What Is a Mortgage Commitment Letter?

What Is a Mortgage Commitment Letter?

A mortgage commitment letter is an official document you get from your lender that indicates your loan is approved, subject to certain conditions. It carries more weight than a mortgage preapproval because it shows the lender has evaluated your application more closely and is ready to lend you the money. And because this letter is specific to the property, it goes beyond a preapproval letter in assuring sellers you're serious about buying that specific home and have the financial backing to do so.

Understand, a commitment is not the same thing as final approval. You'll still need to meet the contingencies mentioned in the letter. But the mortgage commitment letter demonstrates that you're likely to receive formal approval once the final conditions are met.

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Types of Mortgage Commitment Letters

Lenders issue two types of mortgage lending commitment letters, depending on where you are in the buying process.

Conditional Commitment Letter

A conditional mortgage commitment letter is typically issued after you submit your loan application and go through initial underwriting. As its name suggests, the letter provides conditional loan approval as long as certain conditions are met within the specified timeframe, typically 30 to 90 days.

Generally, the loan's approval will be contingent upon the home appraisal, inspection, proof of income and homeowners insurance, among other conditions.

Final Commitment Letter

Once you've met all of your lender's conditions as specified in the conditional commitment letter, you should receive the final commitment letter no less than three days before your closing date. You'll receive this letter after signing the closing disclosure, once the lender finishes a full review of your income and finances and confirms the home's value and condition are acceptable.

Some lenders charge a commitment fee ranging from 0.25% to 1% of the total loan amount to reserve the mortgage funds, but it may be waived under certain conditions.

What Does a Loan Commitment Letter Include?

The information listed in a loan commitment letter varies by lender, but typically includes the following:

• Property address
• Type of mortgage
• Loan amount
• Mortgage rate
• Loan term
• Monthly payment amount
• Lender details
• Specific conditions required for final approval
• Expiration date

Tip: Keep an eye on the commitment letter's expiration date, which can range from 30 to 90 days from its issue date. Once it expires, your lender may need to confirm the information in your application again and possibly even get a new appraisal. And if interest rates have changed since the original approval, your loan terms could also change.

Learn more: The Complete Guide to Closing on a House

How Long Does It Take to Get a Mortgage Commitment Letter?

After you submit your full loan application, expect to wait 20 to 45 days to receive the mortgage commitment letter from your lender. During that time, your lender will review your income, credit, appraisal and other information on your application to determine whether to approve the loan.

To keep the process running smoothly and avoid delays, respond to lender requests for supporting documents as quickly as possible. Once you receive the letter, begin working through the required conditions so you can complete them before the letter expires.

Is a Mortgage Commitment Letter Binding?

A mortgage commitment letter is a strong promise from your lender that they intend to approve your home loan if you meet their conditions. But whether it's legally binding depends on your state's law and how the letter is drafted. If you want to back out, consult a real estate attorney or your state's department of real estate to better understand your options. Be aware that if you back out of your purchase agreement, you could lose your earnest money deposit.

Generally, your lender can also back out under certain conditions. Remember, a mortgage commitment letter isn't a final guarantee. The loan can be denied if you don't meet the conditions set forth in the letter. The lender can also reject the loan if something changes your financial picture, such as a loss of income, a drop in your credit score or a new credit account.

That's why real estate agents and mortgage brokers routinely advise their clients not to make any major changes or large purchases before the closing date.

Learn more: Mistakes to Avoid When Closing on a Mortgage

How to Get a Mortgage Commitment Letter

If you want to strengthen your buying position, follow these steps to get a mortgage commitment letter.

1. Submit Your Mortgage Application

You'll need to provide personal details about your income, employment history, assets and debts. You'll be asked to provide supporting documents to verify your income and assets, so gather up your recent pay stubs, two years of W-2s and bank statements, plus anything else your lender requests.

2. Get a Home Appraisal

Typically, your lender will order a property appraisal to ensure its value supports the loan amount you're requesting and is in line with their loan-to-value (LTV) ratio guidelines.

Learn more: What Happens if the Appraisal Is Lower Than the Offer?

3. Go Through Underwriting Process

Next, your lender carefully reviews your application and verifies the information you submitted. The mortgage underwriting process can take several weeks, depending on how long it takes the lender to verify your income and employment, confirm your assets, review your credit and ensure your debt-to-income ratio (DTI) falls within its limits.

4. Receive Your Commitment Letter

Your lender should issue you a mortgage commitment letter once the underwriting process is complete. You may receive a final commitment letter if everything checks out. Otherwise, you may receive a conditional letter which outlines what items must still be resolved.

5. Satisfy Any Remaining Conditions and Close

If you received a conditional letter, promptly respond to any lender requests for outstanding documents. You'll also want to make sure the title search is completed and that you have proof of homeowners insurance coverage, among other common lender requirements. Finally, avoid any major financial changes if possible that could put your mortgage approval at risk.

Learn more: The Complete Guide on How to Get a Mortgage

The Bottom Line

Getting a mortgage commitment letter can reassure both you and the seller that the lender intends to provide the loan once all requirements and conditions are satisfied. You'll typically receive it after submitting your application and completing the underwriting process.

Your debt level and credit score are also key factors in whether you're approved for a loan and the rates and terms you qualify for. If you're planning to buy a house soon, avoid opening major credit accounts before your closing date and try to keep your DTI ratio low. It's also wise to check your credit report for free with Experian. You'll see what lenders will see so you can identify any issues now and address them before you apply.