Letters of Explanation and How it can Make or Break your Loan File

Letters of explanation are crucial to a loan file to not only close on time but to not close ugly or late or sometimes close at all.

A way to avoid any speed bumps is by carefully addressing the key points in the file that a mortgage underwriter will pick up on. This is where an experienced mortgage professional is crucial.

This is done by reviewing the file prior to submission to ensure that all potential areas of concern regarding the file's income, assets, credit history, integrity/character of borrower(s), property, or other is conveyed correctly. The downside of not conveying or leaving areas of the file unexplained is that you'll be leaving the file up for interpretation by the underwriter.

Underwriters tend to go with the worst case or most conservative scenario which may lead to more explanations and documentation by you (so you end up doing it any way but now they may be suspicious and in some cases less trusting going forward).

Letters of explanations can be sufficient by themselves however in many cases supporting documentation is required as well, everything ranging from: 

Receipts

Bill of sale

Birth certificate

Corporation bylaws

LLC or partnership operating agreements 

Marriage certificate

Flight manifest/itinerary 

pictures

employment contracts

letters of relocation from employer

employment promotion letters

mortgage notes

deeds of trust

Bankruptcy discharge paperwork

Court documents for probate of estate

Abstract of judgment

and list can go on.

The only way to figure out what you're going to need to document or explain for is by working with a professional. This not does mean online.com cubicle loan officer on salary who works on volume and prays for the clean and easy W2 borrower with 740+ ficos and no complicated assets type of a file or most big bank retail loan officers who may not be adept with the advanced loan structuring aspects that come along with business owners, self employed, and real estate investors. This is one of the intangible areas that separates the pro's from the ameteur's.