My sister borrowed money and I deposited into my account. I need to explain this in order to process my mortgage application. Any help and suggestion would greatly be appreciated. Thanks in advance.
As you have just said, explain it as a repayment of a loan to your sister. It will help if you are able to provide a copy of the check you wrote her when she borrowed the money.
You might also get a copy of the deposited check she gave you, and have her write a letter that it was a loan repayment and not a gift, and that you are not expected to ever repay that money to her (similar to a gift letter the lenders require when you do actually get gift funds to close).
But make your loan officer earn their pay. Ask them to guide you on what you need to provide to satisfy the underwriter. That is their job, and they have certainly encountered this before, or one of their coworkers has and can advise.
The main thing they will want to know is whether the deposit is a GIFT from your sister, or do you have to pay it back.
If it is gift, you will also need a statement from your sister saying it was a gift, and that it does not need to be re-paid.
If it is a loan from your sister, it could affect your mortgage eligibility.
You just explained it.
Say the same thing to the bank.
The truth is always the best option.