Lenders ask for a short letter when something in your file needs context: a default, a job gap, a large deposit or a run of credit enquiries. Here is a template and what to put in it.
A letter of explanation is a short, signed note that tells the lender what happened, what you have done about it and why it will not affect your repayments. Keep it to a page, stick to facts and dates, and attach the evidence.
A clear letter can turn a question that would stall an application into a box the assessor can tick.
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[Date] To the credit assessor Re: Home loan application for [Full name(s)] I am writing to explain [the item the lender has asked about, for example: a default listed on my credit file / a gap in my employment / a large deposit into my account / several credit enquiries]. What happened [Two or three plain sentences: what it was, when it happened and the amount, if relevant. For example: In March 2024 a $640 phone bill went unpaid after I moved house and the bill went to my old address. It was listed as a default in June 2024.] What I have done since [For example: I paid the account in full on 2 August 2024. The default now shows as paid. I have set up direct debits for all my bills.] Why it will not happen again [For example: All my accounts now go to my current email, and I have had no missed payments since.] Supporting documents [List what you attach, for example: the paid letter from the provider, bank statements for the last three months.] I am happy to provide anything else you need. Signed: ______________________________ [Full name] Phone: [Number] Email: [Email]
Before you use this. Write it in your own words and keep only what applies. Never include anything you cannot back with a document, and do not hide other issues: lenders check credit files and statements. If your situation is complex, a broker can tell you whether a letter will help or whether a different lender suits better.
Charles Touma, Mortgage Broker.
Short, specific and backed by documents. Say what happened, with dates and amounts, what you did about it, and what is different now. Sign and date it, and include your contact details.
Avoid excuses and emotional language; an assessor wants facts that show the issue is resolved and will not affect your ability to repay.
A paid default: “A $640 phone bill went to my old address after I moved in March 2024 and was listed as a default in June. I paid it in full on 2 August 2024 and all my bills are now on direct debit.”
When the issue is recent, unresolved or part of a pattern. A letter cannot fix an unpaid default, a debt you cannot service or months of overdrawn accounts.
In those cases it is better to fix the issue first or choose a lender whose policy fits. The bad credit home loans page explains the options, and the guide to bank statements shows what assessors notice.
A short signed letter that explains something in your application, such as a default, job gap or large deposit, with dates, what you did about it and the evidence.
One page is usually enough. Facts and dates matter more than length.
You, the borrower. Letters from others, such as a gift letter from parents or an employer letter, are separate documents.
It helps when the issue is resolved and minor. It will not overcome an unresolved problem or a loan you cannot afford.
Not usually. Lenders ask when there are several recent enquiries without an obvious reason.
See the full home loan documents list, or the employer letter template.
Charles can tell you whether a letter will help, what it should say, and which lenders take a practical view of the issue.
Prefer a callback?Charles calls back within one business day. No documents needed yet.
General information only, not credit or legal advice. Lenders may ask for their own forms. Only include statements you can support with documents.
