Letter of Explanation for Mortgage — Free Template for Underwriting

An underwriter's job is to document that you can and will repay the loan. When something in your file could affect that, such as new credit, unexplained money, gaps in income or past payment problems, they add a condition asking you to explain it. The letter goes into your loan file so the decision is supported on paper.

Common requests include credit inquiries from the last few months, late payments, collections, large or irregular deposits, employment gaps, a recent job change, a different address on your credit report and a nontraditional source of income. Your loan officer will usually forward the exact wording of the condition.

Mirror the request. If the underwriter listed three inquiries, address each one by creditor and date. Give a direct answer in the first sentence, then a sentence or two of context, then the current status. Avoid emotional detail or long histories; underwriters want facts they can verify.

Always say whether the item resulted in new debt, a new account or a change in income, because that's what affects your approval. If it did, say so honestly and give the terms. Attach any document that proves your explanation, such as a bill of sale, offer letter, gift letter or payoff statement.

Respond within a day or two if you can. Conditions that sit open can push back your closing date and, if it drags on, your rate lock. Until you close, avoid opening new credit, making large purchases on credit, moving money between accounts without records or changing jobs without telling your loan officer.

A letter of explanation is a routine part of underwriting, not a sign that your loan is in trouble. If the underwriter needs more, they'll usually ask a follow-up question or request a specific document. Answer the new request directly rather than rewriting your whole letter.

If the item reveals something that changes your loan, such as a new debt from a credit inquiry or a deposit that turns out to be borrowed, the lender may recalculate your debt-to-income ratio or ask for more documentation. Being upfront from the start avoids surprises at closing.

If your loan is denied, ask your loan officer for the specific reason. Sometimes a different loan program, a larger down payment or waiting a few months to add more history solves the problem. Never change facts to fit the lender's requirements; misstatements on a mortgage application can have serious consequences.