Certain things are easier to explain in spoken than written form. This is probably the sentiment that will be uppermost in your mind when your lender asks you to write a letter of explanation (LOE) detailing why you need a cash-out refinance. With a little effort, however, it is possible to write a letter that's reasonably good enough to pass muster with the underwriter. After all, the LOE seeks to evaluate not your literary skills but your ability to put the cash-out to good use.
Step 1
Collect your thoughts. List where exactly you're going to use the cash-out. If you're planning to invest it elsewhere, note the specifics of the investment. If you need the money for home improvement, mention the outcome you hope to achieve such as increasing resale value. Note whether you are planning to use the money for your children's education or to pay off other high-interest loans.
Step 2
State accurate facts. Keep in mind the reasons you initially mentioned at the time of applying for the cash-out refinance. The statements in your LOE should be in line with those reasons. The lender is interested in verifying that the money is going to be used for a worthy purpose and not to procure another loan. Provide sufficient detail to make your reasons sound well considered and compelling, without resorting to emotional appeal.
Step 3
Back up your statements. Make sure you have sufficient documentary evidence to substantiate your claims--medical records of ill health, receipts proving you received unemployment benefits or credit card debt documents. Mention these details and attach a copy of all the documents.
Step 4
Write the letter. Begin with the words "To Whom it May Concern." Present your reasons in a logical sequence. Prepare a rough draft and check for accuracy of facts and correctness of grammar and spelling. Ask a close friend or relative to read your letter and give feedback. Make any corrections required and prepare the final letter. Make sure you affix your signature at the end of the letter. Attach all of the documents that you have referred to in the letter.
References
Writer Bio
Hailing out of Pittsburgh, Pa., David Stewart has been writing articles since 2004, specializing in consumer-oriented pieces. He holds an associate degree in specialized technology from the Pittsburgh Technical Institute.