What’s a letter of explanation?

Lenders are asking for more explanations than we have in the past.  Several years ago we used to get a letter of explanation regarding for many things and that went away for a few years.  Now it's back again!!

If you have any inquiries on your credit report, you will be asked to write a letter of explanation (LOX) explaining what they were for and if there is any new debt.  If there is new debt and it's not on the credit report, you will need to show information on the loan or credit card – a new statement, the loan papers, etc so the underwriter knows what the new payment is and how it will  affect your loan qualifications.  If you were shopping for a mortgage, you can explain that you were doing that and that there isn't any new debt from the credit inquiries.

An underwriter may also ask for an explanation on why you are buying a home or why a bankruptcy happened.  They may want explanations on employment or other questions.  Sometimes they are worried about occupancy or have questions about your credit.  After the last fewyears, they are concerned about possible fraud and so they are trying to make sure they are comfortable with the transaction.   If you are buying a new home and not selling your current home, they may want to know why.

There are times that I will write an explanation about the transaction to help the underwriter understand what is going on.  I may want information from you to help me explain what is happening in the transaction.  It helps the underwriter to understand what we are using for income or why you are keeping a home as you are buying a new one!

If you are asked to write an explanation, keep it simple, truthful and if you have any supporting documentation, add it to the letter!

Leslie Vanderwerf,  NMLS ID#335509, Summit Mortgage - Email – Website