How To Write Letter Of Explanations To Underwriters For Derogatory Credit
This BLOG On How To Write Letter Of Explanations To Underwriters For Derogatory Credit Was UPDATED On January 7th, 2017
Many mortgage borrowers often get nervous when they get conditioned to write letters of explanations (LOX).
- There is no set way on How To Write Letter Of Explanations To Underwriters For Derogatory Credit
- An experienced good loan officer will show borrowers on How To Write Letter Of Explanations To Underwriters For Derogatory Credit and many times the loan officer will write the LOX on behalf of borrowers
- Often times, LOX’s should just be one liners and kept short and brief
- Mortgage Underwriters do not want a long letter
- They are just concerned with FACTS. Our loan officers at The Gustan Cho Team at USA Mortgage often will talk to borrowers and ask what clarification the underwriter needs
- The loan officer will then write the letter of explanation and email to borrower for their signature
When Are Borrowers Asked To Write Letters Of Explanations
Letters Of Explanations To Mortgage Underwriters is requested throughout the mortgage process. Underwriters will often ask for LOX when the following occurs:
- Need clarification on certain issues
- Prior reason for derogatory credit
- Credit inquiries
- Irregular deposits
- Bank overdrafts
- Gaps in employment
- Increasing or declining income
- Prior bankruptcy and/or housing event
Again, there is no set way on How To Write Letter Of Explanations To Underwriters For Derogatory Credit or other issues. It needs to just be brief and to the point.
Will The Way On How To Write Letter Of Explanations To Underwriters For Derogatory Credit Kill My Loan Process?
Many mortgage borrowers often get really nervous thinking that the way on how they write their LOX may kill their mortgage loan.
- This is not the case. All the underwriter needs to know is clarification and file the LOX on the borrower’s file. I have never ran into a situation where a LOX killed a deal
- Again, the borrower’s loan officer will often write the LOX. If a loan officer just tells a borrower to write a letter of explanation, then the borrower should consider hiring a different loan officer
- What we, at The Gustan Cho Team at USA Mortgage normally do is have borrowers sign a blank Letter Of Explanation Form so when underwriters conditions LOXs, our loan officer will talk to borrowers and write the LOX on behalf of borrowers
Borrowers do not have to get nervous or stressed out when asked to submit letters of explanations. LOXs are part of the mortgage process. Letters of explanations will be asked when underwriters review the following:
- Credit History on credit report
- Prior derogatory credit
- Credit inquiries
LOXs is required because mortgage underwriters need clarity, explanation, and more documentation in the borrower’s background and/or credit report/history. Borrowers do not have to worry about writing LOXs personally. Again, as mentioned above, all LOXs can be one liners.
What Mortgage Underwriters Want To See
Mortgage Underwriters need to follow mortgage guidelines.
- There are many times where underwriters need clarification by borrowers so that mortgage guidelines are met. In the event if an issue the underwriter is reviewing is outside the mortgage guidelines, the underwriter will need to know
- Examples may include a late payment on a mortgage that may be reporting twice
- Collections and charge off accounts
- Potential errors on credit report. Irregular deposits and/or withdrawals
- Addresses listed on mortgage application versus addresses reported on credit report. Any late payments and/or derogatory on credit report, underwriters will need an explanation for it
- Why was the borrower late?
- Will it happen again?
- Was the borrower late due to extenuating circumstances and/or financial irresponsibility?
When borrowers had periods of bad credit, there is a reason why. The reason why they went through bad credit is what underwriters want to know.
Will Underwriters Require Documentation?
Documentation along with LOX is always good.
- However, the loan officer will instruct borrowers whether or not to include it along with the LOX
- Many times, it is not good to provide docs that is not requested
- If a mortgage underwriter sees something that was not required, they cannot unsee it
- Borrowers do not want to open up a can of worms
- If borrowers credit suffered due to being hospitalized, then attach the medical records/docs. If there was a death in the family, providing docs will strengthen the LOX and provide proof
- If borrower inherited money, then send docs to provide those funds as qualified funds
Information On Letter Of Explanations
LOXs should be as short and concise as possible.
Borrowers need to remember that there is no right way on How To Write Letter Of Explanations To Underwriters For Derogatory Credit or other concerns.
- However, do not volunteer any information that was not asked or give them any more information than needed
- There is no grading system on a LOX
- There is no pass and/or fail. If underwriters need further clarification, they will ask. Included on the letter of explanations should be borrowers name, date, and contact info
- Again, the borrower’s loan officer should write the letter of explanations for their borrowers
Mortgage Borrowers who need to qualify for mortgage with direct lender with no overlays, please contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at firstname.lastname@example.org. We are available 7 days a week, evenings, weekends, and holidays.