Fannie Mae/Freddie Mac regulations greatly influence the underwriting guidelines of most investors. Underwriters will consider all aspects of a borrower's credit history. The chief tool utilized is the Credit Report/Credit Score(s) generated by three primary repositories (Equifax/Beacon, TransUnion/Empirica and Experian/FICA). Since borrower credit scores will vary from one repository to the next, the middle credit score is most often used. For Conventional Loans a minumum score of 620 is acceptable, while Jumbo loans generally require 660. Scores above or below these thresholds do not guarantee acceptance or declination.

If a borrower has a lower credit score (585 - 619 conventional, 620 - 659 Jumbo) a more intense analysis of the borrower's credit reputation will be performed and the borrower may be asked to write a credit explanation letter, as follows.

Writing a Credit Explanation Letter

You will receive a report of any derogatory credit items from the credit bureau. The letter you write can be the difference between loan approval or rejection. To maximize your chances for getting an approved mortgage, it is suggested that you follow these guidelines:

1. Letters can be typed or handwritten and addressed to your mortgaging or refinancing institution. You should retain a copy for future reference.
2. Every credit letter should include an introductory statement.
3. All items, including groups of late payments, should be explained in separate paragraphs.
4. Each paragraph should include "When, Why and How":
   
   

   When did it happen - (date should match the credit report)
   
   

   Why did it happen - Were you laid off from work, in an accident, a divorce, theft, sickness, etc? Any supporting documentation such as attorney letters, auto repair bills, medical bills, canceled checks, receipts, etc. should be included.
   
   

   How it was resolved - Was it paid in full? Was a settlement reached? What did you do to avoid future problems or make timely payments?
   
   

5. Closing paragraph should state that you understand how important it is to pay credit items in a timely manner.

If your letter is not clear and understandable, you will be asked to rewrite it.