Unexplained Bank Deposits
Why large or unusual deposits trigger underwriting scrutiny and how a Letter of Explanation can resolve them.
One of the most common underwriting problems is large or unusual bank deposits. Mortgage lenders must verify where a borrower's funds come from. If deposits appear that cannot be clearly documented, underwriters may treat them as undisclosed loans or unstable income.
Common examples include large cash deposits, transfers from unknown accounts, payments from freelance work, cryptocurrency liquidation, and gift money without documentation.
For example: a borrower submits two months of bank statements and an underwriter notices an $8,000 deposit. If the source cannot be verified, the lender may exclude those funds from qualifying assets — or pause the loan entirely until the deposit is explained. In some cases, repeated unexplained deposits can cause lenders to question the borrower's financial transparency.
This is why lenders frequently request a Letter of Explanation (LOX) for large deposits. A letter might clarify the sale of personal property, a gift from a family member, a transfer from an investment account, or a reimbursement or refund. Without documentation, these deposits can create significant underwriting delays.