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What Does LOX Mean
Can you explain what LOX mean from my mortgage underwriter?
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1 Reply
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In the mortgage lending industry, “LOX” means “Letter of Explanation.” A Letter of Explanation is a document that explains or gives more details about certain aspects of an applicant’s financial history or application, which may need further clarification. Here is a closer look at what LOX involves:
Purpose of a Letter of Explanation (LOX)
Clarification: It clarifies any discrepancies or strange items in the borrower’s financial papers, credit report, or other parts of their loan request.
Additional Information: It offers information not provided in the standard documents submitted during the mortgage application process.
Reassurance: It assures lenders that borrowers can still repay loans despite problems or anomalies encountered.
Common Reasons for Requesting a LOX
Credit Inquiries: To explain recent credit inquiries and whether they led to new credit accounts.
Employment Gaps: To clarify periods when one was unemployed or changed jobs frequently.
Large Deposits: To reveal the origins behind large sums deposited into bank accounts.
Derogatory Credit: To give reasons for late payments, collections, bankruptcies, etc., that appear on one’s credit report.
Address Discrepancies: To clarify why addresses on different documents do not match.
Income Variations: To explain significant income changes within short time frames.
Structure and Content of a LOX
Introduction: Begin with a brief statement introducing yourself and indicating why you are writing this letter
Explanation: Clearly state what issue(s) you want to address and tell your story as truthfully as possible without leaving out any important detail(s), though keeping it concise enough not to bore reader(s).
Supporting Evidence: Attach copies of relevant documents, such as pay stubs, W-2s, etc., that support whatever claims/assertions are made therein, including dates when such things happened if known.
Reassurance: Reiterate your commitment to completing the necessary paperwork while assuring them that you can meet payments due under the agreement terms between the parties involved.
Contact Information: Provide current phone number(s) where they can reach you if need be; also include an email address(es) for easier communication should such an issue arise later on during the processing stage or even after closing the deal since sometimes things might not work out exactly as planned initially.
Example of a LOX
Subject: Employment Gap Explanation Letter
[Date]
[Borrower’s Name]
[Address]
[City, State, ZIP Code]
[Loan Officer’s Name]
[Mortgage Company]
[Address]
[City, State, ZIP Code]
Dear [Loan Officer’s Name],
I am writing to explain the gap in my employment history from [start date] to [end date]. During this period, I was not employed because [provide a reason, e.g., I was caring for a family member, pursuing further education, etc.].
I have since returned to the workforce and have been employed at [current employer] since [start date]. Attached are copies of my recent pay stubs and an employment verification letter from my current employer to substantiate my current employment status.
Please let me know if you need any further information or documentation. I appreciate your understanding and consideration of this explanation.
Thank you for your assistance.
Sincerely,
[Your Name]
[Your Contact Information]
Importance of a LOX
Loan Approval: It can be critical in the approval process by helping underwriters make favorable decisions.
Transparency: It shows that borrowers are open with their lenders about everything necessary during the application stages. Make the letter of explanation easy for them to work together towards achieving common goals. A simple LOX makes mortgage loans approved faster than usual based on merits only without considering other factors, which may delay such undertakings unnecessarily or cause them to fail altogether due to a lack of trustworthiness among the parties concerned.
Trust Building: Establishes trust between borrowers and lenders as each party strives hard to show good faith throughout the transaction until the final payment, ensuring that all involved parties benefit from such an arrangement. A well-crafted LOX can address the lender’s concerns effectively, facilitating a smoother loan approval process.