Mortgage commitment letter 2023 (guide + free samples)

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This post covers everything you need to know about a mortgage commitment letter.

A mortgage commitment letter is a significant tool for securing a home loan.

Here you will learn

  • What is a mortgage commitment letter?
  • Why is it necessary
  • Is a commitment letter the same as a pre-approval?
  • Types of a mortgage commitment letter
  • How do you get a mortgage commitment letter?
  • When do you get a mortgage commitment letter?
  • Mortgage commitment letter sample
  • What happens after the mortgage commitment letter?
  • Does a mortgage commitment letter mean you are approved?
  • When does a mortgage commitment letter expire?
  • etc

let’s get started

What is a mortgage commitment letter?

A mortgage commitment letter is a brief statement of facts written by a lender to state to the potential borrower that after the initial screening of his submitted information he has been approved to secure a home loan.

With a formal mortgage commitment letter, a lender is committing himself that he will give a loan to a borrower.

A mortgage commitment letter specifies the amount to be advanced, the interest rate, and the term of the loan.

There will also be conditions, such as the obligation to have homeowner’s insurance. If these standards are not met, a lender may still decline the loan at closing.

The applicant can use the letter to demonstrate to real estate agents and home sellers that they are creditworthy and serious about buying a home.

Why is a mortgage commitment letter necessary?

A mortgage commitment letter is necessary for several reasons when securing a loan for a home purchase.

It provides you with a better idea of how much finance you’ll be able to get for a new real estate acquisition.

It also conveys to both real estate brokers and home sellers that you are a serious buyer.

In fact, most sellers would not entertain a non-cash offer from a buyer who has not been preapproved.

A mortgage commitment letter essentially provides an estimate of how much money you’re likely to be approved for by a lender – and how much money you’ll be able to spend on purchasing a new property.

Is a commitment letter the same as a pre-approval?

No, a commitment letter is not the same as a pre-approval, a pre-approval is just an initial confirmation that the borrower is a good fit for a loan, once everything checks out and a lender is ready to advance the loan a lender issues a commitment letter.

Simply put; A lender pre-approval a borrower before committing himself to give him a loan.

To nail the difference, I have shared a full guide about the pre-aproval letter for a mortgage, if interested you may read it here

Otherwise, the following section will also help you spot the further differences between a commitment letter and pre-approval.

How do you get a mortgage commitment letter?

How do you get a mortgage commitment letter?, Is a commitment letter the same as a pre-approval?

Getting approved for a mortgage and receiving a mortgage commitment entails passing through two stages/levels i.e Prequalification stage and the Preapproval stage.

Following the completion of the preceding processes, the last and most important indicator of lender acceptance is a mortgage commitment letter.

But, before you get there, you must first clear two additional levels of approval.

Prequalification stage

This stage occurs at the start of your house-buying journey and may occur before you find the home you want to buy.

Pre-qualification will help you determine how much house you can afford. While lender regulations vary, prequalification is typically free, can be done online or over the phone, and can be completed in less than a day.

To get prequalified, you’ll need to submit the lender with some basic information, such as your income, assets, and any debts you have.

The lender may also want to evaluate your credit score and history as well as verify your details.

All of this information will assist the lender in determining how much you can afford to borrow.

Preapproval stage

Getting pre-approved for a mortgage is the next stage in the mortgage process.

This is a more significant step that requires additional information.

To get pre-approved, fill out a mortgage application and submit a few pieces of information and supporting documents.

These can contain bank statements, W-2s, and asset statements.

Your lender may also obtain a copy of your credit report to check your payment history and credit score.

This information will assist the lender to decide whether to lend to you and the terms of your loan.

Here is where things start to make sense.

A preapproval shows sellers that you’re a serious buyer and verifies that you’re qualified for a loan, which means you’ll have the finances to buy the home.

This is due to the fact that this sort of approval requires a mortgage application and requires the lender to dig more into your present and past finances.

Commitment Stage

Once you have been preapproved your lender will give you a conditional mortgage commitment letter.

However, as the name suggests, this is only a conditional letter.

You will still need to go through some extra stages to be fully approved.

The specific stages will vary according to your lender and state legislation, but the following are some of the prerequisites that are likely to be required:

  • Proof of title
  • Proof of homeowner’s insurance
  • Submission of other documents
  • Completion of a purchase agreement
  • etc.

Furthermore, you must be able to afford the down payment and closing charges.

Your credit must also remain mostly unaffected.

You may not receive a mortgage commitment letter if you defaulted on your credit card after preapproval.

Another important step in the process is a home appraisal.

Simply put, no lender will lend more money for a house than it is worth.

How would they get their money back if you defaulted?

This may have an impact on the amount of loan you are eligible for.

For instance, you may have been preapproved for a $100,000 loan, but the appraised value of your home is just $75,000.

In that instance, the bank would only provide you with a $75,000 loan.

