Editor’s Note: This blog post was originally published in April 2020 and has been revised to reflect industry updates.
When purchasing a home, borrowers must meet several criteria and requirements throughout the process. One of the most critical steps is obtaining official letters of documentation, such as pre-approval, pre-qualification, and perhaps the most important: the Mortgage Commitment Letter.
A Mortgage Commitment Letter—or loan commitment letter—is the final piece of the puzzle following a pre-qualification letter and pre-approval letter (more on those later).
Whether you’ve already placed an offer on a home, or are in the process of searching, this document puts you in an enviable position. It signifies your proactive ability, willingness, and good faith that you can afford to purchase the home while also maintaining monthly mortgage payments.
What Is A Mortgage Commitment Letter?
The underwriter of the letter, such as a mortgage lender, does more than merely approve credit histories and financial documents. A Mortgage Commitment Letter requires a specific property you intend to purchase, as well as satisfactory results of an appraisal and title search, while also confirming there are no liens on the home and the current owners have the right to sell the property.
This important document states the approved loan amount, along with specified conditions drawn up by the lender. You’ll need to sign on the dotted line for the mortgage lending process to move forward so you can finance and obtain your dream property.
Mortgage Commitment Letter vs. Pre-Qualification Letter vs. Pre-Approval Letter
Though pre-qualification and pre-approval letters are also important markers on the homebuying journey, they are somewhat less official than a Mortgage Commitment Letter.
Here’s a quick description of each document.
Pre-Qualification Letter: Generally thought of as a loose confirmation from a lender, it is not so-called “set in stone,” and rather indicates it’s at least a possibility you’ll be granted a mortgage. Though it can also be a verbal agreement, the pre-qualification letter is the result of a conversation about your income, credit, and assets. It’s important to note this letter comes before the lender has verified any of the numbers you’ve provided. It’s an estimate, and should be viewed as a frame of reference as you commence home shopping.
Pre-Approval Letter: This represents a major step up from pre-qualification, as realtors and sellers recognize it as confirmation a lender has evaluated the full complement of your finances and deemed you eligible to receive a loan. After a deep dive into your income, assets, and credit, the lender assesses your viability, attaches a dollar amount to loan allowance, and assures all parties involved you can afford a mortgage.
Contour Mortgage offers its SecureBuy program for added leverage during this part of the process. This fully underwritten credit approval provides prospective buyers with several benefits over a standard pre-approval letter, such as priority consideration when making an offer and home purchase, and a quicker closing. Some sellers may even accept a lower bid due to this document’s irrefutable affirmation.
How To Get A Mortgage Commitment Letter?
As aforementioned, you cannot obtain a commitment letter without a full underwriting review examining all aspects of your financial situation.
Learn more about the following required steps of this process.
Loan Application: As a borrower, you’ll first need to complete a loan application. This entails meeting federal and state requirements, along with providing a full credit report.
Loan Processing: This entails your loan officer collecting documents and information to paint a complete picture of your loan viability. They check bank statements and look into your employment history, while also asking for financial records and tax forms. These could include W-2s from the previous two years, pay stubs from the last 30 days, previous income tax returns, current assets, and official proof of identity, such as a driver’s license or passport.
Underwriting: All of the information and documentation collected by the processor is organized into a file and delivered to either an individual underwriter, or team of underwriters. These gatekeepers review the file to investigate accuracy and thoroughness, while also seeking out errors, inconsistencies or any gaps in reporting. Underwriters check, double-check, verify, and re-verify all documentation.
Conditions: Underwriters often include various conditions in the final commitment letter. Most commitment letters require a property appraisal, but the requirements don’t stop there. Conditions could also include additional documentation regarding employment and bank deposits, proof of hazard or flood insurance, mortgage insurance, and title commitment.
The Layout Of A Typical Commitment Letter
To gain a sense of what a Mortgage Commitment Letter looks like as presented by a loan officer, consult the list below. It includes all the information gathered once the underwriting process is complete.
- Name of Borrower(s)
- Name of Lender
- Property Address
- Loan Amount
- Interest Rate
- Conditions for Approval
Loan companies often vary how these crucial pieces of information are presented, but borrowers can count on the above requirements, regardless of the mortgage lender.
Mortgage Commitment Letter FAQs
If you’re still unsure about Mortgage Commitment Letter processes and requirements, Contour Mortgage loan officers can provide help and assistance. In the meantime, consult this quick FAQs list:
How long is a Mortgage Commitment letter valid?
Also known as rate lock or commitment expiration, the length of the commitment is typically 30 days, but it varies by lender.
How long does the Mortgage Commitment underwriting process take?
This can vary, but typically around 30 days.
Is a Mortgage Commitment Letter legally binding?
This is dependent on the language used in the letter. If this is a question of concern, it’s recommended to consult an attorney for legal advice.
Is a Mortgage Commitment Letter a final approval?
No. The commitment letter is a pledge by the lender to grant a loan to a borrower upon meeting final conditions. The final approval occurs when there are no loose ends or other obstacles. Should these remain, the borrower could be required to provide a Letter of Explanation, for situations such as a negative credit report, income or job loss, or employment history gaps.
If my mortgage company creates a commitment letter, am I committed to the deal?
A borrower is never committed until the closing documents are signed and loan funded.
What is the role of the mortgage lender’s underwriter in this process?
As aforementioned, the underwriter is tasked with reviewing the borrower's eligibility and qualification for the loan application, such as credit, employment, income tax returns, and other important financials. They also review the property’s appraisal report, ensuring it’s worth or above the current purchase price.
What happens if the Mortgage Commitment Letter isn’t ready by the time of the financing date?
Often beyond the borrower’s control due to delays in the financial review, appraisal, or other processes, the buyer’s attorney must then request an extension through the seller’s attorney. The seller would be hard-pressed to refuse, as they would risk losing committed escrow, as well as having to relist the home.
Are borrowers required to share the finalized Mortgage Commitment Letter with any other parties?
In short, no. This letter is provided to the borrower from their mortgage lender. They’re not legally binded to supply this document to anyone else involved in the home purchase.
What should borrowers look for when reviewing their Mortgage Commitment Letter?
It’s very important to closely review this document and any accompanying fine print with your real estate attorney and mortgage lender. Both can assist in explaining anything unclear or requiring further clarification. It’s best to be wary of any red flags. If something in the letter appears too good to be true, then it probably is.
What happens if the borrower isn’t granted approval?
The lender provides a denial letter with a full escrow deposit, per contract restrictions or stipulations. If you’re working with a reputable lender with experienced loan officers, such as Contour Mortgage, they can make a quick determination at the onset of this process, even before the borrower moves to this last, important step.
Purchasing a home and gathering the required documents and approvals can seem daunting, but it doesn’t have to be. It’s best to work with a reputable mortgage lender boasting knowledgeable loan officers, such as Contour Mortgage, for added assurance.