{"id":322660,"date":"2024-11-13T08:35:01","date_gmt":"2024-11-13T13:35:01","guid":{"rendered":"https:\/\/www.houzeo.com\/blog\/?p=322660"},"modified":"2025-02-11T05:20:02","modified_gmt":"2025-02-11T10:20:02","slug":"letter-of-explanation","status":"publish","type":"post","link":"https:\/\/www.houzeo.com\/blog\/letter-of-explanation\/","title":{"rendered":"Know How to Write A Letter of Explanation"},"content":{"rendered":"\n<p>Over the last two decades, mortgage approval rates have been low, at <a href=\"https:\/\/www.nar.realtor\/blogs\/economists-outlook\/mortgage-rates-and-approval-rates-in-the-last-5-years#:~:text=Insights%20from%20the%20Historical%20Data,as%20in%202011%20(48.44%25).\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">53.2%<\/a>. In 2023, the average rejection rate of mortgage applications decreased by 2.5 percentage points to <a href=\"https:\/\/www.newyorkfed.org\/newsevents\/news\/research\/2023\/20231120#:~:text=Rejection%20Rates%3A&amp;text=The%20average%20rejection%20rate%20of,of%20our%20series%20in%202013.\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">12.1%<\/a>. In that case, providing a letter of explanation to a lender will help you get loan approval.<\/p>\n\n\n\n<p>A letter of explanation is a document that will explain the reasons; it could be an employment gap, low credit score, inconsistency in income, etc. Providing the LOE to the lender will help you clear the justification behind it and build trust.<\/p>\n\n\n\n<p>Additionally, lenders may offer support by answering questions and helping you gather the necessary documentation.<\/p>\n\n\n\n<div class=\"block-takeaways\"><p class=\"topHead\"><\/p><p class=\"headKeytake\"><b>\ud83d\udcb0Letter of Explanation for Loan\n<b> <\/b><\/b><\/p><b><b>\n<ul>\n<li>For collections, late payments, and serious credit issues like bankruptcies or foreclosures, a letter of explanation is always required.\n<\/li>\n<li> Underwriters need letters of explanation for specific application-related problems.\n<\/li>\n<li> If you are applying for a mortgage in your name alone but have a joint account with someone else, your lender may also ask you to explain.\n<\/li>\n<\/ul>\n<\/b><\/b><\/div>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"What-is-a-Letter-of-Explanation\"><strong>What Is a Letter of Explanation?<\/strong><\/h2>\n\n\n\n<p>A letter of explanation for a mortgage is a written, signed, and dated document. It contains information about your application, credit report, and financial background. It also helps to clarify any financial inconsistencies that may hinder your loan approval process.<\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"How-Does-Underwriting-Help-Mortgage-Applications\"><strong>How Does Underwriting Help Mortgage Applications?<\/strong><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.houzeo.com\/blog\/underwriting\/\" target=\"_blank\" rel=\"noreferrer noopener\">Underwriting<\/a> helps assess the risk associated with approving your loan. Underwriters use this data with other factors like employment history, income stability, a <a href=\"https:\/\/www.houzeo.com\/blog\/how-to-buy-a-house-with-bad-credit\/\" target=\"_blank\" rel=\"noreferrer noopener\">low credit score<\/a>, etc.<\/p>\n\n\n\n<p>An underwriter may ask for a letter of explanation to overcome your financial issues with a mortgage loan.<\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Documents-Required-for-Explanation-Letter\"><strong>Documents Required for Explanation Letter <\/strong><\/h2>\n\n\n\n<p>Depending on the type of explanation required and the details of your financial situation. Different documents may be needed for an explanation letter (LOE).<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Tax returns<\/li><li>Bank statements<\/li><li>Copies of bills<\/li><li>Termination letters (for gaps in employment)<\/li><li>Divorce papers<\/li><\/ul>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Why-Should-I-Provide-a-Mortgage-Letter-of-Explanation\"><strong>Why Should I Provide a Mortgage Letter of Explanation?<\/strong><\/h2>\n\n\n\n<p>It is important to provide a mortgage letter of explanation if you:<\/p>\n\n\n\n<p><strong>1. Have Employment Gaps:<\/strong> To get a mortgage loan, you should not have any employment gaps. If you do, a letter of explanation is required to explain these reasons. It could be because you are pursuing further studies, have medical issues, etc.