You will receive your mortgage commitment letter once these processes have been completed, along with a normal title check.

I’m sure at this point things are now clear, to get clearer read the following sections.

When do you get a mortgage commitment letter?

Generally from the time the paperwork is duly received, it can take 20 to 45 days to get a mortgage commitment letter.

Types of a mortgage commitment letter

Types of a mortgage commitment letter

There are two types of commitments: conditional and final.

A conditional commitment letter authorizes the borrower for a specific loan amount if certain conditions are met.

This type of commitment letter may include the following information:

  • Name of the lender
  • Name of the borrower
  • Preapproval statement
  • Loan Type
  • Loan type Loan amount 
  • Conditions that must be fulfilled prior to final approval
  • The number of days preapproval is valid

A final mortgage commitment occurs when all of the conditions are completed and the lender agrees to lend you the stated amount.

This letter usually includes the following information:

  • Name of the lender
  • Name of the borrower
  • If an offer has already been made, the property address 
  • If an offer has already been made, the property address 
  • The type of loan
  • Loan amount
  • Loan amount 
  • Loan term
  • Interest rate
  • Commitment date
  • The expiration date of the rate lock
  • Date of commitment expiration

Mortgage commitment letter sample

Generally, the Mortgage commitment letter is taking a business letter format.

Although the style may vary according to lenders they contain similar key information.

The following is a sample of the mortgage commitment letter

Mortgage Loan Commitment

Lender

ABC Lenders
642 Ridge Rd
Webster, NY 14580
abclenders.com

DATE: January 01, 20…

Borrower

John Nash
901 Wilson Blvd
Central Islip, NY 11722
nash@email.com

Loan number: 019

Property Address: 9710 Lake St Machias, NY, 14101

ABC lender is excited to notify you that your loan application has been granted, subject to the terms and conditions outlined in this letter.

This commitment will expire on March 3, 20… Your loan must be closed and funded by this date.

Property Price: $75,000
Down Payment: $15,000.00
Loan Amount: $60,000
Loan Term: 240
Loan Type: Conventional
Product: Fixed
Loan purpose: Real estate purchase
Interest Rate: 5%
Interest Rate Lock Expires: March 3, 20
Months Total of 240 Mortgage Payments: $95,033.63
Total Interest: $35,033.63
Mortgage Payoff Date: Jan. 20…
Origination fees: $750

Please keep in mind that this is a Fixed Payment Mortgage. It will be payable in 240 equal monthly installments of $395.97 (principal and interest included). For property taxes and insurance, an escrow account is required. The total monthly escrow payment is $200 (property tax $75 and home insurance $125).

IN WITNESS WHEREOF the parties hereto have set their hands hereunto and respectively signed these presents the day, month, and year hereinafter appearing.

Lender’s Signature: ____________ Date: ______

Borrower’s Signature: ____________ Date: ______

Mortgage commitment letter pdf

When does a mortgage commitment letter expire?

The term of the commitment varies depending on the lender, however, a mortgage commitment letter usually expires after 30 days.

What happens if the rate lock or commitment expires?

In the above section, you have seen the commitment and rate lock may expire after 30 days.

The intruding question is what if the rate lock or commitment expires before you close a loan?

Well

If your interest rate lock expires before the loan closes, there may be a price adjustment.

If your mortgage commitment expires before you can close, you may need to resubmit paperwork and go through another credit approval process to obtain a new mortgage commitment.

This could cause a delay in the procedure and modify the terms of your loan, such as how much you pay each month or how much you qualify for.

What happens after the mortgage commitment letter?

After the mortgage commitment letter, you’ll need to go through the settlement procedure of the purchase transaction and mortgage loan.

It’s crucial to remember that just because your mortgage company created the commitment letter doesn’t mean you can’t back out.

For the borrower, nothing is final until the loan is funded and all closing documents are signed.

Does a mortgage commitment letter mean you are approved?

A mortgage commitment letter is not a final approval; rather, it is a pledge from your preferred mortgage lender that if all requirements are met, they would issue you a loan on particular terms.

However, as long as nothing fundamentally adversely affects your financial condition and your capacity to satisfy your debt commitments does not alter prior to closing (and your house appraisal value is sufficient to match the loan amount), the commitment is usually upheld.

But be aware that problems can still occur until your loan has closed and underwriting has been completed – and your lender can still reduce your loan amount or deny your application.

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Isack Kimaro
Isack Kimaro

Holder of Bachelor of Laws (LL.B) and Post Graduate Diploma in Legal Practice. I am dedicated to providing valuable and easy-to-understand legal information for individuals at all levels of understanding. Whether you are a layperson looking to increase your knowledge, a law student striving to excel in your studies, or a practicing lawyer wanting to expand your expertise, I am here to help. I'm not creating content, I'm creating awareness to empower you to take control of your legal understanding and achieve your goals.