Typical LOX's or letter of explanations for mortgage loan approvals in Kentucky are as follows:
1) Rent free Letter of Explanation- since the mortgage application does not offer this as a choice under the 2 year residence history, we will condition for clarification on a rent free status. This letter must be signed by the borrower
2) 100% Access Letter of Explanation - any time that a borrower is applying for a loan and there is another person on his/her bank account, we will need a letter from the other listed person to show that our borrower has 100% access to all funds in the joint checking and savings account listed on the bank statements.
3) Derogatory Credit Letter of Explanation - - this letter is always requested for Kentucky FHA, Kentucky VA & KY Rural Housing USDA loans.
It is crucial that the information identifies all the derogatory credit on the credit report. It does not have to be lengthy, but does need to outline the following:
a) The circumstances regarding how the derogatory credit came to be and how it was out of their control and temporary in nature
b) Show how the circumstances to the adverse credit have been removed
The letter must be supported with documentation that verifies the explanation provided by the borrower. It is required on any file that has ANY derogatory credit on the report.
4) Tricky income? Write it up so the Underwriter can understand what you see in the file and try to find a way to make it work.
You can not have too many letters in the file to explain. The better understanding you can provide to our underwriters, the better the approval will be.
