Refinancing can give you a mortgage with lower interest rates and even cash-out options. A cash-out refinance gives you a new mortgage for more than you still owe on your home – making it possible to use the extra funds elsewhere. Sounds good, but of course there's a catch -- you have to convince the lender to hand over the money. This “letter of explanation” must include copies of any medical bills, tuition bills, or unemployment documents you may want to use to convince the lender you need the cash.
Compose the inside address of the letter to the lender and add the current date. Write: “Letter of Explanation” and add any account numbers as the subject of the letter.
Explain the purpose of the letter in the opening paragraph. For example, you might write: “This letter is an explanation of the cash-out refinance for Roger and Amanda Perkins. The reasons for the cash-out refinance are as follows.”
Enumerate the reasons for your cash-out refinance. For example, if you have extensive medical bills due to an illness within your family, write a few lines to explain the situation and the amount of money you need to pay your bills. If you need tuition help, explain the amount of money you need to pay tuition costs. If you have important home improvement expenses, explain the work and include the amount of money it will cost.
Check your letter against your refinance documents to ensure the amount of the cash-out refinance matches the amount of money you need. Proofread the letter for spelling and grammatical errors. Make any necessary corrections.
Sign the letter. Put your email address and telephone number under your signature. Attach the copies of the supporting documents and send the letter to the lender.
- A lender may need information about your “net tangible benefit” regarding the cash-out refinance. In this case, you must discuss how the benefit of the cash-out outweighs any costs incurred from the refinance.