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Letter Of Explanations To Mortgage Loan Underwriters

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Letter Of Explanations To Mortgage Loan Underwriters

This BLOG On Letter Of Explanations To Mortgage Loan Underwriters Was UPDATED On September 22nd, 2018

Borrowers going through the mortgage approval process will often times get requests for letter of explanations to  mortgage loan underwriters. Loan officers will normally write the letter of explanations (LOX)  for borrowers. Unfortunately, there are some loan officers that will just ask borrowers to write the letter. My team and I often get calls and inquiries by borrowers on how to write letter of explanations to mortgage loan underwriters.

  • Many mortgage applicants freak out when underwriters requests a letter of explanation
  • LOX requests are very common during mortgage process
  • LOX is often requested by mortgage underwriters, especially on applicants with prior bad credit, a prior bankruptcy, a prior foreclosure, a prior deed in lieu of foreclosure, and a prior short sale
  • Letter of explanations to mortgage loan underwriters will be required for the following:
    • recent credit inquiries
    • late payments
    • irregular or large deposits
    • other questionable items a mortgage underwriter may have concerns with. 
  • All letter of explanations to mortgage loan underwriters needs to be signed and dated by applicant
  • Letter of explanations are required for those having joint banking accounts, and those who have had overdrafts as well
  • Some letters of explanations such as the lox due to an economic event are extremely important
  • The letter of explanation will be the deciding factor whether or not the file will go any further
  • Remember that all letter of explanations need supporting documents, which we will discuss on a later paragraph on this article

Format On Letter Of Explanations To Mortgage Loan Underwriters

Lenders do not expect a long letter of explanation.

  • Sometimes a one or two sentence letter of explanation is sufficient
  • Do not write a long letter of explanation
  • Do not volunteer other information that is not requested
  • This is because borrowers might open up another can of worms
  • There is no right or wrong answer that the mortgage underwriter expects on the letter of explanation
  • They just are looking for facts on the information that borrower provided that is not clarified
  • For example, lenders will review overall credit report and credit history
  • Any credit inquiries that is 120 days or newer needs letter of explanations
  • Borrowers with 7 lenders on credit report as credit inquires, need to write on letter of explanation they were just shopping for a mortgage
  • One line statement, sign, date, and submit
  • It is that simple
  • No explanations on whether or not they got approved, denied, etc
  • Same with a bunch of credit card inquiries
  • All borrowers need to write is that they were shopping for credit cards with better interest rates
  • Same with automobile credit inquiries
  • One statement lox stating that you were shopping for a car

Letter Of Explanations To Mortgage Loan Underwriters On Recent Late Payments

When a mortgage underwriter requests a letter of explanation on recent late payments, again, all borrower needs to do is write a brief one or two sentence lox, sign and date.

  • There is no right or wrong answer in writing a letter of explanation
  • If consumer forgot to make the payment, just write a one or two sentence that they overlooked the minimum payments due to whatever the reason
  • It may have been when they were sick, were out of work, or had a dispute with the credit card company
  • There is no correct answer
  • It is not a pass or fail test with letters of explanations

Non-QM Loans & Bank Statement Loans For Self Employed Borrowers

Home buyers can qualify for non-qm loans with The Gustan Cho Team at Loan Cabin Inc. Non-QM Loans have no waiting period after foreclosure, deed in lieu of foreclosure, short sale. One day out of a housing event qualifies for non-qm loans. 20% down payment is required. Minimum credit scores are 640. 660 credit scores require 15% down payment. 680 credit scores require 10% down payment. The primary importance with non-qm loans is lender will request from borrower is a letter of explanation. The letter of explanation needs to be extremely detailed and cover the chain of events for the past several years. Example of extenuating circumstance to to housing event would be

  • Due to being out of work, this was the cause of being forced to bankruptcy, foreclosure, deed in lieu of foreclosure, short sale
  • This economic event affected borrowers which caused reduction of their household income for at least six or more months and was cause of housing event
  • Borrower has recovered and obtained full time employment and now can afford new home purchase
  • Need to show that they have re-established their credit and no late payments after housing and/or economic event

Gustan Cho Associates Mortgage Group at Loan Cabin Inc. is a full service direct lender with no overlays on government and conventional loans. We are correspondent lenders on non-qm loans and bank statement loans for self employed borrowers. We are available 7 days a week, evenings, weekends, and holidays.

Related> Underwriting conditions: LOX

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