How To Write Letter Of Explanation To Mortgage Underwriters

Gustan Cho Associates are mortgage brokers licensed in 48 states

How To Write Letter Of Explanation To Mortgage Underwriters

When homebuyers apply for a mortgage with prior questionable items on the credit report, mortgage underwriters may need clarification. If underwriters need clarification on the items below, they need a letter of explanation:

  • derogatory credit
  • bankruptcy
  • foreclosure
  • short sale
  • judgment
  • credit disputes
  • late payments
  • outstanding collections
  • credit inquiries
  • tax liens
  • judgments
  • charged-off accounts
  • other items that an underwriter may need clarification, letter of explanation to mortgage underwriters will need to be provided

Structure of Letter of Explanation to Mortgage Underwriters

Loan officers should write a letter of explanation on behalf of borrowers or write them together.

Letter of explanation should be brief, concise, and to the point:

Letters to mortgage underwriters should not cover off topics; they should focus on the item requested. If borrowers mention other questionable topics in the letter of explanation, it can open up another can of worms. Once a mortgage underwriter sees other information volunteered, and it is questionable, he or she cannot just ignore it. Underwriters may and often will then ask for another letter of explanation covering what the borrower mentioned.  

Most Common Requests

What Types Of letter Of Explanation To Mortgage Underwriters Are Often Requested?

In the event, if the borrower’s file needs clarification, the underwriter will request a letter of explanation.

Suppose a mortgage loan applicant has had a history of good credit, followed by a period of late payments. The underwriter will require a letter of explanation in order to approve an application with derogatory credit history.

Some of the common acceptable letters of explanation for bankruptcy or bad credit include:

  • loss of a job
  • loss of their business
  • divorce
  • medical event
  • death in the family

Attach Supporting Docs to Letter of Explanation

What is Letter Of Explanation To Mortgage Underwriters With Documentations Attached Shows Strength

Documentation to back up your explanation can swing an underwriting decision in your favor.

For example, if you were in a motor vehicle accident and had medical bills and time off work, provide the hospital bill, accident report, or a letter from the hospital. 

This will prove that the period of derogatory credit was due to an extenuating circumstance.  The underwriter will feel much more confident approving the loan.

Mortgage borrowers with any further questions on how to write a letter of explanation to mortgage underwriters feel free to contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected]

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Related> Sample Letter of Explanation