Your Guide To Mortgage Commitment Letters

What Is A Mortgage Commitment Letter?

Put simply, a mortgage commitment letter is a formal document provided by financial lenders (banks, credit unions, online fintech providers, etc.) stating that you’ve been approved to receive a home loan. Commitment letters are offered to applicants who’ve successfully navigated their way through the loan preapproval process. They not only explain how large of a home loan you’re approved for but also serve as a reminder that you’re able to back up any given offer with your checkbook.

A mortgage commitment letter is an extremely helpful tool in your search for a new home because it demonstrates to home sellers and real estate agents that you’re a serious buyer with the financial capability to follow through on your offer. Keeping this in mind, it’s no surprise that many sellers (and agents) may be hesitant or even unwilling to consider an offer without a mortgage commitment letter in hand.

Types Of Mortgage Commitment Letters

There are two types of commitment letters that you can secure as a prospective home buyer: conditional and final. Here’s a breakdown of the two:

• Conditional mortgage commitment letter: This document specifies that you’re approved to borrow a specific amount of funds given that certain predetermined conditions are met. You might need to provide further proof of income, investments, or primary or secondary employment. Alternately, you might need to provide proof of title or homeowners insurance or undergo a qualifying home appraisal.
• Final commitment letter: This document states that a financial lender is ready to issue you a mortgage and lays out the terms and conditions under which they’re willing to do so.

When Should You Get A Mortgage Loan Commitment Letter?

A mortgage commitment letter is issued once you’re approved for a loan. Mortgage approval is an essential step in the home buying process, because some sellers require an approval letter before even considering an offer on a house. This document tells you how much you can borrow, which will indicate the size and price of homes you can afford, and ultimately where you can look for homes. This means that you’ll benefit from seeking out an initial approval and a commitment letter before starting your home search.

Know that it’s possible to look at houses without a preapproval, but getting approved prior to the house hunt can help you submit more attractive offers and speed up the home buying process altogether.

How Do You Get A Mortgage Commitment Letter?

To obtain a conditional or final commitment letter, you’ll need to go through your chosen lender’s mortgage preapproval process. Doing so may require you to provide documentation such as pay stubs, bank statements, and other materials that provide proof of employment and earnings. Lenders will also take a close look at any debt you currently hold, and go through the process of reviewing your credit score and credit history to ensure that you have a reliable history of repayment. By going through this process, you’ll learn how much house you can afford.

Once you’ve secured a final mortgage commitment letter, you’ll receive a copy of the document to share. While it will contain similar pieces of information as a conditional letter, it may also contain additional details, like your agreed-upon interest rate, your final loan term, and the date your currently locked interest rate expires.

Mortgage Loan Commitment Letter FAQs

Below are the answers to some frequently asked questions (FAQs) that pop up around mortgage loan commitment letters.

What’s included in a mortgage commitment letter?

On receiving a conditional letter, you’ll note that it contains several pieces of information, such as your name, the lending company’s name, the loan type and the approved mortgage amount. Along with a statement of preapproval, it will contain a list of conditions that you must satisfy before the home loan is ultimately issued – and how long the mortgage preapproval is valid.

A final mortgage commitment letter will also provide added information on your selected interest rate, loan term and when your interest rate lock expires.

What happens after receiving a mortgage commitment letter?

A mortgage commitment letter isn’t a final approval – rather, it’s more of a pledge from your preferred mortgage lender that they’ll grant a loan to you on certain terms if all conditions are met.

But in general, the commitment letter typically holds as long as there are no negative changes to your financial situation and your ability to meet your debt obligations doesn’t change before closing. Be advised, though: Until you’ve closed on your loan and underwriting has fully completed, hiccups can still happen – and your lender can still reduce your loan amount or deny your loan application.

Ultimately, having secured a mortgage approval and set a closing date, you’ll still need to go through the process of closing and settlement. Until this is completed and the title to the property has transferred into your name, you can still back out and pursue other financing options if necessary.

Where can I find a mortgage commitment letter sample?

Multiple mortgage commitment letter samples are available with an online search. Remember, just because you’ve found one written a certain way doesn’t mean it can’t be edited. For example, some home buyers who don’t want home sellers to know how much they can afford in total, so they ask lenders to tailor the document to the amount of the offer they extend.

The Bottom Line: A Mortgage Commitment Letter Guides Your Home Search

Although not ultimately binding when it comes to cementing a formal relationship between a borrower and a lender, a mortgage commitment letter goes a long way to demonstrating how much home you can potentially afford. As such, it’s highly prized by real estate agents and home sellers as a signifier that a potential buyer is serious when it comes to any offer that they submit.

To obtain one, you’ll have to go through the mortgage preapproval process, which requires you to submit extensive documentation and proof of income and employment. Armed with a mortgage commitment letter, you’ll be much better equipped to make compelling and competitive offers.

Are you interested in buying a home in the near future, and looking to get your finances in order? A clear overview of your various accounts and credit score can be helpful when preparing for the approval process. Get started today by signing up with Rocket Money^SM.