Getting approved for a mortgage is one of the most important steps in buying a home, and a mortgage commitment letter from your lender can make your offer stand out to a seller. It also lays out important information regarding the loan youâre approved for, and conditions that may need to be met before the process can move forward.
This article will explain how mortgage commitment letters work, as well as the different types and what information they include.
A loan commitment letter is one of the most important documents in the mortgage process. This letter from the lender states their approval of your loan application and outlines the terms and conditions of the loan.
Getting a loan commitment letter is a huge milestone, bringing you one step closer to buying your dream home or refinancing your current mortgage. However, these letters can be confusing if you don’t know what to look for.
In this comprehensive guide, we’ll explain everything you need to know about loan commitment letters, including:
- What is a loan commitment letter?
- Types of loan commitment letters
- What to look for in a loan commitment letter
- Sample loan commitment letters
- FAQs
What is a Loan Commitment Letter?
A loan commitment letter is a formal written document from a lender stating that they agree to lend you money for a mortgage loan This letter outlines important details like
- Loan amount approved
- Interest rate
- Length of the loan term
- Type of loan (fixed, ARM, etc)
- Any requirements or conditions you must meet
Lenders issue a loan commitment letter after you successfully complete the loan application and underwriting process. Receiving this letter means your mortgage is almost finalized, as long as you satisfy any remaining requirements.
Types of Loan Commitment Letters
There are two main types of loan commitment letters:
1. Conditional Commitment
A conditional commitment states the lender will fund your loan if certain requirements are met. Some common conditions include:
- Providing additional documents
- Meeting credit score minimums
- Securing homeowner’s insurance
- Completing appraisal on the property
- Making minimum down payment
The letter will specify all conditions you must satisfy and the deadline.
2. Firm Commitment
A firm or final commitment has no extra conditions. The lender promises to lend you the amount stated, as long as you close within the validity period.
Firm commitments are less common than conditional ones. You usually need excellent credit and no complications for the lender to make a firm approval.
What to Look For in a Loan Commitment Letter
While specifics vary between lenders, loan commitment letters generally include:
- Date issued
- Borrower name
- Lender name and contact information
- Loan amount
- Loan term length (e.g. 15 years, 30 years)
- Interest rate and type (fixed, adjustable)
- Monthly principal and interest payments
- Mortgage insurance requirements
- Loan program and type (FHA, conventional, VA, etc.)
- Loan purpose (purchase, refinance)
- Expiration date
- List of conditions (for conditional commitment)
Review your letter carefully to ensure all the information is accurate. The terms in this letter will become part of your final mortgage contract.
Sample Loan Commitment Letters
Now let’s look at examples of conditional and firm commitment letters.
Conditional Loan Commitment Letter
Conditional Loan Commitment January 1, 2023 Borrower: Jane Doe 123 Main StAnytown, USA 12345 Loan Amount: $200,000Interest Rate: 4.5% (fixed)Loan Term: 30 years Expiration Date: February 1, 2023 Dear Jane Doe, We are pleased to inform you of conditional approval for your mortgage loan application in the amount of $200,000 for the purchase of 123 Main St, Anytown, USA 12345. Final loan approval is contingent on meeting the following requirements by February 1, 2023: - Providing 2 months bank statements showing minimum balance of $10,000- Fully executed purchase contract for 123 Main St- Satisfactory appraisal valuing property at minimum $200,000 - Maintaining a minimum credit score of 700- Providing proof of homeowner's insurance Please provide requested documentation by January 15, 2023 to allow time for final underwriting approval. We look forward to working with you. Please contact us if you have any questions. Sincerely, Lender NameLoan Officer 123 Lender LaneAnytown, USA 12345 Phone: 555-1234Email: loanofficer@lender.comThis conditional commitment letter clearly outlines the information the borrower must provide for final approval.
Firm Commitment Letter
Firm Loan Commitment January 1, 2023 Borrower: Jane Doe123 Main StAnytown, USA 12345 Loan Amount: $200,000 Interest Rate: 4.5% (fixed)Loan Term: 30 years Expiration Date: February 1, 2023 Dear Jane Doe, We are pleased to inform you of final approval for your mortgage loan application in the amount of $200,000 for the purchase of 123 Main St, Anytown, USA 12345. This is a firm commitment valid through February 1, 2023. Provided loan closing occurs by this date, we agree to lend you $200,000 at 4.5% fixed interest for a term of 30 years. Please contact us to proceed with loan finalization and closing. We look forward to helping you purchase your new home. Sincerely, Lender Name Loan Officer123 Lender LaneAnytown, USA 12345Phone: 555-1234Email: loanofficer@lender.comThis firm commitment contains no stipulations. The lender agrees to fund the mortgage by the expiration date.
Frequently Asked Questions
How long is a loan commitment letter valid?
Most loan commitments include an expiration date 60-90 days from issue. The lender won’t guarantee the loan terms beyond that.
Can a lender change the loan commitment terms?
Generally, no. The lender must honor the original terms, including loan amount, interest rate, etc. However, they can refuse to fund the loan if you fail to satisfy all requirements.
What if my credit score drops after getting the letter?
For conditional commitments, the lender may rescind your approval if your credit score decreases. Be sure to avoid taking on new debt before closing.
Can I lock my interest rate with a commitment letter?
You can request a rate lock along with your commitment letter. This guarantees the rate for 30-90 days for a small fee.
Can I back out after getting a commitment letter?
Yes, the letter represents the lender’s commitment to you, not vice versa. You can withdraw your application any time before final closing.
Wrap Up
The loan commitment letter represents a huge step toward your home financing goals. Be sure to understand the type of commitment, requirements, and terms before moving forward. With this knowledge, you can get the best mortgage for your needs.
For more help, contact our team of home financing experts today! We’re here to provide personalized guidance and find the perfect loan option for you.
Mortgage Loan Commitment Letter FAQs
Letâs take a look at a few frequently asked questions regarding a mortgage commitment letter.
What Is A Mortgage Commitment Letter?
A mortgage commitment letter is a document from a lender to a buyer outlining the agreed upon terms of a mortgage. It signifies that financing is officially approved for a real estate transaction.
Getting a mortgage commitment letter can be an exciting step in the home buying process because it can show sellers that your loan application has been approved and you have the funds to purchase their home.