Home loan guide
How to write a home loan explanation letter, with templates and the supporting records to include.
When your bank asks for an explanation letter during a home loan application, it’s usually because they’ve spotted a “red flag” like a credit default, a gap in your work history, or a large unexplained deposit. The letter explains what happened and gives the underwriter evidence to assess the concern.
Our mortgage brokers in Brisbane have put together templates to help you explain what happened and provide supporting evidence.
Choose a template:
Use the outline below, then check whether your lender needs anything else.
Your letter should:
Ask your lender whether it accepts an electronic copy and whether your broker must keep the original.
Hunter Galloway can help you prepare the letter and check what evidence the lender needs.
A lender may ask you to explain a late payment shown on your credit report or a change in your work history.
If an underwriter asks about a past issue, explain what happened and what has changed since. They will consider that information as part of the loan assessment.
A Letter of Explanation (LOE) explains your circumstances to the underwriter so they can assess them alongside the rest of your application.
A conditional approval means the lender still has checks to complete. It may ask for an explanation letter about:
Include your Loan Application Number in the subject line so the lender can match the letter to your application.
When applying for a home loan in Australia, lenders scrutinise your credit history and financial background. If there are any issues or discrepancies in your credit report, the lender may request an explanation letter.
The letter explains the credit event or financial circumstances the lender has asked about.
Common reasons for needing an explanation letter include:
An explanation letter gives the lender context and evidence to consider alongside your full application.
Use the templates below to explain the circumstances that apply to you.
Even borrowers with perfect credit may need an explanation letter. Lenders look for “red flags” like sudden large deposits. They must rule out “undisclosed debt” before approving your loan.
Banks need to understand where your deposit came from. If $50,000 arrives in your account, ask which records the lender needs to verify the source. Showing the source does not automatically mean the money counts as genuine savings.
Common sources for large deposits include:
Some applicants receive help from their parents with a deposit. The lender may ask whether it is repayable, a gift or another arrangement, and whether the giver has an interest in the property. Explain what was actually agreed and provide the documents your lender requests.
For example, NAB says it needs a letter from the benefactor confirming the amount and any repayment conditions when a first-home buyer receives a deposit gift. Ask your lender which documents it needs; requirements vary.
To satisfy the underwriter, your explanation must be clear. Follow these three steps:
The letter helps the bank check the source of your funds. Include the supporting documents.
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
Keep only statements that match the actual agreement, and confirm which supporting documents your lender needs.
Date: [Insert Date]
To: The Underwriter / [Insert Bank Name]
Re: Gifted Funds for [Your Full Name(s)]
Loan Application Number: [Insert Number]
To Whom It May Concern,
I/We, [Giver’s Full Name(s)], of [Giver’s Address], confirm that I/we have provided a financial gift of $[Insert Amount] to [Your Full Name(s)].
This amount was transferred on [Insert Date] to help with the purchase of the property at [Insert Property Address].
I/We confirm that these funds are a non-repayable gift. There is no expectation of repayment, now or in the future. Furthermore, I/we hold no legal or equitable interest in the property being purchased.
These funds have not been borrowed from another party. Evidence of the transfer from our account [Insert Account Number] is attached for your reference.
Should you require further information, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Giver’s Full Name]
Download the template pack (Word)
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
Check whether your lender needs a statutory declaration rather than a letter. Follow the signing and witnessing requirements for the declaration it accepts.
Check with your mortgage broker in Brisbane to see which version your specific lender prefers before you submit.
If the lender asks about a default, explain how it happened and what you have done since. The lender will assess the explanation alongside the rest of your application.
Use the sample below to draft your response, changing the details to match your own situation.
Date: [Insert Current Date]
To: The Underwriter / [Insert Bank Name]
Re: Explanation for Default to [Insert Creditor Name] for $[Insert Amount]
Loan Application Number: [Insert Number]
To Whom It May Concern,
I am writing to provide context regarding the credit default listed on my file from [year].
[On date], I [describe what happened with the account and what you asked the provider to do].
[Describe the provider’s response, why the default was lodged and what happened next.]
[If relevant, describe any complaint you made, including a Telecommunications Industry Ombudsman (TIO) case number. Attach the related correspondence.]
I understand the serious nature of credit agreements. Since this event, I have made all other repayments on time. I now [describe the steps you take to manage repayments].
If you require further details, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
Download the template pack (Word)
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
Expert Tip: Attach Your Evidence. A letter alone is rarely enough. Always attach proof, such as a letter from the Ombudsman or a receipt showing the debt was paid. This gives the lender records it can check alongside your explanation.
Check to see if you are eligible for a home loan
Lenders look closely at your business when assessing a home loan. They need to understand whether its debts or financial position could affect your mortgage repayments.
Lenders review your current directorships and past business failures, including any personal liability for business debts. Explain any side business and whether you need its income for the loan.
If the lender asks about a past business failure, a Letter of Explanation (LOE) can explain why the business closed, how its debts were handled and your current position.
Use the sample below to explain a past business closure or a current side hustle.
