Mortgage Commitment Letter: Nailing Down Your Financing
The mortgage process can be quite tricky and complicated, especially with all those terms that will bombard you right from the get go. At first glance, many of these words might seem interchangeable. For example, most borrowers confuse a mortgage commitment, preapproval, and mortgage prequalification letter.
Even though all of these play an important role in your home buying journey, it is safe to say that the mortgage commitment letter holds the most significance for a borrower.
What is a Mortgage Commitment Letter?
Different from a prequalification or preapproval which will only state how much the lender is willing to loan you, a mortgage commitment letter is a type of a more formal document which indicates that you have passed all the underwriting guidelines, thus approving your loan.
On the most basic sense, this serves as an agreement between you and your lender about the terms of the mortgage.
What’s Stated in the Letter?
A mortgage commitment letter states the specific type of mortgage you will obtain, the amount of money you will borrow, the length or terms of repayment period, as well as the agreed mortgage interest rate.
Many mortgage commitments are somewhat conditional. It means that there is a list of conditions which must be met to fulfill the commitment. These often pertain to the property, such as flood insurance and hazard insurance. In case the conditions have not been met, there is no need for the lender to move the mortgage to closing.
When is Mortgage Commitment Letter Issued?
The mortgage commitment letter is being issued once your application is submitted together with all required documents, like bank statements, pay stubs, and others.
Once the loan file has been process and upon the receipt of the appraisal, the underwriter is going to examine every document. You have to ensure that the loan to value and debt to income ratios are within the set guidelines, and once approved for lending, they will issue your borrower a commitment letter.
The length of when you will receive this letter will vary, usually taking around 20 to 45 days.
What to Look For in a Mortgage Commitment Letter
All of your loan’s material terms will be included in the letter, which is why it is a must for you to read and understand exactly what is in there. Such things include the type of mortgage, the interest rate, length of loan, property address, and others.
During the mortgage closing, you must compare what is cited on the letter with the loan documents you are signing. When you do so, you can catch any errors before you sign the closing documents. It is easier to correct mistakes before signing the documents instead of after closing.
Will The Letter Expire?
A lender’s mortgage commitment letter doesn’t have an expiration or end date. it means that when the loan doesn’t fund during that period, the deal will be off, with the lender not required to lend the money under the stated terms.
Not closing before the commitment letter’s expiration date can alter the whole mortgage, with the interest included.
