# Underwriting Narrative: Writing the Decision Rationale - Author: TrueBankFlow (https://truebankflow.com) - Published: 2026-10-17 - Category: Loan desk operations - Canonical: https://truebankflow.com/blog/underwriting-narrative > How to write an underwriting narrative that explains the decision: income sources, bank statement findings, risks, offsets and conditions. An underwriting narrative is the written explanation of a loan decision: who the borrower is, where the income comes from and how it was calculated, what the bank statements showed, which risks the file carries, what offsets them and which conditions apply. A good one lets a stranger reach the same decision from the file alone. ## What is an underwriting narrative for? An underwriting narrative is for the people who read the file after the underwriter: a second reviewer, quality control, an investor buying the loan, an examiner, or a lender receiving the file later. It must let each of them understand what was decided and why, without calling the underwriter. If a reader has to guess, the narrative failed. ### Who reads it - **Second-level reviewers** read it to test the decision before it is final. - **Quality control** reads it months later to see whether the process was followed. - **Investors** read it when they buy or audit the loan. - **Examiners** read it to check fair and consistent treatment. - **Another lender** reads it when a file moves before closing. Narratives matter a great deal in that case, as the guide to [transferring a loan file to another lender](/blog/transferring-a-loan-file-to-another-lender) explains. ### What it is not The narrative is not a copy of the application or a list of documents. The file already holds those. The narrative is the reasoning that connects the documents to the decision. Keep facts that the reader can find elsewhere short, and spend the words on judgment. ## The sections of an underwriting narrative The sections of an underwriting narrative follow the order a reader thinks in: the request, the borrower, the income, the assets, the credit, the property or collateral, the risks and offsets, and the decision with conditions. Using the same order on every file makes narratives fast to write and fast to check. ### A standard outline 1. **Request.** Loan amount, program, purpose, loan-to-value and any exception requested. 2. **Borrower profile.** Occupation or business, time in business, ownership percentage, and anything unusual about the borrower's situation. 3. **Income.** Each source, the documents used, the method and the qualifying figure. 4. **Bank statement findings.** What the statements showed beyond income: large deposits, transfers, NSF events, recurring debits. 5. **Assets and reserves.** Funds to close, reserve months and where they came from. 6. **Credit.** Score, depth, recent events and their explanations. 7. **Collateral.** Appraisal value, property type and any concerns. 8. **Risks and offsets.** What could go wrong and why it is acceptable. 9. **Decision and conditions.** The decision, and the conditions it depends on. ### Length Most residential narratives fit on one page. Business and commercial narratives run longer because the cash flow analysis is more involved. A memo for a government-guaranteed business loan follows the program's own required elements, as covered in [SBA 504 loan underwriting](/blog/sba-504-loan-underwriting). Write until the reasoning is complete, then stop. ## Describing income sources and bank statement findings in the narrative Describing income sources and bank statement findings in the narrative means naming each source, the documents and months used, the calculation method and the result, then listing what the statements showed that affected the decision. Show the numbers that matter: the total, the exclusions with reasons, the average and the final figure. ### Income: what to state - **Source.** "Owner of a landscaping company, 100 percent ownership, operating since 2019." - **Documents.** "Twelve months of business checking statements, a CPA letter confirming ownership and a business license." - **Method.** "Total deposits less excluded items, times the program's expense factor, divided by 12." - **Exclusions.** Each excluded deposit or category, with the amount and reason. - **Result.** The qualifying monthly income. - **Trend.