How To Write A Good Letter Of Explanation To My Mortgage Lender

How To Write A Good Letter Of Explanation on Conditions

Gustan Cho Associates are mortgage brokers licensed in 48 states

In this guide on how to write a good letter of explanation to my mortgage lender, we will cover what a letter of explanation is, why lenders ask for LOX, and how to write a simple LOX to the mortgage underwriter and pass with flying colors.

Tips On How To Write A Good Letter Of Explanation Sample For Mortgage Underwriters

Letter of explanation will be common during the mortgage process. Most borrowers freak out after they get conditional loan approval and part of the conditions are a bunch of letters of explanation that need to be provided. There are one condition borrowers can never escape when applying for mortgage letters of explanation.

It doesn’t matter if mortgage lending guidelines are loose or strict. Even if borrowers have the so-called “Liar’s Loan,” “Stated Income,” or “No Income Documentation” mortgage. In every case, borrowers will have to have written a letter of explanation, or as mortgage underwriters, mortgage loan officers, and mortgage processors call them LOEs or LOXs. Borrowers can’t escape the letter of explanation.

What Is The Purpose For Letter Of Explanation

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Loan Officers need to educate borrowers that letters of explanation to mortgage underwriters are not actual letters but rather just or two-liner sentences. Underwriters need clarification. That is why LOXs are requested. Loan Officers normally will write a letter of explanation for borrowers. So what’s the big deal? How do I write one of these LOEs? Do they really read them? Is there a right or wrong answer?

The answer to these questions is maybe, and sometimes the LOX is a big deal and sometimes it isn’t. Again, most letters of explanation are written by loan officers for their borrowers. There are no right or wrong answers.

How To Write A Good Letter Of Explanation on Conditions Requested

A letter of explanation is required if borrowers had events below:

All of these subjects are a big deal to a mortgage loan underwriter and the lender during the mortgage loan process. This is actually pretty easy for borrowers to figure out why.

Why Are LOX Requested By Underwriters

Borrowers can ask themselves if any list of items listed above affects their ability to make their mortgage payments. Underwriters’ main objective is to determine whether or not the borrower has the ability to repay their new housing payment. Underwriters need to review the borrower’s past credit history. Past performance is a good indicator of future performance. Periods of bad credit are fine but why did the borrower have bad credit? Was it job loss? Was it divorce? Was it an illness? What has the borrower done since periods of bad credit? Did they re-establish themselves?

How To Write A Good Letter Of Explanation On Minor Issues

Some Letters of Explanation aren’t a big deal but just a formality. The best example of an LOE that might not be a big deal would be mortgage inquiries. Errors on the credit report. Letters of Explanations to explain irregular deposits. LOX for overdrafts. The borrower’s name was spelled slightly wrong. Reasons for declining income normally require a letter of explanation. The reason why accounts went into collections, charge-offs, or late payments. Of course, the mortgage inquiry is easy to explain.

Letter of explanation sample for inquiries:

Credit Inquiries remain on the credit reports for two years. Underwriters want letters of explanation for every credit inquiry on the credit reports. They will also ask for the outcome of the credit inquiry. Outcomes include whether or not the borrower got approved or not.

How To Write A Good Letter Of Explanation On Credit Inquiries

Underwriters want to know whether borrowers have incurred more debt during the mortgage process. More debt means higher monthly payments which can affect borrowers’ abilities to pay new mortgage payments on time. This is the reason they want LOX on credit inquiries.

Here are examples of LOX for credit inquiries:

  • I was shopping for a mortgage and was checking out the competition’s terms
  • However, after careful review, I decided to go with your company.

With credit card inquiries here is the letter of explanation sample:

  • Shopping for a better interest rate credit card.

With auto loan inquiries here would be a simple letter of explanation sample:

    • Shopping for new auto to lower my auto monthly payment

Steps on How To Write A Good Letter Of Explanation 
1099 Income Versus W-2 Income: Going From 1099 Income To W2 Income

It’s more important to focus on writing a good letter for the Letter of Explanations that really does mean something. As a general rule follow these simple 10 steps when writing an LOE, then go back and reference them:

  • Always keep the letter short.
  • Never have it more than 2 paragraphs.
  • For the most part, that is even too long.
  • If it’s a credit issue, explain why is happened, and the steps you have taken to make sure it won’t happen again.

If it is a minor collection, always point out that you weren’t aware of it until this process and if you are disputing it, paying it, etc.