<\/p>\n\n\n\n<p><strong>2. Get a Negative Credit Report:<\/strong> If there are any issues with your credit report, a letter of explanation can help. It will state the reasons for low <a href=\"https:\/\/www.houzeo.com\/blog\/what-credit-score-is-needed-to-buy-a-house\/\" target=\"_blank\" rel=\"noreferrer noopener\">credit scores<\/a>, late payments, etc.<\/p>\n\n\n\n<p><strong>3. Have Different Addresses:<\/strong> If the address on your driver\u2019s license does not match the address on your loan application. A letter of explanation could help you explain the reason.<\/p>\n\n\n\n<p><strong>4. Report Changes in Income:<\/strong> Underwriters check to see if your income is stable or if there has been a significant increase or decrease in it. You may need this letter from your tax expert to prove your income stability for loan approval.<\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"How-Do-I-Write-a-Letter-of-Explanation-for-a-Mortgage\"><strong>How Do I Write a Letter of Explanation for a Mortgage?<\/strong><\/h2>\n\n\n\n<p>Here are some of the simple steps to follow for writing an explanation letter:<\/p>\n\n\n\n<p><strong>1: <\/strong>Start your letter of explanation by using the mortgage underwriter&#8217;s name or title.<\/p>\n\n\n\n<p><strong>2: <\/strong>Put your name, address, loan account number, and date at the top of the letter.<\/p>\n\n\n\n<p><strong>3: <\/strong>The tone of your letter of explanation should be polite and professional.<\/p>\n\n\n\n<p><strong>4: <\/strong>Include specific details that support your explanation, e.g., dates, names, and any other supporting documents.<\/p>\n\n\n\n<p><strong>5: <\/strong>If the issue involves mistakes on your part, be responsible for them and also show an understanding of the situation.<\/p>\n\n\n\n<p><strong>6: <\/strong>Provide ample details but keep the mortgage letter concise and focused.<\/p>\n\n\n\n<p><strong>7: <\/strong>Conclude the letter on a positive note and express your gratitude once again.<\/p>\n\n\n\n<p><strong>8: <\/strong>Before submitting the letter, review it to avoid errors. If possible, enclose your letter with any supporting documents mentioned in the letter<\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Format-of-Letter-of-Explanation\"><strong>Format of Letter of Explanation <\/strong><\/h2>\n\n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<div class=\"wp-block-columns is-layout-flex wp-container-core-columns-is-layout-9d6595d7 wp-block-columns-is-layout-flex\">\n<div class=\"wp-block-column is-layout-flow wp-block-column-is-layout-flow\" style=\"flex-basis:100%\">\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-flow wp-block-group-is-layout-flow\">\n<figure class=\"wp-block-image size-large\"><img decoding=\"async\" loading=\"lazy\" width=\"840px\" height=\"450px\" src=\"https:\/\/www.houzeo.com\/blog\/wp-content\/uploads\/2024\/01\/Letter-copy-2-1024x882.png\" alt=\"\" class=\"wp-image-471982\" srcset=\"https:\/\/www.houzeo.com\/blog\/wp-content\/uploads\/2024\/01\/Letter-copy-2-1024x882.png 1024w, https:\/\/www.houzeo.com\/blog\/wp-content\/uploads\/2024\/01\/Letter-copy-2-300x258.png 300w, https:\/\/www.houzeo.com\/blog\/wp-content\/uploads\/2024\/01\/Letter-copy-2-768x661.png 768w, https:\/\/www.houzeo.com\/blog\/wp-content\/uploads\/2024\/01\/Letter-copy-2-1536x1323.png 1536w, https:\/\/www.houzeo.com\/blog\/wp-content\/uploads\/2024\/01\/Letter-copy-2-2048x1764.png 2048w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div><\/div>\n<\/div>\n<\/div>\n<\/div><\/div>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Benefits\"><strong>Benefits of Letter of Explanation<\/strong><\/h2>\n\n\n\n<p>A letter of explanation offers several advantages:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Effective Financial Communication:<\/strong> In financial difficulties, an explanation letter will showcase a positive approach. Also, it will help creditors understand that you\u2019re committed to solving the problem.<\/li><li><strong>Correction of Errors:<\/strong> When there is a mistake on official documents, a letter of explanation helps to rectify it, such as late payment issues, bad credit scores, etc.<\/li><li><strong>Mitigation of Legal Issues:<\/strong> In court cases, you can give your side of the story by writing a letter of explanation. It may affect the outcome and make the resolution more agreeable.<\/li><\/ul>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"Bottom-Line\"><strong>Bottom Line <\/strong><\/h2>\n\n\n\n<p>A well-written letter of explanation is a document that can help with your <a href=\"https:\/\/www.houzeo.com\/blog\/how-to-get-a-mortgage\/\" target=\"_blank\" rel=\"noreferrer noopener\">mortgage application<\/a>. Whether it&#8217;s about your credit history or job application this letter allows you to provide important details and context.