The lender asked for a letter of explanation? Is that a red flag?

Is a letter of explanation request a red flag?

The lender requested a letter of explanation for something on your application or in your documents. Letter of explanation requests happen frequently during underwriting and don't signal a problem with your loan.

Underwriters review your entire financial picture to confirm you meet the loan requirements. When they find something that needs clarification—like a gap in employment, a large deposit, or a credit inquiry—they request a letter explaining the situation. Common requests include explaining job changes, gift funds from family, or recent credit applications. The underwriter uses your explanation to complete their review and move forward with approval.

Check what specific item the lender wants explained. The request typically mentions the document, transaction, or situation they're asking about. Write a brief, factual explanation that addresses their question directly. Include any supporting documents that help clarify the situation.

Most borrowers provide the explanation and continue through the approval process normally. Share the details with your lender and they can walk you through what information to include in your response.