Securing a mortgage requires careful documentation and clear communication. Underwriters need accurate information. Borrowers sometimes face challenges. Loan officers guide the process. The right letter of explanation makes all the difference.
Navigating the mortgage application process can be daunting, particularly when unforeseen circumstances arise. A well-crafted letter of explanation (LOX) can bridge gaps in your financial history and address potential red flags for the underwriter.
Understanding the Underwriter Mortgage Letter of Explanation Template
An Underwriter Mortgage Letter of Explanation Template is a pre-structured document designed to help mortgage applicants clearly and concisely explain specific aspects of their financial history or application that might raise concerns for the underwriter. It serves as a critical tool for addressing inconsistencies, clarifying unusual transactions, or providing context for past financial events.
Its importance lies in its ability to proactively address potential issues, strengthen the loan application, and ultimately increase the chances of mortgage approval by providing the underwriter with the necessary information to make an informed decision.
Cracking the Code: The Ideal Structure for Your Mortgage Letter of Explanation
Okay, so you need to write a Letter of Explanation (LOX) for your mortgage underwriter. Don't panic! It’s basically just a chance to tell your side of the story. The key is to make it clear, concise, and easy for them to understand. Think of it as guiding them through your financial narrative.
A well-structured LOX can make all the difference between approval and denial. Here's a breakdown of the ideal structure:
- Heading/Introduction: Start with the basics.
- The Explanation: Get to the meat of the matter - the "why".
- Supporting Documentation: Back up your claims!
- Concluding Statement: Wrap it up nicely and professionally.
Let's break down each of these components a little more. Think of it like building a house; each part is crucial for the overall stability and strength.
| Section | Purpose | What to Include |
|---|---|---|
| Heading/Introduction | Clearly identify yourself and the loan application. | Your name, property address, loan application number (if you have it), and the date. Also, briefly state the reason for the letter. |
| The Explanation | Provide a detailed and honest explanation of the situation. | Explain the event or issue the underwriter is questioning. Be specific, providing dates, amounts, and any relevant details. Avoid blaming others and take responsibility when appropriate. |
| Supporting Documentation | Provide evidence to support your explanation. | Bank statements, pay stubs, tax returns, letters from employers, or any other relevant documents that corroborate your story. Clearly label each document and refer to it in your explanation. |
| Concluding Statement | Reiterate your commitment and thank the underwriter. | Summarize your explanation briefly. Reassure the underwriter of your financial stability and commitment to the loan. Thank them for their time and consideration. Provide your contact information if they need further clarification. |
Benefits of a Clear Structure
Why bother putting in the effort to structure your LOX properly? Because it pays off big time! A disorganized letter can raise more questions than it answers and potentially sink your chances of getting approved. Here are some key benefits:
- Improved Clarity: A clear structure makes it easier for the underwriter to understand your explanation and follow your reasoning. They don't have to hunt for the information they need.
- Increased Credibility: A well-organized letter demonstrates that you're responsible and take the loan application seriously. It shows you've put thought into your explanation.
- Faster Processing: When the underwriter can quickly find the information they need, it speeds up the loan approval process. Nobody wants to wait longer than necessary!
- Reduced Risk of Misinterpretation: A clear structure minimizes the chances of the underwriter misinterpreting your explanation or drawing incorrect conclusions.
- Enhanced Professionalism: Presenting your information in a professional and organized manner reflects positively on you as a borrower. It shows respect for the underwriter's time and effort.
Examples of Underwriter Mortgage Letter Of Explanation Template
Explanation for Late Payment
John Doe 123 Main Street Anytown, CA 91234 (555) 123-4567 [email protected]
October 26, 2023
Underwriting Department Acme Mortgage Company 456 Oak Avenue Anytown, CA 91234
Dear Underwriter,
This letter is to explain a late payment on my credit report with account number ending in 7890. The payment was due on July 15, 2023, but was made on July 22, 2023.
The lateness was due to an unexpected medical bill that caused a temporary strain on my finances. I prioritized the medical bill to avoid further late fees and negative impact on my credit. Since then, I have adjusted my budget to ensure all payments are made on time.
I have attached proof of the medical bill and a bank statement showing the payment. I have also been in good standing with all my accounts for the last three months. I hope this clarifies the situation and thank you for your understanding.
Sincerely, John Doe
Explanation for Large Deposit
Jane Smith 456 Elm Street Anytown, CA 91234 (555) 987-6543 [email protected]
October 26, 2023
Underwriting Department Acme Mortgage Company 456 Oak Avenue Anytown, CA 91234
Dear Underwriter,
This letter is to explain a large deposit of $5,000 into my checking account on September 15, 2023. This deposit is reflected on the bank statements I provided.
The funds represent a gift from my parents, Robert and Susan Smith, to assist with the down payment on my new home. A gift letter from my parents is attached, along with a copy of their bank statement verifying the withdrawal of funds.
These funds are not a loan and do not need to be repaid. I hope this explanation is sufficient. Thank you for your time and consideration.
Sincerely, Jane Smith
Explanation for Address Discrepancy
Robert Jones 789 Pine Street Anytown, CA 91234 (555) 246-8024 [email protected]
October 26, 2023
Underwriting Department Acme Mortgage Company 456 Oak Avenue Anytown, CA 91234
Dear Underwriter,
This letter is to explain a discrepancy in my address. My credit report lists a previous address of 101 Cherry Lane, Anytown, CA 91234. I resided at this address from January 2018 to December 2020.
