Have you been asked by your mortgage lender during the underwriting process to write a letter of explanation (LOX) and don’t know where to begin? You might have an overdraft fee on your bank account ( or NSF // non-sufficient funds), a late payment or two on your credit report, a different address on your bank statements than your current mailing address, or a deposit to your bank account that needs to be sourced.
Here’s the basic structure you can follow when crafting your LOX:
- Greeting and date
- Cite the incident with all applicable identifying information (date, last four numbers of the account number, institution/creditor)
- Explanation/solution/what has been done to improve the situation and prevent future occurrences
- If requested, supply appropriate documentation (cancelled checks, proof of payment, etc.)
SAMPLE LETTER OF EXPLANATION:
Re: Mortgage Application
Dear Sir or Madam:
Below are the explanations you have requested in regards to my mortgage application:
1) Overdraft fee, 2/12/2013, Bank of the Universe, #3423
In February of this year, we encountered several unforeseen expenses including repair to our roof and new tires on both of our cars. Several of the checks cleared on the same day, the day before our paychecks were directly deposited into our account. We had the funds to cover the purchases in our savings account, but we simply weren’t tracking our checking account balance closely enough to transfer the funds in time. This has never happened before, and we have since signed up for alerts to notify us when our balance drops below $xxx.xx.
2) Deposit, $300.00, 3/7/2012, Bank of the Universe, #3423
The deposit referenced above were checks from my grandparents for my birthday. I have provided copies of the cancelled check.
Jane and Jon Househunters
The LOX is very common in today’s lending environment, so crafting a solid one is imperative. You goal is to help the underwriter understand why you are a good candidate for a mortgage loan. Always remember to be polite, concise, and honest.
If you are interested in purchasing or refinancing in one of the states below, please contact me and I will be happy to connect you with one of my First Home Mortgage colleagues who is licensed in your state.
Maryland, Delaware, Connecticut, Florida, Georgia, Maine, Massachusetts, New Hampshire, New Jersey, North Carolina, Pennsylvania, Rhode Island, South Carolina, Washington D.C., or West Virginia.