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Letter of explanation

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Letter of explanation

So... i've pretty much submitted everything for my mortgage.  Appraisal has been ordered.

 

They have requested: Letter of explanation on all derrogatory credit and inquiries on credit report.  Please explain why these accounts were late and why they went into collections.

 

There are 4 accounts I need to explain: 2 of them were during a time when we were starting up a business and a supplier took off with our money, so we had to use personal money to get a job done that was under contract, so had no money left for bills for months, which is why those went into collections.  What would be the best way to explain that?  Happened in 2007.

 

The 2 others were just careless mistakes by me (one in 2006 and one in 2009).. not really sure of a good way to explain these

 

I have the rest of the letter written except for the explanations.. Need to have in by 5pm 9/28... any suggestions would be greatly appreciated.

Message 1 of 8
7 REPLIES 7
Frequent Contributor

Re: Letter of explanation

Firstly and most obviously you need to be honest. Secondly, don't give more information than is necessary. My LO told me that my LOE was giving too much extra information that would only cause more questions. My advice, be concise. Thats the only advice I can give you. If they were mistakes that you've made, explain how you've learned from them and if you feel you honestly have and state what you're planning on doing or have done to ensure you'll avoid those mistakes and thats probably about as good of an answer as one person could give without asking us if you should lie.

Starting: EQ: 490 TU: ??? EX: ???
Current: EQ: 717 TU: 757 EX: 736 (lender)
Goal: 800+
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Message 2 of 8
Frequent Contributor

Re: Letter of explanation

As DS said, be straight and to the point.

 

My own job is partially loan processing, and the more direct and concise an LOE is, the less time I'll spend going over it. If you give too much info, you may find that you've opened a can of worms.

 

Just state, shortly, what happened, and that's all. No need for a life story. Smiley Happy

Despite my employment in the banking industry, any and all views contained in this post are purely my own, and do not represent any financial institution, nor constitute as financial or investment guidance or advise.
Message 3 of 8
Contributor

Re: Letter of explanation


@JMN wrote:

As DS said, be straight and to the point.

 

My own job is partially loan processing, and the more direct and concise an LOE is, the less time I'll spend going over it. If you give too much info, you may find that you've opened a can of worms.

 

Just state, shortly, what happened, and that's all. No need for a life story. Smiley Happy


What it you literally have no idea what happened? In my specific case, I am down to a single derog, a 30 day late on a BoA CC from March 2008 that I have been unable to GW so far. Trouble is, I have absolutely no explanation for this. I was employed, and nothing really of interest was going on in my life. Maybe I just flat out forgot? Who knows? I didn't even know about it until I drew a report over 3 years later, so I obviously didn't realize it as it happened.

 

But is it better to explain something like this with the truth? As "I forgot to pay my CC for a month". To me, that sounds bad, and it might be interpreted to them like I might forget to pay my mortgage for a month.

 

Or is it better to come up with a fallacious, yet still plausible excuse (i.e., I stuck an old $0.39 stamp on the payment, when the current price was $0.41? or I had just started dating a girl and was spending a lot of time at her place, thus not checking my mail often and missed the bill)

Message 4 of 8
Frequent Contributor

Re: Letter of explanation


@Phitor wrote:

@JMN wrote:

As DS said, be straight and to the point.

 

My own job is partially loan processing, and the more direct and concise an LOE is, the less time I'll spend going over it. If you give too much info, you may find that you've opened a can of worms.

 

Just state, shortly, what happened, and that's all. No need for a life story. Smiley Happy


What it you literally have no idea what happened? In my specific case, I am down to a single derog, a 30 day late on a BoA CC from March 2008 that I have been unable to GW so far. Trouble is, I have absolutely no explanation for this. I was employed, and nothing really of interest was going on in my life. Maybe I just flat out forgot? Who knows? I didn't even know about it until I drew a report over 3 years later, so I obviously didn't realize it as it happened.

 

But is it better to explain something like this with the truth? As "I forgot to pay my CC for a month". To me, that sounds bad, and it might be interpreted to them like I might forget to pay my mortgage for a month.

 

Or is it better to come up with a fallacious, yet still plausible excuse (i.e., I stuck an old $0.39 stamp on the payment, when the current price was $0.41? or I had just started dating a girl and was spending a lot of time at her place, thus not checking my mail often and missed the bill)


 

They aren't going to question a 30 day late from 3 years ago. If they do, just tell them the truth. I spaced out the payment and it was a foolish yet simple mistake and I don't plan on doing it ever again...

Starting: EQ: 490 TU: ??? EX: ???
Current: EQ: 717 TU: 757 EX: 736 (lender)
Goal: 800+
=============
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Message 5 of 8
Senior Contributor

Re: Letter of explanation

In my LOE I had to explain a water bill collection.  I told them that it was a major oversight on my part and that I have corrected the problem by having all bills automatically paid via my online banking system.

 

I was sure to explain honestly WHAT happened and then the steps I've taken to PREVENT it from ever happening again.  LO said UW didn't blink an eye at my LOE.

STARTING: 11/24/10 EQ-584 EXP-648 TU04-595
CLOSED FIRST HOME 8/19/11 EQ-630 EXP-691 TU04-653
CURRENT: EQ-701 EXP-??? TU08-720
Message 6 of 8
Frequent Contributor

Re: Letter of explanation


@Phitor wrote:

@JMN wrote:

As DS said, be straight and to the point.

 

My own job is partially loan processing, and the more direct and concise an LOE is, the less time I'll spend going over it. If you give too much info, you may find that you've opened a can of worms.

 

Just state, shortly, what happened, and that's all. No need for a life story. Smiley Happy


What it you literally have no idea what happened? In my specific case, I am down to a single derog, a 30 day late on a BoA CC from March 2008 that I have been unable to GW so far. Trouble is, I have absolutely no explanation for this. I was employed, and nothing really of interest was going on in my life. Maybe I just flat out forgot? Who knows? I didn't even know about it until I drew a report over 3 years later, so I obviously didn't realize it as it happened.

 

But is it better to explain something like this with the truth? As "I forgot to pay my CC for a month". To me, that sounds bad, and it might be interpreted to them like I might forget to pay my mortgage for a month.

 

Or is it better to come up with a fallacious, yet still plausible excuse (i.e., I stuck an old $0.39 stamp on the payment, when the current price was $0.41? or I had just started dating a girl and was spending a lot of time at her place, thus not checking my mail often and missed the bill)


In most cases neither I nor the direct lending office request an LOE for a minor derogatory from 3 years ago.

 

I've only done it/seen it done if there were multiples in one area (like 3-5 in the span of a few months, over a few different cards, or just one). 

 

Even so, as the other person said, just be honest, say it was a simple mistake, and go on. It's not going to keep you from getting a mortgage.

Despite my employment in the banking industry, any and all views contained in this post are purely my own, and do not represent any financial institution, nor constitute as financial or investment guidance or advise.
Message 7 of 8
Regular Contributor

Re: Letter of explanation

I have a copy of the one I used, don't know if I'm allowed to post it as an example but if you're interested PM me.


Starting Score: EQ: 540 TU: 606 EX: 605 (all from lender on 7/26/11)
Current Score: EQ: 601 TU: 648 EX: 642 (from lender on 8/4/11)
Closed on our home on 8/31/11!!!!
Goal Score: 620-650 to start

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Message 8 of 8
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