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.
Hunter Galloway can help you prepare the letter and check what evidence the lender needs.
An automated credit check may flag a late bill or a job change without the explanation behind it.
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.
Use the outline below, then check whether your lender needs anything else.
Your letter should be:
Usually, an email or faxed copy is accepted. Some lenders require your mortgage broker to keep a copy of the original file.
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 where the money came from does not automatically mean it meets the lender’s genuine savings rules.
Common sources for large deposits include:
Many first-home buyers receive help from their parents. However, lenders need to know this isn’t a secret loan. You must prove the money is a “non-repayable gift.”
Most Australian banks require a Statutory Declaration or a formal Gift Letter. The letter records whether repayment or an ownership interest is expected. Describe the actual arrangement and ask which gift documents the lender requires.
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.
Adapt the gift letter to what was actually agreed and confirm the lender’s document requirements.
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]
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, e.g., Telstra] 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 [Insert Date].
In May 2024, I purchased a mobile phone through Telstra. One week later, the device malfunctioned. I returned the phone to the store and requested a full plan cancellation.
Unfortunately, the staff did not process this cancellation. Bills continued to arrive for a service I was not using. I escalated this case, but a default was lodged before it was resolved.
I am currently pursuing this matter with the Telecommunications Industry Ombudsman (TIO). I have included all relevant correspondence and my case number as evidence.
I understand the serious nature of credit agreements. Since this event, I have maintained a perfect payment history on all other facilities. I am committed to making all future home loan payments on time.
If you require further details, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
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 Closure and Credit Defaults
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 2020, my wife and I operated a small business under a larger franchise group. Unfortunately, the parent franchise group went into liquidation. This external event forced our business to close its doors immediately.
Due to initial setup costs, we were left with several outstanding debts. We have since returned to our previous professional roles and have fully repaid all debts.
While this experience left marks on our credit history, our financial situation is now stable. We have no ongoing business liabilities and maintain consistent PAYG income. Evidence of the debt clearances and our current employment contracts are attached.
If you have further questions, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
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 provide context regarding a credit default on my file from 2021.
At that time, I resided in a sharehouse with two other flatmates. The electricity and gas utilities were held in all of our names. Later that year, I moved out of the property and ended my tenancy.
Unfortunately, I was unaware that my name remained on the utility account. A previous housemate failed to pay the final bills, leading to a default being lodged against me.
I only discovered this issue when a recent credit application was declined. Upon finding the error, I contacted the provider and paid the outstanding balance immediately. I have attached the receipt and a copy of my 2021 exit report as evidence.
Since this event, I have maintained perfect credit and have no ongoing joint liabilities. If you require more details, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
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 the six-month gap in my employment history during [Insert Year].
At that time, I resided in a regional town heavily dependent on the local mining industry. Unfortunately, the mine closed its operations. This event had a severe impact on the local economy and resulted in my redundancy.
Despite my best efforts to find local work, it took six months to secure a new role. During this period, I experienced financial hardship which led to a credit default with [Insert Creditor Name].
Since then, I have relocated to a major city and secured stable, full-time employment. I have fully repaid the outstanding bills and have maintained a perfect savings record. I have attached my current employment contract and a letter of service for your review.
If you have any questions, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
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 provide context regarding the credit defaults listed on my file from early 2016.
During this period, my spouse and I underwent a legal divorce. I relocated from our joint residence and moved into temporary accommodation with my parents while caring for our children.
Unfortunately, several joint utility bills were still being sent to our previous address. My ex-spouse did not attend to these payments, and I was not notified of the outstanding balances until after defaults were lodged.
Since this time, I have finalized our property settlement and stabilized my living arrangements. I have fully repaid all outstanding debts and have maintained a perfect payment history for the past [Number] years. I have attached a letter from my solicitor and my final divorce decree for your reference.
If you require further details, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
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 2019, I relocated to Europe for a period of three years. Before my departure, I instructed my credit card provider to update my mailing address to my parents’ residence. Unfortunately, the provider failed to update their system correctly.
As I was living abroad, I did not receive any statements or late notices. This led to a “clear out” default being lodged against me.
Immediately upon my return to Australia, I discovered the unpaid balance. I contacted the provider and paid the full amount the same day. I have attached my boarding passes, my overseas employment contract, and the final payment receipt as evidence.
If you require further details, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
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 provide context regarding a credit default on my file from 2016.
Due to renting, I relocated to a new property in [Insert Month/Year]. Before moving, I contacted my internet and phone providers to update my billing address. Unfortunately, the transfer was not completed correctly on their end.
Bills continued to be sent to my previous residence. Because I no longer had access to that mail, I was unaware of any outstanding balances. The provider eventually lodged a default without my knowledge.
As soon as I became aware of this debt, I contacted the provider and paid the balance in full. I have attached my final rental inspection report and a copy of my new lease agreement to confirm the timeline of my move.
If you have any further questions, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Your Full Name]
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.
Lenders use the Household Expenditure Measure (HEM) as a benchmark. A letter helps document your current living costs. The lender also checks your income, debts and expected expenses after you buy.
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 the template to your 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. Their board or utility contributions are [state the amount and frequency, or confirm none].
This arrangement has been in place since [Insert Start Date] and will continue until their home loan settles. There are no outstanding debts or informal loan agreements between us.
If you have any questions regarding this living arrangement, please contact me on [Insert Phone Number].
Regards,
(SIGN)
[Homeowner’s Full Name]
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 |
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.
It is a formal document clarifying specific financial “red flags,” such as credit defaults or employment gaps, to a bank underwriter.
No. It helps the lender understand your circumstances, but the loan still needs to meet its requirements.
Keep it to one page. Underwriters prefer concise, factual bullet points over long emotional stories.
The lender may ask where a large deposit came from and request records for a gift, sale or inheritance. Showing the source does not automatically make the money eligible genuine savings; that is a separate lender check.
Yes, the letter should come from you. Your broker can review it and check what supporting documents the lender needs.
Include bank statements, medical certificates, solicitor letters (for divorce), or redundancy notices.
The lender may ask for a signed statement from the homeowner. It should describe the arrangement and any board or utility contributions. The lender still checks the costs you expect after buying.
You may need to provide further evidence or, in some cases, look for a “specialist lender” who is more flexible with credit history.
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.