<\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\"><strong>Find Your New Home With Houzeo<\/strong><\/h2>\n\n\n\n<p>With thousands of property listings, Houzeo.com is one of the biggest property listing sites in the US. Find condos, townhouses, co-ops, and other types of <a href=\"https:\/\/www.houzeo.com\/homes-for-sale\" target=\"_blank\" rel=\"noreferrer noopener\">homes for sale<\/a> on Houzeo.<\/p>\n\n\n\n<p class=\"margin-top-15\"><strong>\u00bb NEED MORE CLARITY?&nbsp;<\/strong>Read these exclusive&nbsp;<a href=\"https:\/\/www.realestatequeen.com\/houzeo-reviews\/\" target=\"_blank\" rel=\"noreferrer noopener\">Houzeo reviews<\/a>&nbsp;and learn why the platform is the best in America\u2019s competitive housing market.<\/p>\n\n\n\n<h2 class=\"margin-top-28 wp-block-heading\" id=\"FAQs\"><strong>Frequently Asked Questions<\/strong><\/h2>\n\n\n\t\t<div class=\"wp-faq-schema-wrap wp-faq-schema-accordion\">\n\t\t\t\t\t\t<div class=\"wp-faq-schema-items\">\n\t\t\t\t\t\t\t\t\t<p class=\"ui-accordion-header\">\n\t\t\t\t\t\tWhat details to be included in the letter of explanation for loan approval?\t\t\t\t\t\t<span class=\"ui-accordion-header-icon ui-icon ui-icon-triangle-1-s\"><\/span>\n\t\t\t\t\t<\/p>\n\t\t\t\t\t<div class=\"ui-accordion-content\">\n\t\t\t\t\t\t<p>In the letter of explanation, one should include name, address, loan account number, and date.<\/p>\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t<p class=\"ui-accordion-header\">\n\t\t\t\t\t\tWhat should be the length of the letter of explanation?\t\t\t\t\t\t<span class=\"ui-accordion-header-icon ui-icon ui-icon-triangle-1-s\"><\/span>\n\t\t\t\t\t<\/p>\n\t\t\t\t\t<div class=\"ui-accordion-content\">\n\t\t\t\t\t\t<p>The length of the letter of explanation should be concise and focused. There is no word limit; generally, one or two pages are enough to explain the circumstances.<\/p>\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t<p class=\"ui-accordion-header\">\n\t\t\t\t\t\tIs mortgage approval assured by a letter of explanation?\t\t\t\t\t\t<span class=\"ui-accordion-header-icon ui-icon ui-icon-triangle-1-s\"><\/span>\n\t\t\t\t\t<\/p>\n\t\t\t\t\t<div class=\"ui-accordion-content\">\n\t\t\t\t\t\t<p>The approval of a mortgage is not guaranteed by a letter of explanation. But it gives the lender clarity, which may help them make a better choice.<\/p>\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t\t\t<p class=\"ui-accordion-header\">\n\t\t\t\t\t\tIs it important to include supporting documents with my letter of explanation?\t\t\t\t\t\t<span class=\"ui-accordion-header-icon ui-icon ui-icon-triangle-1-s\"><\/span>\n\t\t\t\t\t<\/p>\n\t\t\t\t\t<div class=\"ui-accordion-content\">\n\t\t\t\t\t\t<p>If you mention specific details in your explanation letter, such as names, dates, or any action taken, including <a href=\"#Documents Required for Explanation Letter\">supporting documents<\/a>, it will be easy.  It will add more credibility to your letter and provide more clarity to the lender.<\/p>\n\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\n","protected":false},"excerpt":{"rendered":"<div class=\"new-excerpt\"><p class=\"small-desc\">Know the reasons for providing an explanation letter for mortgage approval and know how to write one. Use our free...<\/p><\/div><div class=\"reading_date\"><span class=\"readtime\">5 mins read<\/span><span class=\"date\">Nov 13, 2024<\/span><\/div>","protected":false},"author":102,"featured_media":428252,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[46225,46240],"tags":[],"class_list":["post-322660","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buyer","category-mortgage-terms"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Letter of Explanation: How to Write One? | Get a Free Template<\/title>\n<meta name=\"description\" content=\"Know the reasons for providing an explanation letter for mortgage approval and know how to write one. Use our free template\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.houzeo.com\/blog\/letter-of-explanation\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Letter of Explanation: How to Write One? | Get a Free Template\" \/>\n<meta property=\"og:description\" content=\"Know the reasons for providing an explanation letter for mortgage approval and know how to write one. 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