Tips On How To Write Letter Of Explanation

Keep in mind that LOX does not need to be long. Every mortgage company has its own process on lox. At Gustan Cho Associates, we have loan officers who interview borrowers. We have the loan officer write the letter of explanation for the borrowers. This way it is written the right way:

Here are some more pointers: 

  1. Always emphasize if a derogatory item is medically related
  2. Never point out that negative credit items were a result of acting irresponsible especially if there is a bankruptcy involved
  3. Always emphasize derogatory credit was due to isolated circumstances and is not a pattern of behavior.
  4. Always emphasize how important purchasing this home is
  5. If the LOE is income related or has to do with tax return issues, always blame it on bad tax advice unless the borrower is a tax professional
  6. Always provide supporting documentation to show an item is paid, or settle if it’s in question

Borrowers who are not sure if the LOE is good, need to ask their loan officer or feel free to contact us at Gustan Cho Associates for a 2nd opinion, before providing it to the processor.

Now, of course, the hardest rule to follow is number 1 when following these easy steps. Again, keeping the letter short and to the point is key.

Just remember an important part of the Writing a Letter of Explanation Rule:

    • If not sure, always send a copy of the Letter of Explanation to Gustan Cho Associates for advice.
    • Sometimes the best advice is really free!!

About Gustan Cho Associates Mortgage Group

The team at Gustan Cho Associates are experts in government and conventional loans. Gustan Cho Associates Mortgage Group is a national mortgage company licensed in multiple states with no lender overlays.

  • We have a five-star reputation for getting loans closed where other lenders cannot due to not having any lender overlays. Most of our loans close in 30 days or less
  • Everyone from our President, COO, on down are hands-on
  • Our mission is to fulfill the dream of home ownership into a reality
  • Our loan officers at Gustan Cho Associates are available 7 days a week, evenings, weekends, and holidays
  • Gustan Cho is the editor at Gustan Cho Associates Real Estate And Mortgage Information Resource Center
  • He is also a licensed loan originator with Gustan Cho Associates
  • Gustan Cho is an expert in all areas of real estate, and lending, and also is an expert in health and fitness as well as the medical field
  • Gustan Cho will be writing articles in the areas he is an expert in

Stay tuned for more interesting informational blogs by Gustan Cho as well as our experts of professional guest writers. Home Buyers with any questions, please call or text us at 800-900-8569 or text us for a faster response. Or email us at

Why Do Underwriters Ask For Letter Of Explanations For Late Payments After Bankruptcy And Foreclosure

Over 95% of mortgage lenders will deny a borrower who had any late payments after bankruptcy and/or foreclosure.

  • Even though the borrower has an approve/eligible per Automated Underwriting System (AUS Approval), lenders consider any late payments after bankruptcy, foreclosure, or short sale a second offender
  • Over 75% of our borrowers at Gustan Cho Associates Mortgage Group are folks who are either going through major stress during the mortgage process or get a last-minute mortgage loan denial
  • The main reason for stress during the mortgage process and/or last-minute mortgage denial is that the loan officer did not properly qualify the borrower.
  • It can be because the loan officer hastily issued a pre-approval letter or because they did not know their lender overlays.
  • Gustan Cho Associates does not have any lender overlays on government and conventional loans.
  • We accept late payments after bankruptcy and foreclosure as long as the findings are approve eligible.

Borrowers who are going through stress in the mortgage process or get a last-minute mortgage loan denial, please call or text us at 800-900-8569 or text us for a faster response. Or email us at

This article on How To Write A Good Letter Of Explanation For Underwriters was Written By Gustan Cho NMLS 873293

This article on How To Write A Good Letter Of Explanation Was Updated on September 5th, 2022


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    1. The loan officer and mortgage processor should have never submitted bank statements with overdrafts. Overdrafts are viewed differently depending on the individual lender. I can work with overdrafts but need a really good letter of explanation. If you have overdrafts in bank statements, your loan officer should have asked you to provide him bank statement printouts instead. Feel free to contact us at or call us at 262-716-8151. Or text us for a faster response.

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  6. Hi Gustan Cho, I am having trouble writing a LOE for overdraft fees. I have wrote 3 brief letters and my loan officer has said that none of them will be accepted. The letter is required to be approved for a program assistance to close escrow. Could you help me with this. I am in California.

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    1. We can average three years versus two years and exempt the reduction of income during the height of the pandemic. Contact us at or call us at 262-716-8151. Text us for a faster response.

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