.

Remember to maintain a professional and respectful tone throughout the letter. Keep it concise, focused, and relevant to the specific situation.

It’s essential to customize the letter to the specific requirements of your situation.

Letter of Explanation Template

[Your Name]
[Your Address]
[City, State, ZIP Code]
[Email Address]
[Phone Number]

[Recipient’s Name]
[Recipient’s Position]
[Company Name]
[Company Address]
[City, State, ZIP Code]

Dear [Recipient’s Name],

Subject: Letter of Explanation

This letter aims to explain and clarify the specific circumstances or issue that requires attention. I understand that you need additional information to address any concerns that may have arisen regarding my [application, financial history, employment, credit report, etc.]. Therefore, I would like to provide a detailed account of the circumstances surrounding the situation in question.

First and foremost, I want to assure you that I am fully committed to rectifying or addressing the situation to the best of my abilities. If appropriate, we have already taken actions to correct any errors or make amends for any negative impact resulting from the situation.

Your understanding and consideration in reviewing this matter are greatly appreciated. Moreover, your attention to this issue is crucial to me. I am prepared to provide any additional information or clarification that may be required. Please feel free to contact me at [your phone number] or [your email address] if you have any further questions or if there is a need for any additional documentation.

Once again, thank you for your time and patience. This explanation and clarification aim to resolve any concerns or uncertainties you may have had. I look forward to the opportunity to address this matter and move forward positively.


[Your Name]

Bottom Line

Overall, a letter of explanation serves as a means to bridge gaps in understanding and rebuild trust between the lender and the borrower. It helps lenders or underwriters make informed decisions and assess your creditworthiness accurately.

Frequently Asked Questions

How to write a letter of explanation?

You need to write a clear copy of letter of explanation in order to address an event. Remember the points like:
1. Keep it professional
2. Clear reason for writing a letter
3. Brief background
4. Take responsibility of the event.
5. Proofread your letter
6. Mention the attached proofs
7. End the letter with a kind note

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