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How To Write Letter Of Explanations To Mortgage Underwriters

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How To Write Letter Of Explanations To Mortgage Underwriters

This BLOG On How To Write Letter Of Explanations To Mortgage Underwriters Was UPDATED On October 14th, 2018

Letter of explanations to mortgage underwriters is most often required when underwriters sees discrepancies on a borrower’s information on what he or she stated on the application and documents provided.

  • For example, if the monthly wages of borrower does not matches the W-2s and borrower took time off work due medical reasons, clarification is required
  • Or other reasons, a detailed letter of explanation (LOX) is required
  • Borrowers with multiple credit inquiries on credit report, a letter of explanations to mortgage underwriters will be required for every single credit inquiry
  • Credit inquiry letter of explanations to mortgage underwriters does not need to be actual long letters
  • It can be just a one liner
  • For example, borrowers multiple credit inquiries from automobile finance companies, all they need to state is shopping for a car
  • Borrowers multiple inquiries from mortgage companies need to state is shopping for mortgage
  • Same with credit cards
  • Borrowers with multiple credit inquiries from credit card companies, all they need to state is shopping for credit card interest rates
  • Letter of explanation for credit inquiries are not deal breakers
  • If underwriter does not like it or does not provide enough clarification, underwriter will request a more detailed LOX
  • The underwriter just needs to do a check off on each credit inquiry in order to move forward
  • Most loan officers will write the Letter Of Explanations To Mortgage Underwriters on behalf of their borrowers

Case Scenarios Where A Good LOX Is Crucial

One of the most important times where a letter of explanations to mortgage underwriters needs to be somewhat detailed is on cases when borrowers have late payments after bankruptcy and/or housing event. Most lenders will kill a file if borrowers had late payments after bankruptcy and foreclosure .

  • Late Payments after bankruptcy and foreclosure is not always a deal killer
  • However, most lenders consider late payments after bankruptcy and/or foreclosure a second time offender and will automatically not want to qualify such borrowers
  • Need detailed extenuating circumstances of late payments and need to explain it on their letter of explanation

Sample Letter Of Explanations To Mortgage Underwriters On Late Payments After Bankruptcy And Housing Event

Here is an example sample template outline:

  • Borrower needs to have had good credit prior to the initiation of the bankruptcy and/or foreclosure
  • Had to have been unemployed and/or underemployed prior to the initiation of bankruptcy and/or foreclosure which has resulted reduction household income
  • Borrower had bad credit prior to the start of their financial hardship
  • They will not qualify because of their lack of knowing the importance of credit
  • The credit will plummet due to the bankruptcy and foreclosure
  • Borrower need to have re-established credit
  • The letter of explanation does not have to be a novel
  • It just needs to list facts and along the letter of explanation
  • Attach any supporting documents such as the termination letter, past W-2s and paycheck stubs
  • The underwriter wants to see that the bankruptcy and/or foreclosure was caused by the applicant being terminated from his or her employment
  • This was was beyond of his or her control or other extenuating circumstances
  • Borrower needs to have since recovered and fully employed with re-established credit
  • Borrower then had a late payments after bankruptcy due to the following reasons:
    • Unemployment?
    • Health?
    • Divorce?
    • Other solid reason
  • Forgetting to pay bills is not a good excuse
  • Discuss the reason for late payment after bankruptcy and/or housing event and have the loan officer assist in writing it which is acceptable to the underwriter

Qualifying For Mortgage With Direct Lender With No Overlays

Home Buyers or homeowners who need to qualify for mortgage with a national direct lender with no mortgage overlays on government and conventional loans can contact us at Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We have zero overlays on FHA, VA, USDA, and conventional loans. The Gustan Cho Team at Loan Cabin Inc. are correspondent lenders on non-qm loans and bank statement loans for self employed borrowers.

Gustan Cho

www.gustancho.com

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