If a borrower has large withdrawals for unexpected expenses, what is required of them?

When a borrower has large withdrawals for unexpected expenses, the requirement to provide documentation or explanation depends on the lender’s policies and the specific situation’s context. In most lending scenarios, particularly those involving scrutiny of finances for a mortgage or significant loan, the expectation is that borrowers should clarify any substantial financial activities that might raise questions.

In the case of large withdrawals, lenders typically require some level of communication regarding these transactions to ensure that the borrower is financially responsible and that the funds are accounted for, reflecting a borrower’s ability to repay.

If a lender encounters large withdrawals, it is not standard practice to overlook these transactions entirely and require nothing. Instead, borrowers are often asked to provide a Letter of Explanation alongside relevant documentation, particularly when the amount exceeds a certain threshold. This provides transparency and reassurance to the lender that the funds have been used appropriately or that they won't negatively impact the borrower’s financial standing.

Understanding this context clarifies that while "nothing is required" might sound appealing, it does not align with the broader practices observed in financial institutions regarding accountability for money management and the importance of maintaining clear records for unexpected expenses.