Home buyers should be prepared for follow-up questions from their mortgage lender, according to a recent article by the Wall Street Journal. It is increasingly common for lenders to require a “letter of explanation” to address questions that arise during the mortgage underwriting process.
Despite good credit quality and a strong housing recovery, lenders are still skittish. No bank wants to be holding the bag if a loan goes sour. So, while your loan officer cheerfully accepts your mortgage application, the underwriting process is basically designed to find holes in your financial picture.
Complicating matters is the fact that mortgage underwriting today is vastly automated. Algorithms can essentially decide if your mortgage will be approved or denied, but any grey areas are flagged and sent to a human for review. Here are just some of the areas that can cause questions from your lender:
- Gaps in employment history
- Adverse information in credit history or public records
- Home purchase distant from current workplace
- Unusually large bank withdrawals or deposits
- Frequent change of address
- Discrepancies in application data versus verification results
Lenders understand that there is often a reasonable explanation for most issues. But because they must evaluate risk and prove your creditworthiness, they may ask for a written explanation from you. Don’t see this as an imposition! Refusing to cooperate could result in your mortgage application being denied. That loan denial, in turn, may show up on your credit report – which won’t help your future loan prospects.
If you are asked to provide a letter of explanation, be honest and concise in your written reply. Stick to the question at hand, and do not delve into unnecessary detail or get too creative with your answer. Certain areas of questioning are prohibited; refer to this website by the Federal Trade Commission for more information.
When you are ready to apply for a mortgage, we’ll be happy to refer you to local, reputable lenders in Central Ohio! The experienced lenders we recommend will explain your mortgage options, and help you prepare for the underwriting process. Good preparation at the start can reduce the likelihood of underwriting snags.
As your Exclusive Buyer’s Broker, we serve your best interests at all times! Unlike real estate agents and brokerages who represent sellers, as an Exclusive Buyer’s Broker, we only represent you, the buyer, getting you the best price and terms with no conflict of interest at all times.
Understanding this distinction could literally save you thousands of dollars not only on the purchase price and terms, but also on seller concessions and home inspection issues, whether you are a first-time homebuyer or an experienced homeowner!
Contact us with your home buying questions! Remember, we are with you every step of the way…all the way home!
Broker, CEBA-M, CNE, CSP, PSA, e-PRO, CREM, ABRM, AHWD
Buyer’s Resource Realty Services, www.buyershome.com
Serving Metro Columbus, Ohio with Exclusive Buyer’s Agents
7100 North High Street, Suite 204, Worthington, Ohio 43085
614-888-4110 | 888-888-4110 Toll Free | 614-839-4110 Fax