If you’ve begun the process as a first time homebuyer, at some point or another, you could be asked to provide a Letter of Explanation. If it sounds scary – know that it’s not.
When you apply for a loan with Stockton Mortgage Corporation, you can be prequalified for a loan within 24 hours. As you supply your SMC mortgage banker with all your documentation (pay stubs, tax records, etc.) an underwriter, as they’re preparing your loan toward the ultimate goal of approval, may request a letter of explanation.
Why would you be asked for a Letter of Explanation?
According to Trulia, if some information appears to be missing or underwriters have questions about something, you might be asked to provide a letter of explanation, explaining the circumstances around something like a large cash deposit to you bank account, or a missed payment on your credit report.
Not much of a writer? You don’t have to be. Letters of explanation are meant to be brief and to the point! Check out a sample explanation letter here.
Source: http://www.trulia.com/blog/what-is-a-letter-of-explanation/