Letter of Explanation

A letter of explanation is a concise document that you may use to explain anything in your financial or employment papers that may cause an underwriter to hesitate. For example, if you have unexpected or abrupt activity in your credit report or financial accounts, you may need to send a letter of explanation. If your lender requires one of these letters, don't think they won't be able to provide you a loan — the reverse is often true. They may want clarification or further information on your credit report or bank account. In many circumstances, letters of explanation are required from secondary authorities that own or support the debt. Such underwriting rules are imposed on lenders by the Federal Housing Administration (for FHA loans), the Department of Veterans Affairs (for VA loans), and Fannie Mae or Freddie Mac (for conventional loans). Furthermore, lenders who offer jumbo loans may have stricter qualifying requirements.