Letter of Explanation
Give a lender or institution the clear, written account they've asked for — a large deposit, an address gap, a past credit event.
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What is a letter of explanation?
A letter of explanation provides a clear written account of a specific item that a lender, underwriter, or other institution has flagged and asked you to address — commonly during a mortgage or loan application. It could be a large, unexplained deposit, a gap in your address or employment history, or a past credit event that needs context.
These are almost always requested rather than sent unprompted, and underwriters read a lot of them — the ones that work are factual and specific, not defensive or padded.
When should you send one?
Write one whenever an institution specifically asks you to explain something in writing as part of an application or review.
- A large deposit or transfer that needs a documented source
- A gap in your address or employment history that an application is asking about
- A past credit event or unusual transaction an underwriter flagged
- Any specific item a lender has said it needs addressed before proceeding
What to include
Name exactly what you were asked to explain, give the date it relates to if applicable, state any amount involved, and provide a clear, factual explanation — the underwriter wants a straightforward account they can file, not a lengthy justification.
What you'll need
- Recipient name
- Item being explained
- Explanation
Tips for a strong letter
- Match your explanation precisely to what was actually asked — a letter of explanation is at its best when it's narrowly targeted, not a general life story
- For a large deposit, name the source specifically (a gift, a sale, a transfer between your own accounts) since that's usually exactly what's being asked
- Keep it short — one clear paragraph addressing the specific item is usually enough
- If documentation supports your explanation (a gift letter, a bill of sale), mention that it's available even if you're not required to attach it
- Send it promptly; these letters are often requested to keep a loan application moving on a deadline
What happens after you send it
The letter typically becomes part of your application file, and the underwriter reviews it alongside any other requested documentation. There's no formal response you should expect beyond the application proceeding — if something's still unclear, the underwriter may follow up with a further request.
Frequently asked questions
What's the most common reason lenders ask for this letter?
Large, unexplained deposits during a mortgage application are probably the single most common trigger — lenders need to confirm the source of funds isn't undisclosed debt or something else that would change your qualification.
How detailed does the explanation need to be?
Specific but brief — name the source or reason plainly. Underwriters generally want a clear, verifiable answer, not an extensive narrative.
Do I need to attach proof to the letter?
Often the underwriter will separately request supporting documents (bank statements, a gift letter, a bill of sale) alongside the letter itself — check what's been asked for specifically.
GoodwillLetter is a document preparation and mailing service — not a law firm — and does not provide legal advice.
Ready to send your letter of explanation?
Answer a few questions, review the letter, and we print and mail it via USPS First-Class Mail®.