What Is A Mortgage Commitment Letter And Why Is It Important?

The home buying process is a journey that involves many steps. One significant milestone in that journey is receiving a mortgage commitment letter. It’s a key step toward owning your new home and a sign that the mortgage process is almost over. It shows you’ve met all your mortgage lender’s requirements and are nearly ready to close on your home (perhaps with a few conditions).

Let’s take a closer look at the mortgage commitment letter, including how to get one and how it affects the home buying process.

What Is A Mortgage Commitment Letter?

A mortgage commitment letter is a document your lender provides that states you’re officially approved for a mortgage loan, and it outlines the terms of the loan. The letter is generated once the underwriting process is successfully completed. Getting a mortgage commitment letter is one of the last steps on the path to homeownership.

The letter includes the approved loan amount, interest rate and other terms and conditions. A commitment letter is an important document for the buyer and the seller. It gives the seller peace of mind that the sale will go through successfully.

Types Of Mortgage Commitment Letters

There are two types of mortgage commitment or approval letters, and each one means something slightly different for loan approval.

Conditional Commitment

A conditional mortgage commitment letter says you’re approved for a loan as long as you meet certain conditions, which may include making a down payment and paying closing costs. The conditions listed in the letter may also include an ask for additional documents, like proof of homeowners insurance and a property inspection. And it’s best to maintain your income and credit score before closing on the loan.

Depending on the conditions, the letter may also indicate deadlines to complete the specified actions.

Final Commitment

A final mortgage approval letter is a firm commitment from your lender. It states you’ve met all the lender’s requirements, and the lender promises to give you the approved mortgage loan amount if you close by a given date. While a final mortgage commitment lender doesn’t include any conditions, it can expire if you don’t close on the home in the specified amount of time.

Both conditional and final commitment letters have a few key pieces of information, including lender and borrower names, the type and amount of the loan and a statement of approval.

A conditional letter includes a list of conditions a borrower must meet. And a final loan approval includes detailed information about a loan’s interest rate and terms and the commitment’s expiration date.

What To Know Before Getting Your Mortgage Commitment Letter

It’s important to understand the steps that go into a mortgage commitment letter and how it differs from other types of confirmation from your lender, such as prequalification and preapproval. When you begin the home buying process, it’s wise to apply for either a prequalification or a preapproval before you make an offer on a home so the seller can see you’re a serious buyer.

Here’s the difference between prequalification and preapproval:

• Prequalification: Prequalification is a simpler process that confirms approval based on the information you volunteer.
• Preapproval: Mortgage preapproval requires a deeper dive into your finances and credit history to determine with better accuracy whether you’ll be approved for a loan.

While a prequalification or a preapproval can show a seller you’re a serious buyer who is likely to secure a loan, preapproval carries more weight. With a preapproval, a lender takes a deeper dive into your financial and credit situation rather than relying on the basic information volunteered for prequalification.

Both prequalification and preapproval happen before you make an offer on a home (or shortly after). At this point, your application hasn’t gone through full underwriting, and you haven’t provided all the documents your lender will ultimately need to review.

How To Get A Mortgage Commitment Letter From A Lender

To get a mortgage commitment letter, you must meet your lender’s requirements for loan approval.

Submit Your Loan Application

First, submit a loan application and provide information about the home you want to purchase. In the coming days or weeks, the underwriting process will begin. Your mortgage lender will request documents to verify your assets, liabilities, credit score and other aspects of your financial portfolio.

Provide Financial Documentation

You’ll also need to provide income information, such as your tax returns, bank statements or W-2 forms. Depending on the complexity of your financial situation, you may need to supply additional documents.

Get A Home Appraisal

You also need to get a home appraisal so the lender can see how much is appropriate to lend you to purchase the home. Depending on the type of loan, you may also need a home inspection.

The underwriting and approval process helps the lender confirm that you’re a qualified, low-risk borrower.

Receive Lender’s Approval

Once you’ve completed the underwriting process, the lender will provide a conditional commitment letter listing any conditions you must meet, or they’ll send a final commitment letter that says your loan application is approved.

Mortgage Commitment Letter Format

Both a conditional and final commitment letter will feature a few key pieces of information, including the:

• Lender’s name
• Borrower’s name
• Commitment date
• Property address
• Loan number
• Loan amount
• Loan term
• Loan type
• Interest rate
• Rate lock expiration date
• Monthly mortgage payments

Remember that your mortgage commitment letter will be a bit different depending on whether you receive a conditional or final letter. The above format should give you a good idea of how a final commitment letter looks.

If you receive a conditional letter, there’ll likely be another section that lists the conditions you must meet before the lender approves your loan. Your lender may provide another commitment letter once you’ve met all conditions.

Mortgage Commitment Letter Vs. Clear To Close

When you’re clear to close on your mortgage, it means you’ve checked every box required by your lender and can officially close on your home. Wondering what’s the difference between being clear to close and receiving a mortgage commitment letter?

The short answer is that when you are clear to close, it’s a guarantee that you can close on the property because you met all the conditions set by your lender. Getting the “clear to close” from your lender is the equivalent of a final mortgage commitment letter.

Importance Of Getting A Mortgage Commitment Letter

A mortgage commitment letter is important for a few reasons. First, it confirms your loan approval. In the case of a conditional letter, it will lay out what you need to do before closing to get the loan. In the case of a final commitment, it shows that you’ve checked every box and can move forward with your home purchase.

The commitment letter can also provide some peace of mind for the seller. By this point, they’ve accepted your offer, and you’re nearing closing day, but it’s still a positive sign to the seller and the real estate agent that everything is on track.

It’s important to note that you aren’t required to share your mortgage commitment letter with the seller. Especially in the case of a conditional letter, buyers may prefer to keep the letter’s contents between them, their mortgage lender and their agent and only share when cleared to close.

FAQs For Mortgage Commitment Letters

Below are a few frequently asked questions about mortgage commitment letters.

When should I get a mortgage commitment letter?

Getting a mortgage commitment letter from a lender is an essential and exciting step in the home buying process. Unlike the preapproval or prequalification letter, it doesn’t come before you make an offer. The letter comes near the end of the process after your offer on a home is accepted, your loan application has gone through underwriting and your lender has everything they need to approve your loan.

How long does it take to get a mortgage commitment letter?

You can expect a commitment letter 20 – 45 days after submitting your mortgage application and the necessary paperwork. But the time it takes to receive a mortgage commitment letter can vary depending on your lender and whether you’ve met all conditions.

What happens after you receive a mortgage commitment letter?

A mortgage commitment letter means you’ll be approved for a home loan. After you receive the letter, you can move forward to closing on your new house.

The Bottom Line: A Mortgage Commitment Letter Proves You’re A Serious Buyer

A mortgage commitment letter confirms your lender received all the necessary paperwork to approve your loan. If there are additional conditions you need to meet, the lender will send a conditional commitment letter. A mortgage commitment letter is an important document that gets you closer to owning your new home.

When you’re ready, you can get help from a Home Loan Expert at Rocket Mortgage^® to start the mortgage preapproval process, or you can call and speak to an expert at (833) 326-6020.