I moved from 101 Cherry Lane to 456 Oak Street, Anytown, CA 91234 in January 2021 and lived there until July 2023. My current address is 789 Pine Street, Anytown, CA 91234, which I have occupied since August 2023. I have provided documentation with my current address.
I hope this clarifies the address discrepancy. Thank you for your understanding.
Sincerely, Robert Jones
Explanation for Employment Gap
Emily Brown 321 Maple Street Anytown, CA 91234 (555) 369-1591 [email protected]
October 26, 2023
Underwriting Department Acme Mortgage Company 456 Oak Avenue Anytown, CA 91234
Dear Underwriter,
This letter explains the employment gap between June 2022 and December 2022. During this time, I was taking care of a family member who was ill.
I returned to the workforce in January 2023 and have been employed at XYZ Company since then. I have provided pay stubs and an employment verification letter to confirm my current employment status.
I am a dedicated and reliable employee and I am confident that this gap will not affect my ability to make timely mortgage payments. Thank you for your consideration.
Sincerely, Emily Brown
Explanation for Credit Inquiry
Michael Davis 987 Oak Street Anytown, CA 91234 (555) 741-2580 [email protected]
October 26, 2023
Underwriting Department Acme Mortgage Company 456 Oak Avenue Anytown, CA 91234
Dear Underwriter,
This letter is to explain the credit inquiry from Auto Loans R Us on August 10, 2023, that appears on my credit report.
I was exploring financing options for a new car but ultimately decided not to purchase one at that time. I did not open an account with Auto Loans R Us, and this inquiry did not result in any new debt.
Thank you for your understanding. Please let me know if you require any further information.
Sincerely, Michael Davis
Explanation for Derogatory Credit Item (Collection)
Sarah Williams 654 Cherry Street Anytown, CA 91234 (555) 852-9631 [email protected]
October 26, 2023
Underwriting Department Acme Mortgage Company 456 Oak Avenue Anytown, CA 91234
Dear Underwriter,
This letter is to explain the collection account from ABC Collection Agency on my credit report. The account number is 12345 and the original creditor was XYZ Medical.
This debt stemmed from a disputed medical bill in 2021. I had insurance coverage at the time, but the insurance company denied the claim. I was in the process of appealing the denial, but the debt was unfortunately sent to collections before the appeal was resolved.
I have recently contacted XYZ Medical and they have agreed to withdraw the collection if I pay a reduced amount of $200.
I have included documentation regarding the insurance denial and the agreement with XYZ Medical to remove the collection upon payment. I plan to pay the amount immediately and request a confirmation of the deletion from the collection agency. I will provide proof of payment and the deletion letter as soon as I receive them.
Sincerely, Sarah Williams
Explanation for Co-signed Loan
David Miller 210 Birch Street Anytown, CA 91234 (555) 159-7530 [email protected]
October 26, 2023
Underwriting Department Acme Mortgage Company 456 Oak Avenue Anytown, CA 91234
Dear Underwriter,
This letter explains the co-signed loan on my credit report. I co-signed a student loan for my nephew, Thomas Miller, in 2018 (account number ending in 6789).
Thomas is solely responsible for the loan payments, and he has been making them on time. I have attached his recent payment history as confirmation. I have no intention of making the payments on this loan, as it was solely meant to help my nephew secure the financing.
I have discussed this with Thomas and he understands his responsibility for the loan. I believe this loan should not significantly impact my debt-to-income ratio as he is making timely payments. Thank you for your consideration.
Sincerely, David Miller
Step-by-Step Process
- Identify the Issue: Clearly pinpoint the specific item the underwriter is questioning. Review the loan documents and the underwriter's request carefully.
- Gather Documentation: Collect all relevant documents that support your explanation. This could include bank statements, pay stubs, letters from employers, or receipts.
- Draft the Explanation: Use the template as a guide, but personalize it to your specific situation. Be concise, accurate, and truthful.
- Review and Revise: Proofread the letter carefully for any errors in grammar, spelling, or factual information. Ask a friend or family member to review it as well.
- Submit the Letter: Send the letter to the underwriter through the appropriate channels, such as email or the loan portal. Retain a copy for your records.
- Follow Up: If you don't hear back from the underwriter within a reasonable timeframe, follow up to ensure they received the letter and to address any further questions they may have.
Common Mistakes
- Being Vague: Avoid general statements. Provide specific details, dates, and amounts.
- Providing Inaccurate Information: Ensure all information is accurate and verifiable with supporting documentation.
- Omitting Information: Address all aspects of the underwriter's question completely.
- Using an Inappropriate Tone: Maintain a professional and respectful tone, even if you disagree with the underwriter's assessment.
- Failing to Proofread: Errors in grammar and spelling can detract from the credibility of your explanation.
- Delaying Submission: Respond to the underwriter's request promptly to avoid delays in the loan process.
Frequently Asked Questions
What if I don't have all the documentation the underwriter is requesting?
Explain why you are unable to provide the documentation and offer alternative forms of verification. Be honest and transparent about the situation.
How long should my letter of explanation be?
Keep it concise and to the point. Aim for a maximum of one page, focusing on clarity and accuracy. Avoid unnecessary details.
What if the underwriter rejects my explanation?
Ask for clarification on why the explanation was rejected and what further information or documentation is needed. Be prepared to revise and resubmit your letter.
Crafting an effective Letter of Explanation doesn't have to be daunting. By following these tips and using a well-structured template, you can address the underwriter's concerns and move closer to securing your mortgage approval.
Good luck with your home buying journey!