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A mortgage loan representative has asked me to prepare a "credit explanation letter." While I understand the "concept" of this letter, I'm not quite sure what the "content" should be. And, because this letter will carry such weight with the underwriters, I am looking for suggestions for making this letter "good" in their eyes. Can you provide any tips? Thank you in advance for your consideration.
Sincerely. - Hopeful Homeowner
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Dear Hopeful Homeowner,
A mortgage is the largest loan most people will ever have. Obviously, the lender wants to know that you can pay it back. Your lender requested the credit explanation letter to determine if past credit problems were due to negligence on your part or due to circumstance beyond your control.
When giving your comment, be concise and honest. If the circumstances that caused your blemish were beyond your control, give a brief explanation as to what happened and the steps you took to rectify the situation. If the derogatory notation was due to your negligence, tell them that you understand the importance of maintaining an excellent credit rating and have since striven to pay your bills on time.
Hopefully you’ll be calling yourself simply “Homeowner” very soon!
Susan
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I am 25 years old, make $30000 (gross) between two jobs and have good credit. I want to buy a condo in one year and want my credit profile to be as strong as possible. I've heard that having too much credit can be a negative. I have $54000 available between six major credit cards which I have had in good standing all for between three and seven years. I have no balance on any of them. I paid them all off last month. My question is, should I close some of these out and if so how many? I appreciate your advice.
- Mel
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Dear Mel,
I would close some of the accounts if I were you. When making lending decisions, creditors sometimes consider your “propensity to owe.” This means the amount of debt that you are able to incur if you were so inclined. For example, the mortgage company might look at your $54,000 available line of credit as $54,000 against your debt to income ratio calculating it as if you did have $54,000 in debt.
With that being said, there is no need to close all of the accounts. Keep the one or two you find most useful and continue to use them wisely. When closing the remaining accounts, be sure to make the request in writing and ask them to send you a letter of confirmation. Don’t leave it until the last minute; you’ll want to allow time for your credit report to reflect the changes.
Good Luck,
Susan
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I was divorced 8 years ago in the state of Florida. My ex-wife received the marital home in the property settlement along with responsibility for the payments. She runs consistently late on the mortgages. I am on the original note and the banks won't take me off. Now my new wife and I cannot get a loan to buy a home of our own. I want to take legal action but I don't know what can be done. I have otherwise perfect credit. If my ex hangs on to the house for 15 more years, then that's how long it will take before I can buy a home of my own. Pretty fair, huh?
- Ray
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Dear Ray,
Even though a judge “awarded” your wife the home and its payments, the lender still views you as responsible. When you and your ex-wife purchased the home, you both signed mortgage documents stating you both would guarantee that the payments on the house would be made according to the terms of the note. There was nothing in the contract relieving either one of you of this obligation in the event you got a divorce.
As far as I know, there is no legal recourse you can take to resolve this situation.
The best solution would be to convince your ex-wife to move or to refinance the home under her name. Until that time (or until the mortgage is paid in full), your only possible way of being able to buy a home would be by assuming an existing mortgage or seeking owner financing.
Good luck,
Susan
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