As you move through the mortgage process, you will eventually reach a point where the underwriter begins to ask you for supporting documentation to clarify something which is not 100% clear. These requests, known as stipulations, or “stips,” allow the underwriter to make a final decision on whether or not to approve the file. These requests can come in many different forms, from requesting additional bank statements to requesting copies of a deed.

But of all the potential stips which can come up, the most common, and often most confusing, is the letter of explanation. And the reason it is so common, and so confusing, is because this letter can be used for a plethora of things. Its basic purpose is simply to explain something which is not clear – be it related to financials, properties, or your personal life. At its core, a letter of explanation is really just a way for you to tell your story.

For instance, a client who I recently helped buy a house in Farmington Hills had a strange address on his credit report. It was not his, it was a house he had never lived in, and it was in a town he never lived in. The underwriter requested a letter of explanation as to why that address was there, in order to verify it was not an additional piece of real estate he owned. A few days after we requested the letter, the client gave me a letter explaining that the address was his father’s (he was a junior), and that the address was a house his father had rented over ten years earlier. The letter was accepted and we moved on, closing on the new house 2 days later.

The reason this letter was accepted was because it told a story. The underwriter had a question and needed it answered, and that is all a letter of explanation should do.

If you have any questions about letters of explanation or the mortgage process in general, please contact me. And if you have anything to add about what a letter of explanation is, please leave a comment.