Editor’s Note: This blog post was originally published in April 2020 and has been revised to reflect industry updates.
When purchasing a home, borrowers must meet several financial requirements throughout the process. A Mortgage Commitment Letter—or loan commitment letter—is the final piece following pre-qualification and pre-approval letters.
While all of these official documents are critical, the Mortgage Commitment Letter is perhaps the most important. Whether you’ve already placed an offer on a home, or are still searching, this document puts you in an enviable position. It signifies proactive ability, willingness, and good faith you can afford to purchase the home and carry subsequent mortgage payments.
Available through an approved lender, such as Contour Mortgage, this letter will undoubtedly place you ahead of the competition!
Learn more about the importance of Mortgage Commitment Letters, such as various types, requirements, FAQs, and more.
The underwriter of the letter, such as a mortgage lender, does more than approve credit histories and financial documents. A Mortgage Commitment Letter requires intent to purchase a specific property, and satisfactory appraisal and title search results. It also confirms the home is free of liens, and the current owners are permitted to sell the property.
This important document states the approved loan amount, along with specified conditions drawn up by the lender.
There are two types of Mortgage Commitment Letters: Conditional and Final, outlined below.
A Conditional Commitment Letter is issued when there are outstanding conditions to be met, such as additional financial information, appraisals, home inspections, and proof of homeowner’s insurance. Once these are fulfilled, the lender will provide a Final Commitment Letter.
This signifies the lender’s intent to pay the mortgage. It also verifies the accuracy of the borrower’s financials per loan terms and conditions.
Though Pre-Qualification and Pre-Approval letters are also important markers along the homebuying journey, they are somewhat less official than a Mortgage Commitment Letter.
Here’s a useful rundown of each:
Pre-Qualification Letter: Generally considered an unofficial confirmation from a lender, it’s not a surefire guarantee, but rather, indicates a possibility you’ll be granted a mortgage. Pre-qualification signifies a conversation regarding income, credit, and assets. This letter is crafted prior to the lender verifying any financials—it's an estimate and frame of reference when commencing a home search.
Pre-Approval Letter: This represents a major step up from pre-qualification, as realtors and sellers recognize a lender confirming proof of viable funds. After a deep dive into your income, assets, and credit, the lender assesses all associated information, attaches a dollar amount to loan allowance, and assures all parties you can afford a mortgage.
Contour Mortgage offers its SecureBuy program for added leverage during this part of the process. This fully underwritten credit approval provides prospective buyers with several benefits above a standard pre-approval letter, such as priority consideration when making an offer, and a quicker closing. Some sellers may even accept a lower bid due to this document’s irrefutable affirmation!
You cannot obtain a commitment letter without a full underwriting review examining all financials.
Here is a brief explanation of key terms and stages.
Loan Application: All borrowers must complete this document per federal and state requirements, along with a full credit report.
Loan Processing: This involves a loan officer assessing a complete picture of financing viability. They check bank statements and examine employment history, while also requesting financial records and tax forms. These could include up to two years of W-2 forms, pay stubs from the last 30 days, previous income tax returns, current assets, and official proof of identity via a driver’s license or passport.
Underwriting: The collected information and documentation is organized into a file and delivered to underwriting specialists. These gatekeepers review it for accuracy and thoroughness, while also identifying any errors, inconsistencies, or reporting gaps. Underwriters check, double-check, verify, and re-verify all documentation.
Conditions: Underwriters often include various conditions in the final commitment letter. Most require a property appraisal, but the requirements don’t end there. These could include additional employment documents and bank deposits, proof of hazard or flood insurance, private mortgage insurance (PMI), and title commitment.
A Mortgage Commitment Letter includes all the information collected during the underwriting process. Mortgage lenders often vary how this is presented, but borrowers should count on the following:
If you’re still unsure about this document’s processes and requirements, Contour Mortgage loan officers can assist. In the meantime, consult this quick FAQs list.
How long is a Mortgage Commitment letter valid?
Also known as rate lock or commitment expiration, this document is valid for 30 days from the final draft date.
How long does the Mortgage Commitment underwriting process take?
Variable by lender, this comprises approximately 30 days.
Is a Mortgage Commitment Letter legally binding?
This is dependent on the language within the letter. If this is a concern, it’s recommended to consult your real estate attorney.
Is a Mortgage Commitment Letter a final approval?
No. The commitment letter is a pledge to grant the borrower a loan per required conditions. The Final Commitment Letter is drafted when there are no loose ends or other obstacles. Should these remain, the borrower could be required to provide a Letter of Explanation for circumstances such as a negative credit report, income or job loss, or employment history gaps.
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.
What is the role of the mortgage lender’s underwriter in this process?
The underwriter reviews the borrower's eligibility and qualification for the loan application, such as credit, employment, income tax returns, and other important financials. They also examine the property’s appraisal report, ensuring it’s worth at least or above the current purchase price.
What happens if the Mortgage Commitment Letter isn’t ready by the time of the financing date?
Often beyond the borrower’s control due to delays with the financial review, appraisal, or other processes, the buyer’s attorney must then request an extension through the seller’s attorney.
Are borrowers required to share the finalized Mortgage Commitment Letter with any other parties?
In short, no. This letter is provided to the borrower from their mortgage lender. They’re not legally binded to supply this document to anyone else involved with the home purchase.
What should borrowers look for when reviewing their Mortgage Commitment Letter?
It’s very important to closely review this document and accompanying fine print with your real estate attorney and mortgage lender. It’s best to be wary of any red flags. If something appears too good to be true, it probably is.
What happens if the borrower isn’t granted approval?
The lender provides a denial letter with a full escrow deposit, per contract restrictions or stipulations. If you’re working with a reputable lender with experienced loan officers, such as Contour Mortgage, they can make a quick determination at the onset of this process, even before the borrower advances to this last, important step.
Purchasing a home and providing required documents and approvals can seem daunting, but it doesn’t have to be. It’s therefore best to work with a reputable mortgage lender with knowledgeable loan officers, such as Contour Mortgage.
Contour Mortgage provides assistance with various types of financing products for primary and secondary residences. Contact us for help navigating this process.