What Is a Mortgage Commitment Letter?

A mortgage commitment letter is a formal declaration from a lender, indicating their intent to provide financing for a home purchase. It outlines the terms and conditions under which the loan will be granted. This document provides assurance of funding as the transaction progresses. Its presence is often required in real estate contracts, signaling to sellers that a buyer has the financial backing to complete a purchase.

Defining a Mortgage Commitment

A mortgage commitment letter acts as a conditional pledge from a lender to fund a specific home loan. For the lender, it formalizes their willingness to provide capital, contingent on certain requirements being met. For the borrower, it provides a strong indication that financing is secured, allowing them to proceed towards closing on a property. This document is a step beyond a pre-approval, which is an initial assessment of eligibility. A commitment letter follows a thorough review of the borrower’s financial standing and the property’s value.

The letter details key aspects of the loan, such as the approved loan amount, interest rate (fixed or adjustable), and loan term, commonly 15 to 30 years. It also includes specific property details, like the address, ensuring the commitment is tied to the correct asset. Borrower information, including names and contact details, is also present, confirming the parties involved. The commitment letter also states its expiration date, typically within a 30 to 60-day window, emphasizing the need to meet conditions promptly.

Understanding Commitment Conditions

Mortgage commitment letters are issued with conditions that borrowers must fulfill before the loan can be finalized. A “conditional commitment” indicates the lender is prepared to lend, provided specific requirements are satisfied. Once all stipulations are met, the commitment transitions to a “firm commitment,” solidifying the lender’s promise to fund. This distinction is important because the lender’s obligation is contingent upon the borrower’s adherence to these terms.

Common conditions include a satisfactory property appraisal, which ensures the home’s value supports the loan amount. A clear title report is required to confirm the property’s ownership is free of undisclosed liens or encumbrances. Lenders often request final employment verification to confirm income stability.

Proof of homeowner’s insurance is a standard condition, safeguarding the property. The sale of a borrower’s existing property might also be a condition if the new home purchase depends on those funds. These conditions mitigate risk for the lender.

Steps After Commitment

Once a mortgage commitment becomes firm, the process moves towards the final stages of the home purchase. The lender conducts a final review of all documentation to ensure everything is in order and that no material changes have occurred in the borrower’s financial situation. This final check occurs before proceeding to the loan closing.

Following this review, a closing date is scheduled, coordinated among the buyer, seller, lender, and closing agent. On the closing day, the borrower signs legal documents, including the promissory note, which outlines the promise to repay the loan, and the mortgage or deed of trust, which secures the loan against the property. Funds are then disbursed, title to the property is transferred to the buyer, and keys are exchanged. The period from firm commitment to closing can vary, but often takes approximately 30 to 45 days.