How Do I Write a Letter of Explanation for a Mortgage Underwriter?

This Article Is About How To Write Letter Of Explanation To Mortgage Underwriters During Loan Process

Letter Of Explanation To Mortgage Underwriters is part of the overall mortgage process.

Borrowers do not need to be alarmed when mortgage underwriters keep on asking for a letter of explanation. Letter of explanation is also commonly referred to as LOX. There may be dozens of letter of explanation requests by mortgage underwriters during the mortgage process. Some requests make sense while others do it. Therefore, it is just easier to give mortgage underwriters whatever they need when asked. It is easier to provide the things underwriters need during the underwriting process than ask her why she is asking for conditions and LOXs that do not make sense. Remember, do try to make sense of the mortgage process. Letter of explanation to mortgage underwriters should be short, concise, legible, and to the point.

Reason For Letter Of Explanation To Mortgage Underwriters

Letter Of Explanation To Mortgage Underwriters

Nothing is wrong when mortgage underwriters ask borrowers for a letter of explanation.
Letters of explanations are part of the mortgage process. There are times when underwriters may ask for dozens or more times for a LOX when she is underwriting a file. Letter of explanation is often asked by mortgage underwriters when they stumble a date, event, or need other clarification on a specific item and/or document she is reviewing.

Mortgage underwriters can request letters of explanation on the following line item they need clarification during the approval and underwriting process on a borrower:

  • Names on the credit report that may not belong to the loan applicant
  • Explanation on the source of income  (e.g. self-employed borrowers, W2 wage earner, contract employment, part-time employment, etc.)
  • Gaps in employment in the past two years and the reason for being unemployed
  • Borrowers that are showing irregular and/or declining income
  • Recently changing jobs

Borrowers who have a high level of debt in relation to income.

LOX On Irregular And Declining Income And Deposits

There is an unusual irregular withdrawal or deposit in the bank account:

  • Undisclosed payments (liabilities) from your bank account
  • New accounts on your credit report, such as newly opened credit cards
  • Occupancy concerns on primary residences
  • Other addresses that are being reported on the credit report
  • Notes on the consumer credit report that need an explanation
  • The reason for derogatory credit tradelines and negative entries on your credit report
  • Former delinquencies that need review
  • Overdraft fees on an account in the past 12 months which is frowned upon by lenders
  • Multiple bank overdrafts suggest the borrower has difficulty in managing their finances and shows financial irresponsibility
  • Clarification on documents and paperwork provided to the mortgage underwriter

Your loan officer should set the proper expectations when it comes to letters of explanation during the mortgage process. LOXs are usually a good thing. Underwriters normally request letters of explanation when trying to clarify a condition so they can go on to the next condition down the checklist.

Tips And Advice On How To Write Letter Of Explanations To Mortgage Underwriters

How To Write Letter Of Explanations To Mortgage Underwriters

Many borrowers get nervous and panic attacks when they are asked for letters of explanation by mortgage underwriters during the mortgage process. They should not be alarmed by LOX requests. We will help borrowers on how to write letters of explanation. The loan officer should write a letter of explanation for their clients. LOXs should be one or two sentences. It should be short, concise, to the point, and easy to understand. Remember the point of LOXs. The point of writing LOX’s to mortgage underwriters is to provide useful detailed information for the underwriter to make a decision on your loan. Be specific and to the point.

What Information Should I List On My LOX

Important data on a letter of explanation includes dates, account numbers, transaction ID numbers, dollar amounts, and other pertinent account information:

  • On stay focused and concentrate on the topic at hand
  • Do not go on to another topic and/or event where another can of worms gets opened up
  • Be respectful, polite, cooperative, but not personal
  • If you have supporting documents, labeled them and attach them to your LOX
  • Mention in your letter that a document is attached
  • Make sure the subject line is properly addressed
  • For example, JENNIFER SMITH HARD INQUIRY LOX
  • The date of the letter, your loan number, your name, the name of the company you are writing to and their address, and all individuals you want to be copied on your email should be listed

Make sure you end the letter of explanation with your contact information including your cell number and the number you need texts forwarded to if the mortgage underwriter needs additional information.
There are no right and/or wrong answers to letters of explanation. All letters of explanation should be dated and signed by the person that wrote the LOX.

For more information about the content of this blog or other mortgage-related topics, please contact us at Capital Lending Network, Inc. at 800-900-8569 or text us for a faster response at contact@capitallendingnetwork.com. The team at Capital Lending Network, Inc. is available 7 days a week, evenings, weekends, and holidays.


Gustan Cho is a senior mortgage expert and National Managing Director, providing direct-to-consumer advice at NEXA Mortgage LLC. We are a mortgage brokers licensed in multiple states. We are experts in FHA Loans, VA Loans, USDA Loans, Conventional Loans, FHA 203k Loans, Reverse Mortgages Jumbo Mortgages, Non-QM mortgages, Bank Statement Mortgage Loans for self employed borrowers, and alternative financing.

3 Comments

I’m interested to see if I qualify for the manual underwriting process. My wife and I have been debt free for over 6 months and our credit score continues to drop because we dont have a active line of credit. Any information you can provide will be helpful. Thanks

IAM CURRENTLY IN A OPEN CHAP.#13 BANKRUPTCY. IAM IN YEAR 5 OF A 5YEAR-PLAN. BECAUSE OF THE COVID-19 VIRUS, THEY REDUCED MY MONTHLY PAYMENTS AND ADDED 2-YEARS ONTO THE CURRENT CHAP.#13. I HAVE NOT MISSED A PAYMENT, BUT I HAVE NOT MADE THE FULL PAYMENT. MY HOME IS VALUED AT $310K AND I OWE 172K. I NEED TO REFINANCE THE EQUITY IN MY HOME SO AS TO START MY NEW BUSINESS AS A “FREIGHT-BROKER”, WORKING FROM MY CURRENT HOME. NOBODY WILL REFINANCE MY HOME, WHILE IAM IN A CURRENT CHAP.#13 BANKRUPTCY? CAN YOU HELP?, SINCERLY,DEAN L. OSMONSON

Hi GCA team,
I am 13 months into ch13 repayment plan with 650 credit score. I am interested in the FHA manually unwritten option with trustee approval. Can you provide more info on this? What states are you licensed in?
Thank you
Cameron Hills

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