** Whether recent months are higher, level or lower than the average, and what you did about it. ### Statement findings: what to state List only findings that affected the decision or a condition. A large deposit that was sourced and excluded is worth one line. An NSF pattern within tolerance gets one line saying so. A recurring debit that revealed a debt not on the application gets a line explaining how it was added. ### Keep the arithmetic traceable Every figure in the narrative should match a worksheet in the file. If the narrative says average deposits are $18,250, the worksheet should show $18,250, and the reader should be able to find the months that make it up. Reports that link each total to its statement lines, such as the underwriting report [TrueBankFlow](/) produces, make that trace quick for the reader. ## How should an underwriting narrative weigh risks against offsets? An underwriting narrative should name each real risk in the file, then state the specific evidence that offsets it, with numbers. "Strong compensating factors" persuades no one. "Debt-to-income is 46 percent; offset by 14 months of reserves and a 780 score with no late payments in seven years" lets the reader judge for themselves. ### Name the risk plainly Write the risk as a fact: "Deposits in the last three months are 18 percent below the twelve-month average." Avoid softening words. A reader who later finds a risk the narrative left out will distrust the rest of it. ### Match each risk to an offset Pair them one to one where you can: - **Declining deposits**, offset by a signed contract for upcoming work or a seasonal pattern visible in prior years. - **High leverage**, offset by large reserves. - **Short time in business**, offset by years in the same line of work as an employee. - **Recent credit event**, offset by a documented cause and clean history since. ### Say when there is no offset If a risk has no offset and the file is still approvable within the guideline, say so: "No offset; within program limits." That honesty helps a reviewer more than a stretched argument. ## A sample underwriting narrative for a bank statement file A sample underwriting narrative shows how the sections fit together on a real-sized file. The example below is for a self-employed borrower buying a home on a 12-month business bank statement program. All names and figures are made up for illustration. ### Example narrative **Request.** Purchase of a single-family primary residence. Loan amount $384,000, 80 percent loan-to-value, 12-month business bank statement program. No exceptions requested. **Borrower profile.** Sole owner of an example residential painting company since 2018, confirmed by state registration and a CPA letter. Before that, six years as a crew lead for another painting contractor. **Income.** Twelve months of business checking statements, all pages present. Total deposits $286,400. Excluded: $12,000 transfer from the borrower's personal savings in month 3 (documented by the savings statement) and a $2,150 equipment refund in month 8. Eligible deposits $272,250. Program expense factor applied; qualifying income $11,344 per month. Last six months average 4 percent above the first six; no adjustment. **Bank statement findings.** One overdraft in month 5, cleared the next day, within program tolerance. A recurring $389 monthly debit to a truck finance company appears on the credit report and is in the ratio. No other undisclosed debits found. **Assets and reserves.** Funds to close from personal checking, seasoned over two months. Reserves after closing: nine months of the new payment. **Credit.** Middle score 724. One 30-day late on a store card four years ago, explained and isolated. **Collateral.** Appraisal supports the purchase price. No repairs required. **Risks and offsets.** Debt-to-income 43 percent. Offset by nine months of reserves and a stable deposit trend. Seasonal dip in winter months visible in both years of history and recovered each spring. **Decision and conditions.** Approve. Conditions: final verbal business verification before closing; homeowners insurance binder; updated business statement if closing moves past the lender's statement age limit. ### Why this works Each paragraph answers one question, shows its numbers and points to documents. A reviewer can test any line against the file. Much of it depends on a clean file in the first place; a processor who worked a full [mortgage loan processor checklist](/blog/mortgage-loan-processor-checklist) before submission leaves the underwriter far fewer gaps to explain. ## Underwriting narrative wording that weakens the file Underwriting narrative wording weakens the file when it asserts without evidence, hides a risk, contradicts the worksheet or reads as a template pasted onto every loan. These are the phrases and habits a reviewer or examiner notices first, and they cast doubt on a decision that may have been sound. ### Phrases to avoid - **"Strong borrower" or "solid file"** with no facts behind them. - **"Income appears sufficient."** Say what it is and what the ratio is. - **"Deposits are consistent."** Show the range or trend. - **"Compensating factors exist."** Name them. ### Habits that cause trouble - **Copying last month's narrative** and editing names. Details from the old file survive and contradict the new one. - **Numbers that differ from the worksheet,** even by rounding. Pick one figure and use it everywhere. - **Leaving out a risk** because it was resolved. Say it was found and how it was resolved. - **Personal remarks** about the borrower that have nothing to do with credit. They have no place in the file. ### A quick self-check Before signing, read the narrative as if you had never seen the file. Could you approve or decline from it and the documents alone? If any step needs knowledge in your head, write that step down.