How to Handle A Letter of Explanation Request from Your Lender

handle letter explanation request lender

When you are using a mortgage to pay for a home, your lender will sometimes have concerns about your application details. The lender can raise these concerns in the form of a letter of explanation request. If you receive a request for a letter of explanation, you will be required to address the lender’s concerns, providing reasoning for a certain detail of your application. Getting a letter of explanation request isn’t a bad thing, as long as you can provide sufficient reasoning.

When Would You Receive a Letter of Explanation Request?

Most of the time, you’ll receive a letter of explanation request if your lender sees anything in your application that makes them question your ability to afford the loan. For example, if they see that your current job location is far from the home you are wishing to purchase, they will request a letter of explanation asking how you plan to get to work. Other red flags include gaps in employment, an insufficient-funds charge on your bank statement, or late payments in your credit report. Your letter of explanation should provide lenders with clarification for these aspects of your application.

How Should You Handle the Letter of Explanation Request?

  1. Be Calm: Don’t get upset if you receive one of these letters; they are more common than you think. You aren’t going to lose your home because you received a letter of explanation request. Rather, by filling it out, you will be one step closer to getting your mortgage application approved.
  2. Address the Concern as Clearly as Possible: Make sure you provide a clear explanation for whatever the lender is raising concerns about. Proofread your response, to ensure that you did not leave any important details out. Also, don’t forget to date and sign the letter.
  3. Be Mindful of the Law: By law, lenders cannot ask you questions regarding your medical history, gender, age, religious affiliation, or ethnicity. This information would be outside the requirements of the application, and it is illegal to use it to make an application decision.

Lakeside Title Is Here to Serve You!

Lakeside Title provides title insurance and numerous title-related services, all while making sure your transactions and funds are protected and secure. Our processes streamline residential and commercial real estate transactions for lenders, realtors, buyers and sellers. To learn more, give us a call at 410-992-1070. We look forward to the chance to serve you!

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