From 1510 to 1520, Luther lectured on the Psalms, the books of Hebrews, Romans, and Galatians. As he studied
these portions of the Bible, he came to view the use of terms such as penance and righteousness by the Catholic Church in new ways. He became convinced that the church was corrupt in their ways and had lost sight of what he saw as several of the central truths of Christianity, the most important of which, for Luther, was the doctrine of justification—God's act of declaring a sinner righteous—by faith alone through God's grace. He began to teach that salvation or redemption is a gift of God's grace, attainable only through faith in Jesus.
"This one and firm rock, which we call the doctrine of justification," insisted Martin Luther, "is the chief article of the whole Christian doctrine, which comprehends the understanding of all godliness." He also called this doctrine the articulus stantis et cadentis ecclesiae ("article of the standing and falling of the church"): "…if this article stands, the Church stands; if it falls, the Church falls." Lutherans follow Luther in this when they call this doctrine "the material principle" of theology in relation to the Bible, which is "the formal principle." They believe justification by grace alone through faith alone in Christ's righteousness alone is the gospel, the core of the Christian faith around which all other Christian doctrines are centered and based.
Luther came to understand justification as entirely the work of God. When God's righteousness is mentioned in the gospel, it is God's action of declaring righteous the unrighteous sinner who has faith in Jesus Christ. The righteousness by which the person is justified (declared righteous) is not his own (theologically, proper righteousness) but that of another, Christ, (alien righteousness). "That is why faith alone makes someone just and fulfills the law," said Luther. "Faith is that which brings the Holy Spirit through the merits of Christ". Thus faith, for Luther, is a gift from God, and ". . .a living, bold trust in God's grace, so certain of God's favor that it would risk death a thousand times trusting in it." This faith grasps Christ's righteousness and appropriates it for the believer. He explained his concept of "justification" in the Smalcald Articles:
Traditionally, Lutherans have taught forensic (or legal) justification, a divine verdict of acquittal pronounced on the believing sinner. God declares the sinner to be "not guilty" because Christ has taken his place, living a perfect life according to God's law and suffering for his sins. For Lutherans justification is in no way dependent upon the thoughts, words, and deeds of those justified through faith alone in Christ. The new obedience that the justified sinner renders to God through sanctification follows justification as a consequence, but is not part of justification.
Lutherans believe that individuals receive this gift of salvation through faith alone. Saving faith is the knowledge of, acceptance of, and trust in the promise of the Gospel [The Sacraments]. Even faith itself is seen as a gift of God, created in the hearts of Christians by the work of the Holy Spirit through the Word and Baptism. Faith is seen as an instrument that receives the gift of salvation, not something that causes salvation. Thus, Lutherans reject the "decision theology" which is common among modern evangelicals.
For Lutherans, justification provides the power by which Christians can grow in holiness. Such improvement comes about in the believer only after he has become a new creation in Christ. This improvement is not completed in this life: Christians are always "saint and sinner at the same time" (simul iustus et peccator)—saints because they are holy in God's eyes, for Christ's sake, and do works that please him; sinners because they're descendants of Adam and his Original Sin, evidenced by the fact that they continue to sin until death.