How to Write a Letter of Explanation

During the mortgage process, if the lender notices any “red flags” in your application, they may request more information from you in the form of a letter of explanation. Sometimes a letter of explanation is referred to by the abbreviation “LOE” or “LOX.”

The purpose of the letter of explanation is to give you a chance to explain situations that might otherwise stand in the way of qualifying you. For instance:

• Variances in income, or a drop in income.
• An employment history with unexplained gaps.
• Issues in your credit report, such as accounts you are past due on, or information that does not match what you gave during the application process.
• Unexpected changes in your career trajectory.
• Especially large deposits or withdrawals from your bank accounts.

When we ask for a letter of explanation, we are offering you an opportunity to address concerns about scenarios that a big bank might simply turn you down if they encountered.

What to Include in a Letter of Explanation

Make sure your letter of explanation includes:

• Your name and full contact information
• The lender’s name and full contact information
• Today’s date
• Your expected closing date
• Your reference number, if applicable
• The explanation itself
• Your signature at the end of the letter

How to Write Your Letter of Explanation Effectively

It is not difficult to write a letter of explanation. In fact, it should not be very long, but you may want to spend some extra time on it just to make sure it says what you need it to say. Here are some pointers:

• First, say what you are addressing in the letter. You can usually do this in just a few sentences.
• Next, explain what you need to explain. This will usually only require a few paragraphs.
• Try and keep your explanation brief and to the point.
• Include all pertinent details that could have an impact on your application.
• Be formal in tone, and try to leave emotions out of the letter.
• Be honest in your letter.
• Include any necessary attachments that help document your explanation.

Apply Quickly and Easily for a Mortgage

At McGowan Mortgages, we understand that every borrower has a unique scenario. To ensure that you have a fair chance to buy a home with a competitive mortgage, we will work with you to understand your explanations for any unusual situations involving your income, employment or credit history. To get started, please give us a call at (816) 631-9687 to schedule your mortgage consultation. We can work with you in 30 states.