What Is a Letter of Motivation for a Mortgage?

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A letter of motivation for a mortgage is written by the borrower to support the mortgage application. "The New York Times" reported in 2010 that mortgage companies sometimes take the unusual step of requesting a letter of motivation when loan underwriters express concerns that the prospective buyer intends to occupy the home. During a U.S. housing boom around 2005, many people purchased homes they never intended to occupy and instead quickly resold the homes for profit -- a process called "flipping."

Considerations

  • One mortgage company questioned by "the Times" said it requested a letter of motivation from a couple because the prospective borrowers also had a town home and the mortgage company wanted assurances that they intended to move into the new home. A mortgage company official insisted that the letter would not determine final approval on the loan but was necessary as part of the application.

New Twist

  • Mortgage companies generally request written correspondence from prospective borrowers for other reasons, such as problems with their credit. For example, someone applying for a mortgage might need to explain a long gap in employment history or provide details about late rent payments. In those cases, the mortgage companies use the letters as an assurance that the applicant has recovered from past financial problems. However, letters of motivation sometimes are requested from applicants with excellent credit.

Content

  • Mortgage companies asking for letters of motivation may ask the prospective borrower to discuss why he likes the house, why it is better than his previous residence -- or even to compare the commutes from the prospective new home and his present residence. The intent is for the buyer to write an upbeat and positive letter for presentation to the loan underwriters.

Time Line

  • Mortgage companies may ask for a letter of motivation after sending the prospective borrowers a commitment letter offering conditional approval of the loan application. The commitment letter specifies that the borrower's credit, income and available funds for a down payment have checked out fine and that the mortgage company is willing to approve the mortgage upon receipt of a letter of motivation. Letters of motivation appear to be little more than "feel good" documents to appease loan underwriters. Nothing in a letter of motivation is binding, but it could help with concerns underwriters have about the prospective buyer's intentions.

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