Mortgage Application Process

Gustan Cho Associates

Letter Of Explanation To Underwriters

For those who have gone through the mortgage application process, they have encountered where a mortgage loan underwriter requested Letter of Explanation on certain issues such as a prior bankruptcy, a prior foreclosure, a prior deed in lieu of foreclosure, or prior short sale.  A mortgage underwriter may also ask a letter of explanation of a large or irregular deposit on a bank account, reasons for credit inquiries, reason for late payments, reason on collection accounts, gaps in employment, and other questionable items on your credit report or mortgage loan application.

Mortgage Underwriter Requesting Letter Of Explanation

Many mortgage loan borrowers, especially first time home buyers, panic when the mortgage underwriter asks for letter of explanation on issues the mortgage loan underwriter needs clarified.  For example, a mortgage underwriter may ask a letter of explanation why a mortgage loan applicant had a major reduction in income a certain year.  It may be because of a maternity leave, injury, personal extended vacation, school, temporary lay off, or personal issues.  There is no right or wrong answer.  The mortgage underwriter just wants you to explain the concerns the underwriter may have in order to issue you a mortgage loan approval.

How To Write Letter Of Explanation

A letter of explanation to a mortgage underwriter does not have to be long.  A one or two sentence or a paragraph explaning the issues is sufficient.  Only answer the items that the mortgage underwriter asks and do not go off on a tangent because you do not want to open up a can of worms.  For example, if the mortgage underwriter asks for the reason you filed bankruptcy you can tell them the reason why you filed bankruptcy.  For example, if you lost your job and that was the reason you filed bankruptcy, just state that on how you lost your job and the reason that led to your bankruptcy.  Example will be : I was laid off from my employer XYZ and could not secure full time employment until 8 months later.  Due to no household income, and creditors calling me, I had no other choice but to file bankruptcy and get a fresh start.  Sign and date the letter of explanation.  As for credit inquires, a one liner on each credit inquiry such as applying for mortgage, applying for better interest rate credit cards, shopping for a car loan, etc. will be sufficient.

Letter Of Explanation For Large Or Irregular Deposit

Mortgage underwriters will question large or irregular deposits.  All large and irregular deposits needs to be sourced in order for the mortgage loan borrower to use it for their down payment and/or closing costs.  An example of a letter of explanation for a large or irregular deposit can be a sale of a vehicle.  In order for the mortgage loan applicant to be able to use the funds from the sale of the car for down payment or closing costs, a letter of explanation is required as well as supporting documents such as copy of check, deposit slip, and bill of sale.  Any irregular deposit of $200 or more, a letter of explanation is required.

Letter Of Explanation Should Be Short And To The Point

Again, as mentioned earlier, a letter of explanation does not need to be lengthy and should not be a multi-page story.  A few sentences to no more than a paragraph and should just be focused on the matter at hand.  Sign and date it and submit it to your mortgage loan originator to review before it gets submitted to underwriting.  If you need a pre-approval, click APPLY NOW and complete the 4 page 1003.  I am available 7 days a week, including holidays and weekends.  You can also call me at 262-716-8151 anytime.

Related> Letter of explanation to underwriters

Related> Conditional approval

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.

Comments are closed.