How To Write To Write Letters Of Explanation To Mortgage Underwriters
This article is about How To Write Letters Of Explanation To Mortgage Underwriters
For those who have gone through the mortgage application process, they have encountered where a mortgage underwriter requesting Letters Of Explanation to mortgage underwriters 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 for a letter of explanation for the following reasons:
- large or irregular deposit on a bank account
- credit inquiries
- late payments
- overdrafts in bank accounts
- charged-off accounts
- collection accounts
- gaps in employment
- other questionable items on your credit report or mortgage loan application
How To Write Letters Of Explanation To Mortgage Underwriters When Underwriter Requests It
Many borrowers, especially first-time home buyers, panic when asked for letters of explanation from mortgage underwriters. Reasons underwriters ask letters of explanation to mortgage underwriters is so the subject matter needs clarification. For example, letters of explanation to mortgage underwriters may be requested if borrowers had a major reduction in income a certain year.
It may be because of reduction in income due to the following reasons:
- maternity leave
- personal extended vacation
- temporary lay off
- or personal issues
There is no right or wrong answer. Underwriters just need clarification on concerns in order to issue a mortgage approval.
How To Write Letters Of Explanation To Mortgage Underwriters
Letters of explanation to mortgage underwriters do not have to be long.
- A one or two sentence or a paragraph explaining the issues is sufficient
- Only answer the items that the mortgage underwriter asks
- Do not go off on a tangent because do not want to open up a can of worms
For example, if the mortgage underwriter asks for the reason for filing bankruptcy tell them the reason why for filing bankruptcy
- For example, if lost a job and that was the reason filed bankruptcy
- just state the loss of job and the reason that led to filing bankruptcy
An example will be :
- I was laid off from my employer XYZ
- 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 the following:
- applying for mortgage
- applying for better interest rate credit cards
- shopping for a car loan, etc. will be sufficient
- Letters Of Explanation For Large Or Irregular Deposit
Mortgage underwriters will question large or irregular deposits.
- All large and irregular deposits need to be sourced in order to use it for the 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 a copy of the check, deposit slip, and bill of sale
- Any irregular deposit of $200 or more, a letter of explanation is required
Letters 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 the mortgage loan originator to review before it gets submitted to underwriting. Borrowers who need a pre-approval, click APPLY NOW and complete the 4 pages 1003. Mike Gracz of Gustan Cho Associates Mortgage Group and his Team are available 7 days a week, including holidays and weekends. Mike can be reached at 630-659-7644 or can text Michael at this number for a faster response. Or email us at [email protected]