Explanation letter for mortgage app

[Anonymous]

I have been working with Wells Fargo to get preapproved for an FHA loan. He gave me the list of documents to get together, and asked me to write a letter explaining the late payments on my credit report. Unfortunately, I don't really have a good explanation for them. I was 19, 20, and 21 when they happened, working part-time as a full-time student and not taking very good care of my credit.

Car loan: 30 days late Aug. 2006, Dec. 2006, Aug. 2007, and Oct. 2007. This loan only shows up on my TU report.

Car loan (with another bank): 30 days late April 2005 and May 2005 on TU only and 30 days late July 2005 on EQ only

With the exception of the one in Oct. 2007, these are no longer affecting my score, correct? These are the only negatives on my report, except for having a short average age.

Would I be better off giving the LO my letter, or trying to get GW from these banks first? Will this hurt my chances if I don't have a legitimate reason? I don't think being young and irresponsible is an acceptable excuse, at least I don't think I would accept it if I were a creditor. If I get lucky, and the lates are removed, my score probably won't go up, but is there a chance it would go down? Please help!!!

[rockymtngrl]

Its hard to say exactly how much the lates are effecting your score because nobody really knows how the fico score is formulated. Your history in the past 2 years has the most impact on your score though, after 2 years negative items have less impact on score.

Are the 2 car accounts closed? Anytime you dispute or gw a negative on a closed account you do take a risk in having the whole account deleted, which could bring your score down. Particularly if its one of your older accounts it could bring the total age of your credit history down giving you a lower score.

Personally if the LO thinks you can get approved with them on your reports I would'n mess with them.

[Anonymous]

That's a good point, rockymtngrl - thank you! They are both paid off and closed AND my oldest accounts. I definitely DON'T want them to be deleted. If I leave them alone, however, my LO still needs a letter explaining them. Any thoughts? He didn't mention anything specifically about them being a problem, and I think I remember reading somewhere that FHA doesn't look at lattes over two years old. 

[Anonymous]

they look at everything, but obviously emphasize the previous 24 months, and more specifically the previous 12 months)

Just write an honest letter about why you were late.  If you were a student woring part time and overwhelmed that is enough reason.  Just do not try to make up some reason/illness/etc that you can not prove. First off it would be mortgage fraud, second if you made something up and they asked for any verification you would endanger your loan.  In the end,  tell the truth.

[Anonymous]

I was recently approved for an FHA loan through a private broker (smaller than Wells Fargo). I was told that late payments, outstanding collections, etc don't matter. The one and only thing they cared about was getting my middle score above 620, and having no outstanding public records. I would advise you to steer clear of a predatory lender like WF and go for someone who will work FOR you. Just my two cents, I'm sure everyone else has different experiences. 

[Anonymous]

Anyone that tells you non of that matters is blowing smoke.  They can work around it is what they should be saying.  And they way they work around it is through writing letters of explanation for the lates/etc.  Also, the LO's who pre-approve you know that without the 620 they cant do anything for you so that is the first hurdle they work on.  That does not mean when an UW sees it they will not require anything else (such as collections paid). 

[WannaHouse]

"I was 19, 20, and 21 when they happened, working part-time as a full-time student and not taking very good care of my credit."

I think this would work, but also explain how you corrected those bad choices and now value your credit history. Nothing wrong with being honest. MOST of us had no idea about our credit history affecting us like it does now.

[IOBA]

Not sure if this would help, but you could also explain that you use to mail in your payments.

Now you have the payments, such as the future mortgage, taking directly out of your bank account, ensuring there are no more "lates" in your future.

The lender will probably like to see that their payments are going to be paid on time -- you just told them they would be.   

[ShanetheMortgageMan]

What happened, why it happened, and why it won't happen again is the basic gist.

[momof12]

it all depends on the lender.  if the loan is approved through an automated underwriting system (AUS) like desktop underwriting (DU) or loan prospector (LP), and the AU findings don't ask for the collections to be paid, or don't ask for an explanation, the loan doesn't need it to be sold to FNMA, FHLMC, or GNMA.  But some lenders have their own overlays, and will require more than what the AU findings ask for.  Then there are other lenders, usually the smaller neighborhood financial institutions, that portfolio their loans instead of selling them, so don't worry about conforming to secondary marketing strategies.  And several of the smaller lenders actually end up selling their mortgages to Wells Fargo, or other large nationwide banks.

Just a few years ago, people with a 500 credit score were getting approved for 100% financing.  We all know that the outcome of those lending practices.  now that lenders have tightened up their parameters, the score is a very important indication of the overall credit worthiness.  so you are correct, if your score is too low, there is not much a loan officer can do for you, even with an excellent explanation letter.  

There are several things you can do that may significantly increase your score.  one of the most important is to keep the balances on all of your revolving debt (credit cards) as low as possible.  (no more than 30% of the credit limit).  your score is affected the the FILING of a collection or judgment, not just by whether or not it is paid.