Credit Documentation Requirements for Mortgage Processing
A tri-merge credit report is pulled at application. Derogatory items, collections, charge-offs, and recent inquiries may require written explanation letters and documentation.
What the Lender Requires
- Tri-merge credit report from all 3 bureaus
- LOE for derogatory items
- Supporting documentation for LOE (medical bills, dispute resolution)
- Verification that collections/judgments are paid or will be paid at closing
- Rapid rescore documentation if credit score improved mid-process
How CTC Processes Credit Report and Credit Explanation Letters Files
- 01Credit pulled at application
- 02CTC identifies items requiring LOE
- 03Borrower prepares explanations
- 04CTC reviews LOEs for completeness
- 05Submit with file
Common Conditions Related to Credit Report and Credit Explanation Letters
- LOE for any derogatory item in last 2 years
- Medical collection documentation
- Bankruptcy discharge papers if BK within lookback period
- Proof of payment for judgments being paid at closing
- Identity theft documentation if disputing items
How CTC Handles Credit Report and Credit Explanation Letters
Credit explanation letters must be factual, concise, and supported by documentation. CTC reviews every LOE before submission — vague explanations create more questions than they answer.
Frequently Asked Questions
What should a credit explanation letter include?
A good LOE explains what happened, why, and what changed since. It should be brief (1–3 paragraphs), factual, and backed by documentation where possible.
Do collections always have to be paid?
Not always. Conventional FNMA: collections under $2,000 may remain open. FHA: collections over $2,000 total may require payoff or payment arrangement. VA and USDA vary by lender.
How do recent credit inquiries affect my mortgage?
Each inquiry within 30–90 days before closing may be reviewed. Lenders require explanation for each new inquiry — what was applied for and whether new debt was incurred.