Date: [Insert Current Date]
To: The Underwriter / [Insert Bank Name]
Re: Explanation for [business issue or event]
Loan Application Number: [Insert Number]
To Whom It May Concern,
I am writing to provide context regarding the business-related defaults currently listed on my credit file.
In [year], I operated [name of business] with [co-owner’s name and relationship, if relevant]. [Describe what happened to the business and when.]
[Describe any business debts, what happened to them and your current work or income.]
[Describe your current financial position and any ongoing business liabilities. Attach records that support those details.]
If you have further questions, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
Download the template pack (Word)
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
For a business that has closed, your mortgage broker in Brisbane can check which records the lender needs. These may include:
If you have a side activity, explain what you do, its income and debts, and whether you need that income for the loan. The lender decides which records it needs. Don’t describe a business as a hobby to avoid providing tax returns.
An unpaid sharehouse utility bill can cause problems when you apply for a home loan. Start by checking whose name was on the account.
Responsibility for a shared utility bill depends on the account holders and contract. An electricity provider default does not automatically appear on every tenant’s credit file after a missed payment. Check the account, bills and notices to establish what happened.
Many young Australians only discover these defaults when applying for a home loan. A formal Letter of Explanation (LOE) lets you explain what happened and provide the records. If the listing is incorrect, dispute it with the provider or credit reporting body.
Use this template to explain a utility default caused by a previous living arrangement.
Date: [Insert Current Date]
To: The Underwriter / [Insert Bank Name]
Re: Explanation for Utility Default from [Insert Provider, e.g., Origin Energy]
Loan Application Number: [Insert Number]
To Whom It May Concern,
I am writing to explain a credit default on my file from [year].
At that time, I lived in a sharehouse with [number] other people. [Describe who was listed on the utility account and when you moved out.]
[Describe what happened with the utility account and how it led to the default.]
I discovered the issue on [date] when [describe how you found out]. I contacted [provider] on [date] and [describe the outcome]. I have attached [records that support the timeline and outcome].
Since then, I have made all other repayments on time and [describe any ongoing joint liabilities]. If you require more details, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
Download the template pack (Word)
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
An Exit Condition Report records the property’s condition when you leave. It does not prove that your utility liability ended. Check the account closure confirmation, final bill and tenancy end records when explaining the dates.
As a mortgage broker in Brisbane, we suggest checking your credit file before applying. If you find a sharehouse default, check the account, amount and notices first. Dispute an incorrect listing and keep the correspondence. If the debt is yours, explain its payment status and provide the relevant records.
An unemployment explanation letter explains a gap in your work history when the lender asks about it. Include the dates, the reason and your current employment details.
If you were out of work because of a business closure or another event, a Letter of Explanation (LOE) can explain the dates and circumstances.
If you had a credit default during this time, explain both the employment gap and the debt. Include records of your current employment and the debt’s status.
Use the professional template below to explain a career gap and subsequent credit issues.
Date: [Insert Current Date]
To: The Underwriter / [Insert Bank Name]
Re: Explanation for Employment Gap and Credit Default [Insert Year]
Loan Application Number: [Insert Number]
To Whom It May Concern,
I am writing to clarify a [length of gap] in my employment history during [year].
During that period, [describe what happened and how it affected your employment].
The gap lasted [length of time]. It affected my finances in this way: [describe what happened, including any missed payments or defaults].
Since then, I have [describe your current employment and financial position]. I have attached [records that support these details].
If you have any questions, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
Download the template pack (Word)
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
Explain what has changed since the employment gap. Include your current employment contract, recent payslips and probation status so the lender can assess your present income and circumstances.
If you moved from a regional area to a city for work, explain the move and provide evidence of your current employment and relevant experience.
If repayments fell behind during a separation, a divorce explanation letter can explain the timeline, the accounts affected and what has happened since.
If joint debts fell behind during the separation, our guide to separation and your credit file explains what to check before you write the letter.
Use this template to explain credit issues or missed payments during a separation.
Date: [Insert Current Date]
To: The Underwriter / [Insert Bank Name]
Re: Explanation for Credit Defaults during Marital Separation
Loan Application Number: [Insert Number]
To Whom It May Concern,
I am writing to explain credit defaults listed on my file from [year].
During this period, [describe what happened and how the separation affected your living arrangements or finances].
[Describe the relevant bills, who was responsible for them and when you learned they were unpaid.]
Since then, I have finalised [describe the status of any property settlement] and stabilised [describe your current living arrangements]. I have [describe how any outstanding debts were resolved] and made all other repayments on time. I have attached [a solicitor’s letter, divorce order or other relevant records] for your reference.
If you require further details, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
Download the template pack (Word)
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
For the wider loan questions, see what happens to your home loan after separation.
A letter from your family law solicitor can help confirm the timeline of your separation and property settlement. Your mortgage broker in Brisbane can check whether the lender needs it.
If you receive Child Support or Family Tax Benefits payments, mention them and provide the relevant records. The lender still needs to decide whether it can use that income.
If you discovered an unpaid bill or default after returning from overseas, explain the travel dates and what happened to the account.
Include the date you discovered the debt, what you did next and records of any payment or dispute.
Use this template to explain a credit issue that occurred while you were out of the country.
