What is a Letter of Explanation?
A Letter of Explanation (or LOE) is commonly requested by a mortgage lender or underwriter to get specific information from the borrower and complete the loan application process.
A Letter of Explanation Might Be Requested If You Have:
- Other names on your credit report
- Your source of income needs explanation (e.g. self-employed borrowers)
- Gaps in employment
- You have declining income
- You recently changed jobs
- You have a high level of debt in relation to income
- There is an unusual withdrawal or deposit in your bank account
- Undisclosed payments (liabilities) from your bank account
- New accounts on your credit report, such as newly opened credit cards
- Occupancy concerns on primary residences
- Other addresses on your credit report
- Notes on your credit report that need explanation
- Negative entries on your credit report
- Former delinquencies that need review
- Overdraft fees on an account, which may suggest past difficulty managing finances
- Other questions that may arise upon review of your loan application and supporting documents
Many people panic when they are asked to write a Letter of Explanation, fearing that it means the loan will be denied. Usually, a LOE request is a good thing, because the underwriter is seeking to document something so that the loan can be approved.
However, being asked to write a Letter of Explanation can be nerve-wracking, especially since your dream of homeownership or refinancing hinges on your loan being approved. Here are some tips for writing a Letter of Explanation clearly, concisely, and painlessly.
How Do You Write a Letter of Explanation?
- Three words of advice for strong mortgage letters of explanation: simple, short, and informative. The purpose of this letter is to provide information needed to make a decision about your loan.
- Be clear, with as much detail as possible, such as dates, account numbers, transaction IDs, etc.
- Give only the information requested; do not offer additional explanation that may lead to more questions.
- Be polite, but not overly personal. Now is not the time to attempt to use emotional language, offer praise, or make a complaint.
- Use formal and respectful language and letter structure.
- Make it easy for the underwriter to find the information they need in your letter.
Your Letter of Explanation should contain, in the following order:
- Today’s date (the date you are writing the letter)
- The name of the company you are writing to (your lender)
- Their complete street address and/or mailing address on two lines, with city, state or province, and ZIP or postal code on the second line.
- The lender’s phone number
- A subject line beginning with “RE:” that includes your name, loan application number or other identifying information about what you are responding to.
- A salutation, ending with a colon (Dear Loan Specialist: )
- One or more body paragraphs that provide the information requested. You should be as detailed as possible, including dates, account numbers, dollar amounts, etc. Be sure to reference any enclosed documentation, such as bills of sale, copies of invoices, etc. that will help support your explanation.
- A polite closing, such as “Sincerely yours,” or “Regards,”
- Your full legal name, as it appears on the loan application. Also, include your spouse’s name if it is a joint mortgage application.
- Your mailing address, on two lines. Include the street address, city, state or province, and ZIP or postal code.
- Your 10-digit phone number where you can reliably be reached if clarification is needed.
Learn more about the mortgage options Santander has to offer or contact a Mortgage Specialist.