In this article, we will cover and discuss how to write a letter of explanation to mortgage underwriters. Borrowers need to get accustomed to writing letters of explanation to mortgage underwriters throughout the mortgage process. A letter of explanation to mortgage underwriters is just part of the program throughout the mortgage process. Whenever there is a questionable line item the mortgage underwriter needs an answer, they want you to write a letter of explanation. When homebuyers apply for a mortgage with prior questionable items on the credit report, mortgage underwriters may need clarification.
How Does Letter of Explanation To Mortgage Underwriters Work?
Many borrowers get alarmed when they start the mortgage process and the mortgage underwriter asks for a letter of explanation for one or more line items during underwriting. No need to be alarmed. There is not a right or wrong answer. The mortgage underwriter just needs a one or two liner explanation concerning the questionable item they have . There are times when you may need to prove over a dozen letter of explanation throughout the mortgage process to the underwriter. If underwriters need clarification on the items below, they need a letter of explanation:
- derogatory credit
- bankruptcy
- foreclosure
- short sale
- judgment
- credit disputes
- late payments
- outstanding collections
- credit inquiries
- tax liens
- judgments
- charged-off accounts
- other items that an underwriter may need clarification on, a letter of explanation to mortgage underwriters will need to be provided
Structure of Letter of Explanation to Mortgage Underwriters
Loan officers should write a letter of explanation on behalf of borrowers or write them together. The letter of explanation should be brief, concise, and to the point. Letters to mortgage underwriters should not cover off topics; they should focus on the item requested.
If borrowers mention other questionable topics in the letter of explanation, it can open up another can of worms. Once a mortgage underwriter sees other information volunteered, and it is questionable, he or she cannot just ignore it. Underwriters may and often will then ask for another letter of explanation covering what the borrower mentioned.
Most Common Requests
In the event, that the borrower’s file needs clarification, the underwriter will request a letter of explanation.
Suppose a mortgage loan applicant has had a history of good credit, followed by a period of late payments. The underwriter will require a letter of explanation in order to approve an application with derogatory credit history. Some of the common acceptable letters of explanation for bankruptcy or bad credit include:
- loss of a job
- loss of their business
- divorce
- medical event
- death in the family
Attach Supporting Docs to the Letter of Explanation to Mortgage Underwriters
Documentation to back up your explanation can swing an underwriting decision in your favor.
For example, if you were in a motor vehicle accident and had medical bills and time off work, provide the hospital bill, accident report, or a letter from the hospital. This will prove that the period of derogatory credit was due to an extenuating circumstance.
The underwriter will feel much more confident approving the loan. Mortgage borrowers with any further questions on how to write a letter of explanation to mortgage underwriters feel free to contact us at GCA Mortgage Group at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
