If you’re in the process of applying for a mortgage, you may be asked to write a letter of explanation to clarify certain aspects of your financial history. This can be a daunting task, but with the right guidance, it can be done effectively. In this article, we’ll provide you with a step-by-step guide on how to write a letter of explanation for a mortgage, along with a template and examples to help you get started.

What is a Letter of Explanation?

A letter of explanation is a document that outlines the reasons for a particular financial situation. It’s a formal way to provide additional information that can help the lender understand the situation and make an informed decision. This letter is typically requested by the lender when they see a potential red flag in the borrower’s financial history.

The letter’s tone and content should be straightforward and unambiguous. It should provide a brief explanation of the situation, including any extenuating circumstances that may have contributed to the situation. It should also explain what steps you have taken to resolve the issue and prevent it from happening again in the future.

When is a Letter of Explanation Required?

A letter of explanation may be required for a variety of reasons, including:

  • Gaps in employment history
  • Credit card or bill payments that are past due
  • High credit card balances
  • Recent job changes
  • Bankruptcy or foreclosure
  • Changes in income
  • Large deposits into your bank account
  • Inconsistencies in your credit report

If any of these situations apply to you, your lender may ask you to provide a letter of explanation.

Tips for Writing a Letter of Explanation

When writing a letter of explanation, there are a few tips to keep in mind:

  • Be honest: Your lender is looking for transparency and honesty. Don’t be dishonest or stretch the truth in any way.
  • Don’t ramble: Write a succinct, to-the-point letter. Stick to the facts and avoid providing unnecessary details.
  • Provide context: Explain the circumstances that led to the situation and provide any relevant background information.
  • Offer a solution: Provide information about what you have done to resolve the issue and prevent it from happening again in the future.

Letter of Explanation Template

Here’s a basic template you can use when writing your letter of explanation:


[Your Name] Where You Live: [Location: City State ZIP] [Your Contact Information] Email Address [Your Personal]

“[Name of Lender]” [Loan Service Location] [Location: City State ZIP]

Dear [Lender’s Name],

I am writing to explain [the situation you are addressing, such as a late payment or gap in employment]. The reason for this situation was [provide a brief explanation of what happened].

I understand that this may be seen as a red flag by your team, and I want to assure you that I have taken steps to prevent this from happening again in the future. [Provide details about the steps you have taken to resolve the situation.]

I hope that this letter provides the context and information that you need to make an informed decision about my mortgage application. Don’t hesitate to ask if there’s anything else I can do to help.

Thank you for your time and consideration.


[Your Name]

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Writing a letter of explanation for a mortgage can be nerve-wracking, but it doesn’t have to be. By following the tips and using the template and examples provided in this article, you can craft a letter that provides the context and information that your lender needs to make an informed decision.

Remember to be honest, and concise, and provide relevant background information. Offer a solution and explain what steps you have taken to prevent the situation from happening again in the future.


  1. Is a letter of explanation required for every mortgage application? Not necessarily. A letter of explanation is typically only required if there are red flags or inconsistencies in your financial history that need to be explained.
  2. How long should a letter of explanation be? An explanation letter has to go right to the point. Try to keep it to a single page at most.
  3. Can I use the same letter of explanation for multiple situations? No. Your letter of explanation should be tailored to the specific situation that needs to be explained. Using a generic letter of explanation can come across as insincere and may not provide enough detail to address the specific issue.
  4. Should I include supporting documents with my letter of explanation? If you have supporting documents that can further explain your situation, it’s a good idea to include them with your letter. This can include things like medical bills or proof of income. However, make sure to only include relevant documents and not overwhelm your lender with unnecessary information.
  5. What if I’m not sure how to explain a certain situation? If you’re not sure how to explain a certain situation on your own, consider reaching out to a financial advisor or mortgage professional for guidance. They can help you craft a letter of explanation that is clear, concise, and effective in addressing any concerns your lender may have.

How to Write a Letter of Explanation for a Mortgage

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