![]() ![]() You don’t need to worry if your lender requests a letter of explanation. Start here (Aug 13th, 2023) How to write a letter of explanation If you were a victim of monetary fraud or identity theft, that’s not a deal-breaker, but you will need to include the specifics in your letter.Ĭheck today's mortgage rates. Your credit report may be cause for concern if it shows overdraft fees, considerable cash withdrawals or some other unexplained financial irregularity. In your letter spell out the cause and let the underwriter know that you’ll still be able to make your mortgage payments. Lots of reasons may have caused this decline in income, including having a baby, getting divorced, advancing your education, traveling or starting your own business. When your income decreases or vanishes, it’s a red flag to the mortgage loan company. If most of your history suggests you pay on time, a letter stating your case should be sufficient to put your lender at ease. The cause may be an interruption in employment or a medical issue. If you’ve made late payments - or missed payments - to creditors then a lender will want to understand why. An example would be that you sold a car to someone and then deposited the check they wrote you. If the underwriter doesn’t recognize the source of a large deposit into your bank account, they’ll ask you to explain why it’s there and where it originated. Sizeable deposits into one of your accounts Lenders can be more flexible when they have all the details about your scenario. For instance, many workers were laid off during the Covid pandemic but otherwise have an excellent track record of employment. If you’ve experienced a significant gap between jobs and subsequently failed to meet a financial obligation, you can explain the situation and why it won’t happen again.Ī letter of explanation can also help if your employment gap was an anomaly. For example, perhaps you moved to an apartment while house shopping, weren’t sure how long you’d be renting and applied using your parent’s address. If you have a valid reason for the inconsistency in addresses, this is your chance to clear up any confusion. ![]() When you apply with an address that differs from the one at the credit bureaus, the lenders view ID theft as a distinct possibility. The Federal Trade Commission (FTC) enforces an address discrepancy rule which puts the burden on mortgage loan originators, brokers, lenders and banks to report your correct address to the various credit agencies. There are a number of reasons a lender might request a letter of explanation, but here are six of the most common. Check your underwriter’s request to understand what needs explaining. Mortgage lenders express interest in out-of-the-ordinary happenings with your finances because those could prevent you from making future house payments. Anything that strikes the lender as a red flag is fair game for a letter of explanation. Technically, the lender can ask anything about your financial situation. Typically, mortgage lenders will request a letter of explanation when they want to know more about your income, employment or credit. Why do lenders ask for a letter of explanation? ![]() An underwriter may request a letter of explanation if they run into questions about your finances during the mortgage approval process. Start here (Aug 13th, 2023) What’s a letter of explanation?Ī letter of explanation (sometimes called an LOE or LOW) is a document requested by mortgage lenders when they want more details about your financial situation. And this guide will tell you how to do it.Ĭheck today's mortgage rates. A letter of explanation can allow you to clarify any complications, including glitches in your credit history or employment, to help you qualify for a home loan. Standard mortgage forms often don’t leave space for you to explain any unusual or problematic components of your application. When you’re asked to write a letter of explanation by a mortgage underwriter, look at this as a valuable opportunity to clearly communicate your situation. ![]()
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