Blocks & Lots

Mortgage Commitment Letter: What is it and why is it important?

This is the final step towards getting a lender to commit to giving you a loan.

How does this differ from a Mortgage Pre-Approval?

For a commitment letter to be issued a purchase property needs to have been identified and a sales contract signed. An appraisal and title search needs to have been conducted confirming there are no liens on the property and what the value is. If all this meets a bank’s underwriting guidelines then a commitment letter can be issued.

How long does it take to get a Mortgage Commitment letter?

It can vary based on all the conditions being met. Assuming that the documentation supplied meets the bank’s criteria for a mortgage, expect a commitment to take 30-45 days from the time the paperwork is submitted. 

Can I expedite the process?

Yes, by getting a pre-approval letter from the lender first and continually updating the loan officer with new documentation if the time limits on the submitted documentation elapse. If additional documentation is required respond quickly.

What should a mortgage commitment letter say?

The first section usually states the terms of the loan:

  • Commitment Date: The date that your loan is approved
  • Expiration Date: The date the commitment expires (not the mortgage itself once payments start)
  • First Payment Date: The date you will be making your first payment to your lender

The commitment letter will also state: 

  • The purpose of the loan (purchase or refinance)
  • Loan Amount: An even number
  • Loan Type: Fixed or ARM
  • Loan Term: shown in months (ie. 360 months equals 30 years)

The second section of the Commitment Letter usually contains the conditions to close (see below)

Why you can still get rejected for a loan once a Mortgage Commitment letter has been issued

Often a bank will issue a commitment letter along with certain conditions or stipulations to secure the loan. If you do not provide the information to satisfy these conditions you can still get turned down for a loan. Typically, these are the kind of conditions a bank will ask for:

  • An explanation of certain financial withdrawals or deposits
  • Providing updated income or asset information
  • Documentation to clarify the source of a downpayment
  • Proof of employment from a new employer or regular freelance work 

Final things a lender might ask for before issuing a full approval

These are standard house keeping conditions which means your loan is on its way to being fully approved. These can be submitted just prior to closing:

Proof of purchase of a homeowners policy for your new home with the next 12 months premium paid upfront

Flood certification with proof of necessary flood insurance if the property is in a flood zone



 

Jeff Vasishta