Certified letter. A letter of authenticity. Letter of recommendation. Resignation letter.
No matter the facet of society, it’s quite amazing the power a letter can hold when it’s deemed “official” by a governing body or accredited organization. For instance, most large-scale business deals and big purchases of any kind don’t typically happen without the specific terms of the agreement being presented in writing, with the document pored over by both sides of the deal and oftentimes a third party.
And when it’s time to apply for a mortgage loan, there’s no shortage of letters involved in the monumental agreement. The most important, perhaps, is a Mortgage Commitment Letter—and it should be the ultimate goal for anyone dreaming of homeownership.
What Is A Mortgage Commitment Letter?
A Mortgage Commitment Letter—or loan commitment letter—is the final piece of the puzzle after a pre-qualification letter and pre-approval letter (more on those later). The Mortgage Commitment Letter comes after you’ve signed a sales contract and it puts you in the enviable position of being able to place an offer on a home. In effect, it signals to the world that you are ready to lay down the cash to buy a house.
The underwriter of the letter, typically a bank or mortgage lender, does more than merely approve credit histories and financial documents. A Mortgage Commitment Letter requires a specific property that 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 that the current owners actually have the right to sell the property.
Finally, a Mortgage Commitment Letter states the approved loan amount, along with some conditions drawn up by the lender. You’ll need to sign on the dotted line in order for the mortgage lending process to move forward.
Mortgage Commitment Letter vs. Pre-Qualification Letter vs. Pre-Approval Letter
Though pre-qualification and pre-approval letters are also important markers on the home-buying journey, they are somewhat less official than a Mortgage Commitment Letter.
Pre-Qualification Letter: Generally thought of as a loose “OK” from a lender, this letter merely indicates that it’s at least possible that you could 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 that the pre-qualification letter comes before the lender has verified any of the numbers you’ve provided to them. It’s an estimate and should be viewed as a framework to go by as you begin home shopping. This is not set in stone.
Pre-Approval Letter: This letter represents a major step up from a pre-qualification, as realtors and sellers see it as a sign that 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 that you can, in fact, afford a mortgage.
How To Get A Mortgage Commitment Letter?
As stated earlier, you can’t get a commitment letter without a full underwriting review that examines all aspects of your financial situation. That examination requires a few steps.
Loan Application: As a borrower, you’ll need to complete a loan application. This entails meeting federal and state requirements, including a fully disclosed credit report.
Loan Processing: This massive undertaking sees a loan officer collecting documents and information to paint a complete picture of your loan viability. These processors check bank statements and look into your employment history, while also asking for forms like W-2s from the last two years, pay stubs from the last 30 days, current assets, and identification like 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 a team of underwriters. These gatekeepers look through the file to investigate accuracy and completeness, while they seek out errors, inconsistencies or any gaps in the reporting. Underwriters check, double-check, verify, and re-verify.
Conditions: Underwriters often include a number of conditions in the final commitment letter. For starters, 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, proof of mortgage insurance, and title commitment.
The Layout Of A Typical Commitment Letter
To get a sense of what a Mortgage Commitment Letter looks like as it’s presented by a loan officer, take a look at the list below. It entails all of the information gathered after the underwriting process is complete.
Name of borrower(s)
Name of lender
Conditions for approval
Loan companies often vary in the style these crucial bits of information are presented, but borrowers can count on the above requirements to be included in the Mortgage Commitment Letter, no matter the loan company.
Mortgage Commitment Letter FAQs
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 depending on the lender.
How long does the Mortgage Commitment underwriting process take?
Again, it varies, but typically around 30 days.
Is a Mortgage Commitment Letter legally binding?
This depends entirely on the language used in the letter. If this is a question of concern, it’s recommended that you consult an attorney for legal advice.
Is a Mortgage Commitment Letter a final approval?
No. The commitment letter is a pledge that the lender will grant a loan to a borrower if the final conditions are met. The final approval comes when there are no loose ends.
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 the loan is funded.