Your lender asks for a letter of explanation, now what? Here's why and what to do.
A letter of explanation for a mortgage, also called an LOE, is a written document a borrower submits to their lender upon request during the underwriting process to clear up potential red flags, such as gaps in employment history or a previous bankruptcy.
When you apply for a mortgage, your lender reviews your financial information to assess your income, debts, assets, employment status, credit history, and identity. These documents are essential to the underwriting process to help determine your lending risk and borrowing power. If any discrepancies show up during your assessment, your lender may also ask you to provide a letter of explanation.
A letter of explanation could be the deciding factor that gets you the mortgage you need. However, you should only submit a letter if your lender requests it. Before applying for a loan, consult with one of our loan officers here at Zillow Home Loans* for mortgage application advice.
There can be many reasons why a lender might ask for a letter of explanation. Let’s say you have recent debt consolidation activity. In that case, your lender may want to know what led to those circumstances, why you chose to consolidate your debt, and how it’s positively impacting your current financial situation.
Here are some of the most common reasons for needing to write a letter of explanation for a mortgage:
Remember, these things aren’t necessarily deal-breakers and likely won’t keep you from getting mortgage approval. The key is to address any potential concerns proactively and provide context for the circumstances that apply to you in a way that demonstrates your financial responsibility and ability to manage a mortgage.
Your lender will advise you on how to write a letter of explanation for a mortgage, if requested. Letters of explanation are generally concise, and resolve a specific lender concern based on your mortgage application. Your letter of explanation may explain what is being resolved, how it was resolved, or steps you’re taking to prevent it from happening.
The information included in a letter of explanation will vary depending on your unique situation. If asked to write a letter of explanation, your lender will typically provide you with a template.
If your lender rejects your letter of explanation, you still have options. First, speak with your lender to ask for clarification regarding why they rejected the letter, and ask if you can submit a second letter. From there, you can revise your initial letter or write another one, providing any additional information the lender needs to understand your financial circumstances.
If a second letter doesn’t work, you may want to consider your other options, such as working with a different lender or exploring alternate mortgage loans. You may also want to review your current financial situation to see where you can make improvements before applying for another mortgage loan.
If you’re concerned about being approved for a mortgage, consider speaking with a mortgage expert to discuss your loan options and start your home-buying journey without unnecessary stress. You can find a professional through our lender directory or speak directly with one of our loan officers here at Zillow Home Loans*.
*An equal housing lender. NMLS #10287
How much home can you afford?
At Zillow Home Loans, we can pre-qualify you in as little as 5 minutes, with no impact to your credit score.
Zillow Home Loans, NMLS # 10287. Equal Housing Lender
Get pre-qualifiedSee what's in reach with low down payment options, no hidden fees and step-by-step guidance from us at
Zillow Home Loans.
Zillow Home Loans, NMLS # 10287. Equal Housing Lender
Calculate your BuyAbility℠
Related Articles
Go from dreaming to owning with low down payment options, competitive rates and no hidden fees. A dedicated loan officer will guide you until you have your keys in hand.
Zillow Home Loans, NMLS #10287. Equal Housing Lender.