When you’re working with a non-bankable borrower seeking financing for their commercial property, it’s important to understand and be able to account for any obstacles they’ve faced in the past. As the commercial mortgage broker, you’ll be sending your lender various pieces of information, such as a credit report or bank statements, that might not give your lender a clear enough picture of your borrower’s financial situation. A letter of explanation is a simple solution to this problem, and allows your borrower to describe any past issues and how they were resolved so that the lending process can move forward.
Here’s how to help your borrower craft a letter of explanation:
Ask your lender to provide you with any questions they have for the borrower.
If your lender calls you with concerns regarding a borrower’s past late payments, tax liens, bankruptcies or other financial issues, pay attention. Ask them what questions they need the borrower to answer to get a sense of whether this is a deal they can fund.
Discuss these questions with your borrower in detail.
Once you have the questions your lender needs answered, talk to your borrower. If they were late on credit card payments or haven’t paid taxes in the last several years, ask them why and what they are doing or have done to resolve the situation.
Work with your borrower to craft a letter of explanation.
Once you and your borrower have answered these questions, it’s time to write a letter of explanation. Encourage your borrower to be honest and as detailed as possible when describing their past financial issues. Remember, small-balance commercial mortgage lenders like APEX Mortgage can often solve common borrower problems like these.
Include any necessary supporting documents.
If your borrower has documentation such as bank statements, receipts or legal documents which further support their statements, include those with the letter of explanation. Read more in our previous post on how to present your borrower’s scenario to a commercial mortgage lender.
Small-balance commercial mortgage lenders are willing to work with non-bankable borrowers to help them obtain financing. However, it’s crucial that each deal make sense to your lender’s underwriters. If your borrower has faced financial obstacles, a letter of explanation can go a long way toward helping your lender to understand and underwrite the deal, leading to a quicker closing.