The Letter of Explanation For Mortgage Loan is a crucial document in the U.S. mortgage lending process, typically requested by lenders or underwriters when they identify aspects of a loan application that require additional clarification. These letters are commonly required to explain circumstances such as recent changes in employment, large deposits or withdrawals, credit report inquiries, gaps in employment, unusual bank transactions, or recent address changes. The document helps lenders assess risk and make informed lending decisions while maintaining compliance with federal regulations such as the Truth in Lending Act and Equal Credit Opportunity Act. The letter should be clear, concise, and accompanied by supporting documentation whenever possible. It plays a vital role in the underwriting process by providing context for situations that might otherwise raise concerns about a borrower's creditworthiness or ability to repay the loan.
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1. Header Information: Include date, lender's name and address, loan application reference number, and subject line
2. Salutation: Professional greeting to the mortgage underwriter or lending officer
3. Introduction: Brief statement identifying yourself and your loan application, including the property address and loan application date
4. Purpose Statement: Clear statement of which aspect of your application needs explanation
5. Detailed Explanation: Comprehensive explanation of the situation or circumstance that requires clarification
6. Supporting Information: Reference to any documentation or evidence that supports your explanation
7. Future Prevention/Resolution: If applicable, explanation of how similar situations will be prevented in the future
8. Closing Statement: Professional closing with expression of cooperation and willingness to provide additional information
9. Signature Block: Your full name, contact information, and signature
1. Co-Applicant Information: Include when the explanation involves or affects a co-applicant on the mortgage application
2. Timeline of Events: Use when explaining a complex situation that occurred over time, such as gap in employment or multiple address changes
3. Financial Impact Statement: Include when explaining financial events like large deposits, withdrawals, or credit issues
4. Third Party Statement: Add when referencing information or actions from employers, family members, or other relevant parties
5. Recovery Plan: Include when explaining past financial difficulties and how they've been overcome
1. Bank Statements: Copies of relevant bank statements supporting the explanation
2. Employment Documentation: Pay stubs, offer letters, or other employment verification if explaining employment or income situations
3. Credit Report Documentation: Relevant pages from credit reports if explaining credit-related issues
4. Legal Documents: Court documents, divorce decrees, or other legal papers if relevant to the explanation
5. Gift Letters: Documentation for any gift funds being used in the transaction
6. Transaction Records: Records of large deposits, withdrawals, or other financial transactions being explained
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