What is an LOX?

by Tyler Osby on June 25, 2008

Pen and Paper

I live in a world of acronyms.

Seriously – when we start in the business, they should have a mortgage class related to just understanding all of the acronyms.

With that said, I’m going to start explaining some of the frequently used acronyms. Hopefully if you’re working with a mortgage professional, you’ll never hear these. However, every so often (too often in my opinion) you’ll hear lenders use these terms and leave you extremely confused. I don’t like being confused and I absolutely hate confusing clients.

So, what is an LOX? LOX stands for letter of explanation. Yea, I never really thought of it until now – but it’s sort of ridiculous that they had to use X as the last letter instead of an E. Doesn’t make much sense, huh? I guess it sounds sexier with an X. Moving on….

Often with files we see situations that need some explanation. If we don’t explain those situations before a loan gets to underwriting, there are two things that can happen.

  1. The underwriter will request in their conditions (for the loan approval) to write a letter explaining what happened (LOX).
  2. The file will be turned down because the underwriter thought it was a deal killer. Yea, seriously. This happens all the time with unexperienced mortgage professionals.

So, what are some examples of times when you need a letter of explanation in a file? Here’s a few:

  • Change of mailing address (yes, just mailing).
  • Credit inquiries within a certain time frame (often 120 days).
  • Gaps of employment.
  • Delinquencies on credit reports.
  • Collections on credit reports.
  • Reason for cash out on a cash out refinance.
  • Improvements made to a home (to document increased value).
  • Letters from employers for a raise/bonus.
  • Explanation of bankruptcy, short-sale or foreclosure.
  • Stating the property could be 100% rebuilt (from the City).
  • Divorce situations.
  • Explaining retirement benefit / pension for income

Here’s what I’ve learned in my five years of being a mortgage professional. If there’s a ‘problem‘ in a file, the underwriter will bring it to the surface. It always happens. The difference is if you address it up front and explain what happened and how it effects your ability to repay a mortgage. If you dodge it, it will only cause problems and delay a loan closing.

So, no more mystery mortgage talk. Now you know what a LOX is and hopefully you understand the importance of putting one together!

{ 1 comment… read it below or add one }

Teresa Rinne January 11, 2013 at 8:54 pm


My son bought a foreclosure 3 level condo for $25,000. He put $50,000 in it and now wants to Cash out on it because his mom and dad gave him the cash until it was done. My son’s base is $160,000 and now they have asked for a LOX. Do you have a template for this?

Thank you!!

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