During the mortgage process, your loan officer is your main point of contact—but they’re not the only one reviewing your application.
Behind the scenes, your file also goes through underwriting, where trained professionals verify your financial history to assess the risk of lending to you.
Sometimes, what’s on paper doesn’t tell the full story. If something in your financial records needs clarification, your lender may ask for a letter of explanation.
This simple document can help keep your loan on track and bring confidence to everyone involved in the approval process.
Get pre-approved through GO Mortgage.What is a letter of explanation for a mortgage?
A letter of explanation (LOE) is a short, written statement you provide to your lender or underwriter during the mortgage process. It offers context or clarification about something in your financial or employment history that may raise questions or not meet standard loan guidelines.
Common reasons for a letter of explanation include:
- Gaps in employment history
- Irregular or self-employed income
- Large, undocumented bank deposits
- Late or missed payments
- Multiple credit inquiries
Your letter doesn’t have to be long—just honest, specific, and well-documented.
Why do lenders request letters of explanation?
Mortgage underwriters are responsible for verifying that you meet the criteria set by the loan program you’re applying for.
But they don’t speak with you directly, so when something on your application doesn’t align with those standards, they rely on your letter to provide clarity.
The following are a few situations where a letter of explanation might be required.
Employment gaps or job changes
If you’ve changed jobs recently, taken time off for school, or had a break in income due to unemployment, your underwriter may need a written explanation. They’ll want to confirm that your current income is stable and likely to continue.
Non-traditional income
Self-employed? Contract worker? Own your own business? These income sources don’t always show up as neat pay stubs. A letter helps explain how you earn money and provides context for fluctuating deposits or tax filings.
Bank activity and deposits
Large or irregular deposits can be a red flag for mortgage originators, especially if they’re being used toward your down payment. If you’ve received a gift from family or moved money between accounts, an LOE (with documentation) will help prove the funds are legitimate.
Credit report issues
Missed payments, collections, or a sudden spike in credit card inquiries may trigger concern. Your explanation can show that a late payment was due to a one-time issue, not an ongoing pattern.
For more on understanding your credit, visit the CFPB’s guide to credit reports.
What should your letter of explanation include?
Writing a letter of explanation is easier than you might think. While it should be clear and professional, it doesn’t need to be formal or lengthy.
Be sure to include the following:
- Date the letter was written
- Your full name and contact information
- The loan number (if available)
- A concise explanation of the issue
- Relevant details: dates, dollar amounts, employer names, etc.
- A statement confirming why this event won’t affect your ability to repay the loan
- Your signature and supporting documentation (bank statements, pay stubs, etc.)
How to write a letter of explanation (with template)
Here’s a simple format to follow when writing your letter:
June 15, 2025
GO Mortgage
1234 Lending Avenue
Your City, ST 12345
(800) 444-RATE
RE: Jane Smith, Loan Application #987654321
To whom it may concern,
I am writing to explain a two-month gap in my employment between January and March 2024. I voluntarily left my previous position at ABC Company on January 3, 2024, and began working at XYZ Inc. on March 1, 2024. During this time, I was actively seeking employment and had sufficient savings to cover my expenses.
Enclosed is a copy of my offer letter from XYZ Inc. and bank statements showing funds available during the gap.
This was a temporary situation and does not impact my ability to meet ongoing mortgage payments.
Sincerely,
Jane Smith
123 Homebuyer Lane
Your City, ST 12345
(555) 987-6543
How your lender helps you through the process
You’re not alone in this process. Your GO Mortgage loan officer will guide you through the process of providing a letter of explanation, including what documentation to include.
They’ll also help you understand whether an LOE is likely to resolve the issue or if additional steps are needed.
Our job is to make your path to homeownership clear and achievable. That means helping you get pre-approved and responding proactively when questions arise during the underwriting process.
Start a conversation with a GO Mortgage loan originator today for personalized support.
Is a letter of explanation a deal breaker?
Not at all. In most cases, a letter of explanation is simply part of the normal review process. It’s your opportunity to show that a one-time event, like a layoff or medical bill, doesn’t define your long-term financial health.
What’s most important is transparency. Providing a thoughtful and accurate LOE, along with documentation, helps your lender build a stronger case for your approval.
Tip: Every loan program has different rules. What may be a red flag under one set of guidelines might be perfectly acceptable under another. That’s why working with an experienced mortgage advisor makes all the difference.
Common mistakes to avoid when writing your LOE
Although a letter of explanation is informal, small errors can delay your loan or raise additional questions.
Here are a few common pitfalls—and how to avoid them:
- Being too vague: Avoid general statements like “I had financial issues.” Instead, provide dates, specific dollar amounts, or context (e.g., job change, illness, etc.).
- Blaming others without clarity: If a late payment was due to a third-party error (like a billing mix-up), be clear but professional. Underwriters are looking for accountability and context.
- Not including documentation: Always attach supporting documents—bank records, pay stubs, or employment letters—to back up your explanation.
- Missing contact info: Include your phone number and full mailing address so the lender can follow up if needed.
Writing with clarity and honesty demonstrates your seriousness about the process and provides your lender with the necessary information to move forward confidently.
Ready to apply for a home loan?
Buying a home doesn’t mean having a perfect financial history. It means being prepared, informed, and supported along the way. If you’re asked to provide a letter of explanation, consider it a step toward clarity, not a setback.
Need help writing yours or navigating the process? Connect with GO Mortgage today and let us help you move forward with confidence.