Mortgage Process

Do You Need a Letter of Explanation with Your Mortgage Application?

pre-approval 2From time-to-time during the mortgage application process a question will arise that will need further explanation. The underwriter’s concern about certain facts uncovered during her verification of the statements made on an application can usually be addressed in a Letter of Explanation signed by the borrower(s). A professional Loan Officer will usually pick them up during his interview. Here a few of the typical concerns that need to be addressed.

Credit Inquiries:  If the borrower has a credit inquiry on their credit report dated within 120 days of their application, a Letter of Credit Explanation will be requested stating the purpose of the inquiry and whether or not any new debt was incurred as a result of the inquiry.
Joint Account Holder on Bank Account, But Not On Loan:  If a spouse or an6y other person is a joint holder on a bank account where the funds will be used for the down payment or closing costs of a mortgage, a Full Access Letter will be required from that person confirming that they give the borrower 100% access to the funds to use in the transaction.
Address Discrepancy:  If an address shows up on the credit report, pay stub, or bank statement that is not the same as the borrower’s current address on the application, or listed as any previous address on the application, a Letter of Explanation must be submitted explaining the discrepancy with dates the borrower occupied said address.
Derogatory Credit:  If any derogatory credit trade lines appear on the credit report, a Letter of Explanation must be submitted stating what they are for and what event triggered the derogatory credit.  If it is a significant event, stating how the borrower intends to prevent reoccurrence in the future will be very helpful.

Helpful Tips:
o   Documenting a file with the appropriate Letter of Explanation prior to submission of the application will save time in processing and underwriting.
o   All Letters of Explanation must be signed and dated by the borrower
o   Additional documentation that might better explain a questionable situation should be submitted with the Letter of Explanation
o   Any new debt that was incurred as a result of the credit inquiry and is not shown on the credit report must be supported by a copy of the current monthly billing statement. 

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