How to Write a Letter of Explanation for a Mortgage

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When you use for a mortgage, nan lender will reappraisal accusation specified arsenic your in installments history, employment, income, assets, investments, and outstanding debts. But your financial statements, in installments report, and taxation returns don’t ever show nan afloat communicative astir your financial situation.

A missive of mentation helps explain immoderate accusation that mightiness springiness a lender pause. Learn much astir erstwhile you mightiness request a missive of mentation for a mortgage application and really to constitute nan letter. 

Key Takeaways

  • Some owe lenders whitethorn petition a missive of mentation if location is disorder astir immoderate specifications successful your financial documents.
  • If you’re applying for a government-backed owe for illustration an FHA aliases VA loan, a missive of mentation whitethorn beryllium required. 
  • Even if your lender doesn’t require a missive of explanation, including 1 whitethorn thief explain specifications successful your owe exertion that could different lead to denial. 
  • You whitethorn request to see supporting archiving to springiness your missive of mentation much credibility.

What Is a Letter of Explanation for a Mortgage?

A missive of explanation, sometimes referred to arsenic an LOX aliases LOE by owe underwriters, is akin to a screen missive for a occupation application. Just arsenic a screen missive expands connected nan specifications successful your resume, a owe missive of mentation further explains your financial documents. For example, you mightiness request to explicate that past year’s income wasn’t emblematic because you took a sabbatical, aliases that you missed a costs owed to a healthcare emergency. 

Why Do You Need a Letter of Explanation?

“A missive of mentation is not a modular aliases defaulted request for a owe application,” said Shmuel Shayowitz, president and main lending serviceman astatine Approved Funding, a licensed owe slope and nonstop lender. However, your mortgage lender whitethorn petition 1 if your financial accusation needs clarification. If you’re applying for a government-backed loan, nan agency that insures nan indebtedness whitethorn besides require a missive of mentation successful definite situations. 

Even if it’s not required, it can’t wounded to see a missive of mentation pinch your owe application. “The default for immoderate processors and underwriters is to presume nan worst aliases to err connected nan broadside of be aware erstwhile thing is unclear aliases complicated,” Shayowitz said. “Being proactive pinch mentation letters tin spell a agelong measurement successful helping a indebtedness processor and owe underwriter understand thing that mightiness beryllium confusing.”

In particular, nan pursuing situations merit nan inclusion of a missive of explanation. 

Erratic Income aliases Gaps successful Employment

Most lenders look for a accordant and reliable income that ensures you tin support up pinch your owe payments. If you were unemployed aliases did not person income for much than a period complete nan past 2 years, you should see a missive of mentation that specifications nan logic you weren’t working, specified as:

  • Childbirth aliases caring for different family member
  • Pursuing further education
  • Being laid off
  • Being self-employed aliases moving successful a seasonal industry
  • Going retired of business aliases downsizing


If you were capable to make regular payments connected your debts and support yourself pinch savings during that time, beryllium judge to mention that successful nan letter.

Issues connected Your Credit Report

If your in installments study shows reddish flags, for illustration missed payments aliases defaults, bankruptcies, aliases foreclosures, it’s basal to see a missive of mentation noting what happened and why it’s not apt to reoccur. You’ll besides want to see nan day of nan event, nan sanction of your creditor, and nan relationship number associated pinch nan delinquent debt.

No Rental aliases Mortgage Payment History

If you person been surviving pinch a friend aliases family personnel alternatively than making monthly lodging payments for your ain place, nan homeowner you unrecorded pinch will request to constitute a missive of explanation. The homeowner should explicate that they haven’t charged you rent and see nan dates you lived connected their spot earlier signing nan letter. 

Profits aliases Losses From Farming

If you revenge Schedule F pinch your taxation return because you earned aliases mislaid income from a workplace property, you’re required to see a missive of explanation. Include nan reside of nan workplace and intelligibly authorities that it is not located connected nan spot you’re buying pinch nan mortgage. 

Large Deposits aliases Withdrawals

If you received a ample deposit to your slope account, nan lender mightiness deliberation you accepted a gift aliases a indebtedness from a family personnel and wonderment if your income is capable without further help. A ample withdrawal whitethorn besides bespeak to nan lender that you’re having financial troubles. There are different reasons for ample slope transactions, however. For example, you whitethorn person received a prize from your employer, liquidated investments astatine an opportune time, aliases withdrawn costs for a location renovation. Include a missive of mentation that shows why nan atypical transaction occurred. 

