When you apply for a new loan, refinance, mortgage modification or short sale agreement, your lender reviews your credit report. Your credit report contains details of your past payment history, and lenders use your credit report as a gauge to assess your character. If your credit report includes details of missed or late mortgage payments, you must give your lender a written explanation to show that those delinquencies were an aberration rather than the norm.
Late Payments
A missed mortgage payment could appear on your credit report several times because credit reports keep track of missed payments at the 30-day, 60-day, 90-day and 120-day marks. Beyond that point, mortgages normally go into foreclosure, in which case the foreclosure also appears on your credit report. Missed loan payments have a negative impact on your credit score. You can undo some of the damage by making sure your other debts are paid on time, but even if you score recovers, significant numbers of late payments make lenders wary of providing you with additional credit.
Underwriters
When you submit a letter to explain your mortgage delinquencies, bear in mind that a loan underwriter, rather than the loan officer, ultimately decides whether to approve or decline your loan. Underwriters deal in facts rather than emotions. Keep your letter concise and specifically address each late payment. If you missed a late payment because you experienced a job loss or were in hospital, then include details of that event in your letter. Use precise facts including dates, places and costs. Do not include apologies, guarantees of improved payment patterns or emotive statements. Clearly state the circumstances that caused you to fall behind on your payments and make mention of your otherwise good payment history.
Supporting Documents
Do not make statements in your letter that you cannot substantiate. Include supporting documentation such as copies of medical bills and receipts to support the dates and details that you included in your letter. If your financial circumstances have changed for the better, then explain the details in the letter and include supporting documentation such as a job offer that includes salary details or include a copy of your most recent pay stub. If you have settled debts that previously impacted your ability to pay your mortgage, then make mention of these debts in your letter and provide the lender with copies of your payoff receipts.
Considerations
You should type your letter and check it for errors before submitting it to the lender. Use formal salutations and include your contact telephone number so that the decision maker can contact you directly to obtain further information. In some instances, a mortgage delinquency explanation letter can enable an underwriter to make a manual exception and approve you for a loan that you otherwise could not have obtained. However, underwriters only have limited powers of discretion and even if you have mitigating circumstances, a lender may simply refuse to work with you on the basis of your credit score or your late payments.
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