How To Write Letter Of Explanations To Underwriters


This BLOG On How To Write Letter Of Explanations To Underwriters Was UPDATED On January 2nd, 2019

How To Write Letter Of Explanations To Underwriters
Gustan Cho Associates


Ways on How To Write Letter Of Explanations To Underwriters is very basic and to the point.

  • Income, assets, debts, credit, and liabilities are all important factors in the mortgage approval process
  • If there is anything out of the ordinary such as gaps in employment, a bankruptcy, foreclosure, late payments, collections, derogatory information, and other negative information or questionable information on borrowers credit profile and will be required to write letter of explanation on each of the questionable items

In this article, we will cover and discuss How To Write Letter Of Explanations To Underwriters.

How To Write Letter Of Explanations To Underwriters On Late Payments

Most mortgage lenders do not want to see late payments or collections after a borrower has filed bankruptcy or foreclosure.

  • There are lenders who will consider approving a mortgage loan to borrowers who have had late payments or collection after a bankruptcy or foreclosure with an approve/eligible per Automated Underwriting System Findings
  • However, they will require a detailed letter of explanation on the circumstances on why they were late
  • Letter of explanation stating, “Oh, I forgot or Oh, I thought my husband or wife was supposed to pay” will not fly
  • Certain letter of explanation like having a job loss or medical issues will carry a lot of weight but needs to be extremely detailed and providing proof along with the letter of explanation
  • Borrowers who had prior bad credit and still have charge offs, collections, and late payments on your credit report, every single line item on credit report needs a letter of explanation on the reason why you were late
  • Again, borrowers need to explain it in detail and see if they can pinpoint a reason why they were late such as a job loss, divorce, identity theft, or medical issues
  • Provide any proof that they might have so it adds credibility and weight 
  • Mortgage underwriters are looking for financially responsible borrowers and will deny mortgage loans for those borrowers that have a history of late payments with no valid reason

Most often than not, this is used as an indicator of predictability whether the mortgage loan borrower will make timely mortgage payments in the future.

Letter Of Explanation For Prior Bankruptcy & Foreclosure

What is the significance of the explanatory letter regarding previous bankruptcy and exclusion

Borrowers who had a prior bankruptcy or foreclosure will be required to write a letter of explanation on why they had to file bankruptcy or had a foreclosure.

  • Again, it needs to be extremely detailed and provide proof why borrower had to file for bankruptcy or had a foreclosure
  • Reasons like ” My house was under water so I decided to foreclose on my home so I can purchase a home for much less value three years later” will be a definite mortgage loan denial and is considered a bail
  • A good reason can be like a loss of a job or homeowners who had a teaser rate and the loan converted to a high rate such as doubling the monthly payment
  • Medical emergencies are always a great excuse if that is the case

A major reduction in wages can also be used as a good excuse for a letter of explanation.

How To Write Letter Of Explanations To Underwriters On Overdrafts In Bank Statements

Many lenders will not approve a mortgage loan if borrowers had overdrafts in the prior 12 months.

  • If this is the case, I suggest submitting bank statement print outs for the past twelve months since most bank statement printouts do not reflect year to date overdraft charges
  • Borrowers who had a bank overdraft in the past 60 days, need to write a letter of explanation and must be detailed

The loan officer will help borrowers write a letter of explanation for overdrafts in the past 60 days.

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