Date: [Insert Current Date]
To: The Underwriter / [Insert Bank Name]
Re: Explanation for “Clear Out” Default during Overseas Travel
Loan Application Number: [Insert Number]
To Whom It May Concern,
I am writing to provide context regarding a credit default on my file from [Insert Year].
In [year], I relocated to [country]. Before leaving, I [describe what you arranged for your accounts and mail]. [Describe what happened with the account and notices.]
[Explain how the account issue led to the default, if known.]
I discovered the issue on [date] and contacted [provider] on [date]. [Describe what happened next.] I have attached [records that support the timeline and outcome].
If you require further details, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
Download the template pack (Word)
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
Travel records such as passport entry and exit stamps can support the dates in your explanation. Explain why the bill was missed and provide the payment record. A mortgage broker in Brisbane can help you check what evidence the lender needs. Being overseas does not itself show that a default was incorrect.
If your income at the time helps explain what happened, include the records. Income alone does not establish why a bill went unpaid.
A final utility bill may still be sent to your old address after a move. Check the bills, address-change requests and notices when explaining what happened.
If an address error affected your bills, a Letter of Explanation (LOE) can set out the dates and what you did when you discovered the debt.
Provide evidence of your new address and any request to transfer services or update your billing details.
Use this template to explain a default caused by a change of address or a failed mail redirection.
Date: [Insert Current Date]
To: The Underwriter / [Insert Bank Name]
Re: Explanation for Utility Default Due to Change of Address
Loan Application Number: [Insert Number]
To Whom It May Concern,
I am writing to explain a credit default on my file from [year].
I moved to [new address] in [month/year]. Before moving, I contacted [provider] to update my billing address. [Describe what happened to the update.]
[Describe what happened to the bills and how the default was lodged.]
I found out about the debt on [date] and [describe what you did next]. I have attached [records that support the timeline and outcome].
If you have any further questions, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
Download the template pack (Word)
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
To back up your story, provide your “Bond Refund” notice or a utility bill from your new address dated at the time of the move.
If you are currently renting, always keep a digital copy of your Entry and Exit Condition Reports. These record the property’s condition. Keep your lease, tenancy end records and utility account closure documents to explain when you moved and when your account responsibilities ended.
Would you like to learn about your situation?
If you live with family while saving for a home, the lender may ask for evidence of that arrangement. Explain whether you pay rent, board, utilities or other household costs.
Banks must calculate your “serviceability” before approving a loan. This is your ability to meet monthly repayments. If you don’t pay rent, your monthly expenses look much lower.
Some lenders use the Household Expenditure Measure (HEM) or another index to estimate your living costs. APRA says ADIs should also consider your declared expenses and not rely on an index alone. Your lender also assesses your income, debts and expected costs after purchase.
Living rent-free does not guarantee a larger loan. The lender needs to check whether you can afford the repayments and ongoing costs once you own the home.
The lender may ask for a signed statement from the homeowner, often a parent or family member. It should state the actual arrangement, including any board or utility contributions.
To satisfy an Australian lender, your letter must be clear. It should include these specific details:
Adapt each statement to the actual arrangement. Include any board or utility contributions; the letter does not guarantee a particular loan amount.
Date: [Insert Date]
To: The Underwriter / [Insert Bank Name]
Re: Rent-Free Living Arrangement for [Your Full Name(s)]
Loan Application Number: [Insert Number]
To Whom It May Concern,
I/We, [Homeowner’s Full Name(s)], confirm that [Applicant’s Name(s)] currently resides at my/our property located at [Insert Address].
I/We confirm that [Applicant’s Name(s)] lives here on [a rent-free basis / describe the actual arrangement]. Any board or utility contributions are [state the amount and frequency, or say there are none if accurate].
This arrangement has been in place since [Insert Start Date] and is expected to continue until [Insert End Date or explain when it may change]. Any amount owed or informal loan between us is [describe it, or state there is none if accurate].
If you have any questions regarding this living arrangement, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Homeowner’s Full Name]
Download the template pack (Word)
These are examples only. Keep only what is true for you, say it plainly and attach proof. Don't leave out anything the lender would want to know.
Keep your explanation factual and support it with the relevant documents.
Whether you made a mistake or were the victim of an error, how you present the facts matters.
Explain the cause of the problem and what you did afterwards. The examples below show circumstances and conduct a lender may ask about.
Circumstances to explain | Conduct the lender may question |
Serious illness or medical emergency | Unwillingness to pay a legitimate debt |
Marriage breakdown or legal separation | Poor money management or overspending |
Being overseas with failed mail redirection | Loss of job without seeking new work |
Legitimate dispute with a utility provider | Financial neglect or spite toward a creditor |
Be upfront about these too. The lender will usually see them anyway.
Back up your explanation with documents that show what happened. The examples below can help you choose what to include.
Your mortgage broker can help you check which documents the lender needs. Send the supporting records with your explanation so the underwriter can review them together.
This article is general information only and does not take your objectives, financial situation or needs into account.
Our team at Hunter Galloway can help you prepare your home loan application. Speak with our brokers about the documents your lender needs.
If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
