Definition
A letter of explanation (LOX) is a short document (1-2 pages) that the mortgage underwriter may request to clarify a problematic element in the file.
Typical situations requiring a LOX: - Isolated late payment on a credit card 3 years ago: 'I was traveling abroad and had no Internet access. I corrected the situation upon return.' - Account in collection 2 years ago due to a medical billing error. - Bankruptcy 4 years ago due to simultaneous divorce and job loss. - Multiple recent credit inquiries: 'I shopped my mortgage with 3 lenders in the same week.'
What makes a good LOX: - Clear, concise, factual - Explains context without excessive apologies - Documents recovery: 'Since then, I have maintained an impeccable payment history' - Signed and dated
It doesn't guarantee approval but gives the underwriter elements to justify their decision.