Letter Of Explanation: LOX

A letter of explanation is most often required when a mortgage loan underwriter sees discrepancies on a mortgage loan borrower’s information on what he or she stated on the application and documents provided.  For example, if the monthly wages of a mortgage loan borrower does not matches the W-2s and the mortgage loan borrower took time off work due medical reasons or other reasons, a detailed letter of explanation is required. If you had multiple credit inquiries on your credit report, a letter of explanation will be required for every single credit inquiry.  Credit inquiry letter of explanations does not need to be actual long letter of explanations.  It can be just a one liner.  For example, if you had multiple credit inquiries from automobile finance companies, all you need to state is shopping for a car.  If you had multiple inquiries from mortgage companies, all you need to state is shopping for mortgage.  Same with credit cards.  If you had multiple credit inquiries from credit card companies, all you need to state is shopping for credit card interest rates.  Letter of explanaition for credit inquiries are not deal breakers.  The mortgage loan underwriter just needs to do a check off on each credit inquiry in order to move forward.

Case Scenarios Where A Good LOX Is Crucial

One of the most important times where a letter of explanation will make you or break you in getting a mortgage loan approval is when you write a letter of explanation for HUD’s new FHA Back to Work Extenuating Circumstances due to an economic event mortgage program letter of explanation.  The first thing that will determine whether or not you qualify for the FHA Back to Work Extenuating Circumstances due to an economic event mortgage program will be the letter of explanation.  The Back to Work mortgage loan program shortens the mandatory waiting period to one year waiting period after bankruptcy and foreclosure for home buyers.  However, there is a certain criteria that Back to Work mortgage program home buyers need to meet and need to explain it on their mortgage letter of explanation.  The Back to Work mortgage program letter of explanation needs to state the following:

Mortgage loan borrower needs to have had good credit prior to the initiation of the bankruptcy and/or foreclosure and had to have been unemployed and/or underemployed for at least six months prior to the intiation of bankruptcy and/or foreclosure which has resulted in a 20% household income.  If the Back to Work mortgage loan program borrower had bad credit prior to the start of his financial hardship, they will not qualify because of their lack of knowing the importance of credit.  The credit will plummet due to the bankruptcy and foreclosure and the mortgage loan borrower had to have re-established credit.  The letter of explanation does not have to be a novel.  It just needs to list facts and along the letter of explanation, attach any supporting documents such as the termination letter, past W-2s and paycheck stubs.  The mortgage underwriter wants to see that the bankruptcy and/or foreclosure was caused by the mortgage loan applicant being terminated from his or her employment which was beyond of his or her control.  The mortgage loan borrower needs to have since recovered and fully employed with re-established credit.

Gustan Cho

www.gustancho.com

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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