Keys to a Successful Letter of Explanation

Life doesn’t always go as planned. We all face obstacles in life and business, but that shouldn’t mean you can’t go forward with your goals. A bump in the road for a real estate investor or small business owner can become a roadblock with the local bank. Your reportable tax return income may suffer, or your credit score may decline. Yet neither of these should keep you from the money you need.

A letter of explanation, sometimes called a “LOX,” is a simple solution to this problem. It allows you to describe any past issues and how you resolved them so that we can get your loan approved. Tax liens, bankruptcies, prior late payments – if any of these are in your story, a LOX can be your key to a successful loan closing.

For example, if you were late on credit card payments or haven’t paid taxes in a few years, explain why. Also outline your plan for the future and how the loan will allow your business to succeed. The more detail the better in describing past financial issues will help us overcome common problems like these. Supporting documentation such as bank statements, receipts or legal documents can often help.

Commercial mortgage lenders are willing to work with non-traditional scenarios. If the loan makes sense to the underwriter, we many times have a path forward. The letter of explanation is often the tool that gets us to closing.