Possible Occupancy Questions

Lenders underwrite vacation homes and finance properties otherwise from superior residences. It’s forbidden to misrepresent your occupancy intentions. If you’re applying for a superior residence owe for a spot located acold from your employer, aliases if you’re applying for a 2nd location owe for a spot successful adjacent proximity to your superior residence, nan lender whitethorn deliberation you intend to usage it arsenic a rental property. 

If you deliberation nan lender whitethorn person questions astir really you intend to usage nan property, see a missive of explanation. 

Address Discrepancies

If immoderate of your documents show a different address, you should see a missive of mentation pinch a logic for nan discrepancy to guarantee nan lender you’re not a unfortunate of personality theft. 

How to Write a Letter of Explanation

“Your mentation missive should beryllium specific, precise, and well-communicated,” said Shayowitz. Avoid wide statements astir your expertise to negociate your finances and speak to a circumstantial issue. 

For example, if you missed a payment, explicate why it happened, constituent to your different affirmative costs history, and authorities erstwhile you brought your relationship backmost up to date. A connection for illustration “I make each effort to enactment connected apical of my payments” is excessively vague because it won’t supply nan lender pinch nan specifications they request to make an support decision. 

You whitethorn request to connect supporting archiving arsenic well. For example, if you’re buying a location acold distant from work, you mightiness want to see a missive from your employer that shows your distant activity arrangement. If you took retired a ample withdrawal to salary for landscaping successful bid to prep your location for sale, see a receipt from nan landscaping company. If you missed a costs owed to being hospitalized, see aesculapian records. 

You’ll besides want to see nan pursuing elements:

  • Your name, address, and telephone number
  • The lender’s name, address, and telephone number
  • The owe exertion number
  • Your explanation, which should mention to nan attached documents that support it
  • Your signature and nan date

Example of a Letter of Explanation

Today’s Date

Example Lender
Lender Address

Loan Application Number

RE: Anna Smith’s Mortgage Application

To Whom It May Concern,

I americium penning to explicate my spread successful employment that occurred betwixt 02/15/2023 and 04/10/2023. 

My mother was admitted to nan infirmary for room connected 02/09/2023 aft a fall. I applied for Family and Medical Leave connected 02/10/2023 successful bid to attraction for my mother during her recovery. My employer approved FMLA-protected time off connected 02/14/2023. I person attached nan support missive from my employer, which grants up to 12 weeks of leave. 

During my play of unpaid leave, I relied connected capable reserves successful my savings relationship arsenic good arsenic my husband’s income to screen my expenses. I didn’t miss immoderate payments connected my in installments cards aliases car loan. I returned to activity connected 04/11/2023. In nan pursuing months, I made respective deposits into my Capital One savings relationship to replenish my reserves. 


Anna Smith

Anna Smith’s Address
Anna Smith’s Phone Number

How Do You Start a Letter of Explanation?

At nan apical of nan letter, see nan date, nan sanction of nan lender, nan lender’s address, and your indebtedness exertion number. In nan adjacent line, constitute “Re: (Your Name)’s Mortgage Application.” Address nan missive to “To Whom It May Concern,” and statement which rumor you are addressing successful nan first sentence. 

What If Your Mortgage Letter of Explanation Is Rejected?

If your missive of mentation is rejected, you person a fewer options. If nan accusation you provided wasn’t sufficient, you tin constitute a much elaborate missive and see supporting documentation. You tin besides effort applying for a owe from a different lender. If you’re struggling to get approved, you whitethorn request to resoluteness immoderate problem you’re explaining successful nan missive earlier trying again. 

How Long Should a Letter of Explanation Be?

A missive of mentation only needs to beryllium agelong capable to convey nan specifications of nan rumor you’re explaining. For example, if you missed a payment, you should see nan day of nan missed payment, nan logic you missed it, and really you’ve remedied aliases scheme to remedy nan issue. A fewer sentences whitethorn suffice, aliases your missive whitethorn tally longer if it’s a analyzable business and you request to reference supporting documents. 

Is a Letter of Explanation Necessary?

A missive of mentation is not ever necessary. If location are nary reddish flags successful your financial history, you whitethorn beryllium approved without a missive of explanation. But if location are issues that mightiness raise concerns, you’ll want to see a missive of explanation. You’ll besides request to constitute a missive of mentation if nan lender requests one, aliases if it’s required by nan authorities agency backing nan mortgage. For example, for each FHA-approved mortgages, nan Department of Housing and Urban Development (HUD) requires a missive of mentation from borrowers who person postulation accounts aliases judgments.

The Bottom Line

A missive of mentation tin thief your owe exertion process, particularly if you person had financial issues you want to clarify. A bully missive will reside nan circumstantial issues and explicate why they are not apt to reoccur. Consider consulting a existent property master for much guidance successful penning a missive of mentation that fits your needs.

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