What Is A Letter Of Explanation?

Letter Of Explanation To Mortgage Underwriters

Gustan Cho Associates

If you are going through the mortgage loan approval process, mortgage loan underwriters asking you for letter of explanation, commonly referred as LOX, will be very common.  Many mortgage loan applicants freak out when a mortgage loan underwriter requests a letter of explanation.  Letter of explanations are very common and is often requested by mortgage loan underwriters, especially for mortgage loan applicants with prior bad credit, a prior bankruptcy, a prior foreclosure, a prior deed in lieu of foreclosure, and a prior short sale.  Letter of explanations will be required for recent credit inquiries, late payments, irregular or large deposits, and other questionable items a mortgage loan underwriter may have concerns with.  All letter of explanations needs to be signed and dated by the mortgage loan applicant.  Letter of explanations are required for those having joint banking accounts, and those who have had overdrafts as well.  FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan programs require detailed letter of explanations with supporting facts.  Some letters of explanations such as the lox for FHA Back to Work Extenuating Circumstances due to an economic event are extremely important and the letter of explanation will be the deciding factor whether or not the file will go any further.  Remember that all letter of explanations need supporting documents, which we will discuss on a later paragraph on this article.

How To Write A Letter Of Explanation

Mortgage lenders do not expect a long letter of explanation.  Sometimes a one or two sentence letter of explanation is sufficient.  Do not write a long letter of explanation and do not volunteer other information that is not requested because you might open up another can of worms.  There is no right or wrong answer that the mortgage loan underwriter expects on the letter of explanation.  They just are looking for facts on the information that you provided that is not clarified.  For example, mortgage lenders will review your overall credit report and credit history.  Any credit inquiries that is 120 days or newer needs letter of explanations.  If you have 7 mortgage lenders on your credit report as credit inquires, all you need to write on your letter of explanation that you were just shopping for a mortgage.  One line statement, sign, date, and submit.  It is that simple.  No explanations on whether or not you got approved, denied, etc.  Same with a bunch of credit card inquiries.  All you need to write is that you were shopping for credit cards with better interest rates.  Same with automobile credit inquiries.  One statement lox stating that you were shopping for a car.

LOX On Recent Late Payments

When a mortgage loan underwriter requests a letter of explanation on recent late payments, again, all you need to do is write a brief one or two sentence lox, sign and date.  There is no right or wrong answer in writing a letter of explanation.  If you just forgot to make the payment, just write a one or two sentence that you overlooked the minimum payments due to whatever the reason.  It may have been when you were sick, you were out of work, you had a dispute with the credit card company.  There is no correct answer and it is not a pass or fail test with letters of explanations.

FHA Back To Work Extenuating Circumstances Due To An Economic Event

Home buyers can qualify for a FHA loan after a one year waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short  sale under HUD’s new FHA Back to Work Extenuating Circumstances due to an economic event mortgage loan program.  The primary thing the mortgage lender will request from you is a letter of explanation.  The letter of explanation is what is going to determine whether or not you qualify for the FHA Back to Work extenuating circumstances due to an economic event mortgage loan.  The letter of explanation needs to be extremely detailed and cover the chain of events for the past several years.  To qualify for the FHA Back to Work extenuating circumstances due to an economic v event mortgage loan program, the mortgage loan applicant needs to have been involuntarily terminated by their employer or their employer needed to have gone out of business.  Due to being out of work, this was the cause of the mortgage loan applicant being forced to bankruptcy, foreclosure, deed in lieu of foreclosure, short sale.  This economic event needed to have affected the mortgage loan applicant which caused at least 20% reduction of their household income for at least six or more months.  Once the mortgage loan applicant has recovered and obtained full time employment, they need to have shown that they have re-established their credit and no late payments after they got a new full time job.

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Related> Letter of explanations to mortgage underwriting

Related> Letter of explanation: LOX

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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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