How to write an letter of explanation

Mortgage underwriters require a letter of explanation from applicants that have derogatory marks on their credit report. Deed in lieu of foreclosure, collection accounts, late payments as well as other irregular items such as large purchases can affect your credit report.  A letter of explanation to underwriters is used to explain potential red flags to your mortgage lender.  In addition, underwriters may request back up documentation to support your explanation.  For example, a letter of explanation may be required if a mortgage loan borrower had a late payments for three months in a row.  If the late payments where due to a medical injury and applicant was out of work, then a letter could explain the delinquency and prove it was a one-time event.  However, if the loan applicant has a history of late payments, a letter of explanation will not justify this repetitive behavior.

letter of explanation


How to write letter of explanation

Letter of explanations is also referred to as LOX or LOE.  A mortgage underwriter will request LOE for many reasons throughout the mortgage approval process.  There is no pass or fail on letter of explanation to underwriters. It’s simply to clarify information that the mortgage underwriter needs to make a decision.  Credit inquiries in the past 120 days on an applicant’s credit report will require a explanations for each inquiry.  A short letter of explanation will do   Do not volunteer too much information and just answer the question.  If you volunteer more information in your letter of explanation than is requested it actually may compromise the loan.