Letter of Explanation to Mortgage Lenders

by Ciaran John, Demand Media
    A letter of explanation supplements the information you provided on your mortgage loan application.

    A letter of explanation supplements the information you provided on your mortgage loan application.

    Lenders like everything to appear in black and white, which is why you have to submit a boatload of supporting documents when you submit a mortgage application. Your lender largely relies on information included in your tax returns, pay stubs, W-2 forms, bank statements and credit report to decide whether to award the loan. However, you cannot always get the whole picture just by looking at numbers and statistics. A mortgage explanation letter fills in the holes in your application.

    Credit Inquiries

    Your credit applications appear on your credit report as "hard hits," which means the inquiries were connected to an actual credit application. Lenders can view these hard hits when they review your report. It often takes a few months for a new credit card or loan to appear on your credit report so "hard hits" make lenders feel uneasy because they want to know about your other debts. You can write a mortgage explanation letter to explain recent credit inquiries on your report. In your letter you must explain what you applied for, when you applied for it and the outcome of the application. Simply put, your lender wants to make sure you are not trying to take on more new debt that you can afford in addition to the mortgage.

    Income

    You might have a highly paid job today but do you have the staying power to keep that job? Lenders want to make sure that you have the ability to generate enough income to pay your mortgage. Many lenders ask you to provide a two-year work history to show that you have a steady source of income. but you might have gaps in your employment due to time spent in college, involuntary unemployment or periods of ill health. You can use a letter of explanation to detail the reasons behind your checkered work history.

    Cash

    You normally have to pay both closing costs and a down payment when you take out a loan. Some loan programs, including those backed by the Federal Housing Administration allow you to get money from your relatives to cover these costs. However, you can use only gifted funds as opposed to borrowed money because lenders do not want your relatives placing a lien on the home if you fail to repay a loan. In such situations, your relatives must write a letter to your lender explaining that the cash in question represents a no-strings-attached gift.

    Personal Details

    The credit bureaus compile your report based upon information found in public records as well as information provided by your creditors. If you get married and change your name or change addresses frequently then the credit bureaus may flag your account. This means that lenders should proceed with caution before extending you credit because your report contains contradictory information. You need to prove to your lender that you are really who you say you are by writing a letter of explanation and including copies of utility bills or your marriage certificate to substantiate the information in the letter.

    About the Author

    Ciaran John began writing in 1994 with contributions to "The Hourly Press" and "The Sawbridgeworth Observer," and has since written for many online and print publications. He has 12 years experience working for financial services companies as a business banker, lender and investment representative and spent four years working in human resources.

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