Letter of Explanation for underwriting regarding mental health

[Cap_Ka]

Hey everyone,
I am wondering if anyone here has experience with writing a letter of explanation for mortgage underwriting related to mental health issues, specifically bipolar disorder and periods of overspending or financial instability. 

My credit history has major highs and lows that reflect the ups and downs of my condition. I have made big progress lately, paid off several accounts, lowered my utilization, and I am working on keeping everything automated going forward. I have multiple streams of income but the one thing I have going for me is stable income from my VA disability, which if my scores were better I would be approved just from that income alone, but because my past credit behavior tells a different story I'm not sure how much the stability of it actually helps.  I only have unsecured debt at the moment, all my cars were paid off with all on time payments, the most recent one being this past June. I should have my utilization of my credit card debt below 10% within the next few weeks. 

I am trying to figure out whether writing a short, professional explanation for the lender, acknowledging my past struggles and outlining the stability and safeguards I have in place now, actually makes a difference in the underwriting process.

Has anyone here written something like that and seen it help, or at least not hurt, your chances?
Any advice on how honest or detailed to be, especially when it involves mental health, would be really appreciated.

[JoeRockhead]

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@Cap_Ka wrote:

Hey everyone,
I am wondering if anyone here has experience with writing a letter of explanation for mortgage underwriting related to mental health issues, specifically bipolar disorder and periods of overspending or financial instability. 

My credit history has major highs and lows that reflect the ups and downs of my condition. I have made big progress lately, paid off several accounts, lowered my utilization, and I am working on keeping everything automated going forward. I have multiple streams of income but the one thing I have going for me is stable income from my VA disability, which if my scores were better I would be approved just from that income alone, but because my past credit behavior tells a different story I'm not sure how much the stability of it actually helps.  I only have unsecured debt at the moment, all my cars were paid off with all on time payments, the most recent one being this past June. I should have my utilization of my credit card debt below 10% within the next few weeks. 

I am trying to figure out whether writing a short, professional explanation for the lender, acknowledging my past struggles and outlining the stability and safeguards I have in place now, actually makes a difference in the underwriting process.

Has anyone here written something like that and seen it help, or at least not hurt, your chances?
Any advice on how honest or detailed to be, especially when it involves mental health, would be really appreciated.

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There's nothing wrong with an explanation letter if the situation calls for it, or the lender has asked for one.  However, I strongly advise you do not disclose specific medical details, or diagnosis.

Lenders are primarily concerned with whether your past issues have been resolved and whether your current financial situation is stable.  Too much detail could also create an unconscious bias with an underwriter.  While you could be a little more detailed (such as noting positive changes you've made such as paying down debt, enrolled in auto payments, or anything else that shows you're back on track), try to keep it as professional and brief as possible.   

[FicoMike0]

Ditto @JoeRockhead 

Don't admit to anything you haven't been accused of. No bi or tri polar stuff. Tell them you had the Wuhan flu, a miracle happened and you're cured!

[TrapLine]

Do not share medical data. The other poster laid it out well.

Like never talk to much with the IRS and never "poke the bear" ...

Admit to nothing like that. Some mortgage lenders may ask you about certain accounts like "new" ones and want a letter on that or paying habits but, working with the realtor and mortgage processor be cautious about what is said.

Old Navy expression: "lose lips sink ships" ...

[ShanetheMortgageMan]

Echoing the others, only a brief explanation is required, something simple such as a "health issue which you've recovered from".  No further details will be asked about (HIPAA violations and all).  I would emphasize the positive changes you've made with your habits and how you are dedicated to continue those moving forward.  The stoppage of late payments, etc. will speak for itself.  

While VA mortgages don't have a minimum credit score requirement, each lender has their own overlays.  While most lenders have a 580 score requirement for VA mortgages, many more are going down to 500 these days and I even see lenders that don't have any minimum credit score requirement for VA as long as the credit history meets requirements (generally no late payments over the past 12 months and re-established credit).  Of course, in generally, the higher your credit scores the better the mortgage rates will be.  

[babbles]

Just had to write an explanation for multiple inquires to navy federal  two weeks ago, the underwriter will definitely hit you, especially with navy federal

[Thomas_Thumb]

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@Cap_Ka wrote:

Hey everyone,
I am wondering if anyone here has experience with writing a letter of explanation for mortgage underwriting related to mental health issues, specifically bipolar 9disorder and periods of overspending or financial instability. 

My credit history has major highs and lows that reflect the ups and downs of my condition. I have made big progress lately, paid off several accounts, lowered my utilization, and I am working on keeping everything automated going forward. I have multiple streams of income but the one thing I have going for me is stable income from my VA disability.

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@Cap_Ka 

 I'd highlight having a stable income. Then mention that in the past you had some periods of elevated spend which have been addressed thru budgeting. Perhaps also mention, auto pay has been adopted as a tool to resolve past issues with late payments.

A stable income is the foundation for funding auto pay and reliable budgeting. Reiterate that positive.

As mentioned above, no upside in mentioning mental health as a factor.

Good work on adopting some helpful systems!

[ForwardLooking]

I would not do this.  The underwritter may flag certain items during their process that they question or place contengecies on. I would just address each item individually as it comes up without going into too much detail as to what caused the item in question to be flagged to begin with.  As long as your open accounts are current, you don't have any recent lates, and any collections and/or chargeoffs you may have are relatively old, there should not be too much to worry about assuming your scores are in check with whatever program you are applying through.

[babbles]

Navy fed underwriters seem to be a pain in the bottom, asking for redundant paperwork during the process