Imagine you’ve found the perfect place – maybe it’s a home in San Diego with ocean views or a Nashville condo in the heart of downtown. Your offer is accepted, and you’re ready to move forward. But before the deal is final, your lender needs to issue a mortgage commitment letter – a crucial step that signals your financing is solid and closing is within reach.
A mortgage commitment letter is a formal assurance from your lender that your loan has been reviewed and is on track for approval, pending final conditions. In competitive markets, it strengthens your offer by proving you’re financially ready to close, giving you an edge with sellers. In this Redfin article, we’ll walk you through everything you need to know about mortgage commitment letters.
What is a mortgage commitment letter?
A mortgage commitment letter is a formal document issued by a lender stating that your loan application has been reviewed and approved, pending final conditions. It’s stronger than a preapproval, as it signifies that the lender has completed most of the underwriting process and is confident in lending you the money. However, it’s not the final step – certain conditions may still need to be met before closing.
What’s included in a mortgage commitment letter?
While the exact format varies by lender, most mortgage commitment letters contain:
- Loan amount: The approved mortgage amount.
- Loan type: Whether it’s a conventional, FHA, VA, or jumbo loan.
- Interest rate: The rate at which your loan will accrue interest (may be locked or subject to change).
- Loan term: The repayment period (e.g., 15, 20, or 30 years).
- Conditions: Any remaining requirements before full approval, such as an appraisal, proof of homeowners insurance, or final employment verification.
- Expiration date: Mortgage commitment letters typically have an expiration date, meaning you must close on the home before the letter becomes invalid.
Do you need a mortgage commitment letter?
A mortgage commitment letter isn’t always required, but it can be a helpful step in the homebuying process, especially in competitive markets. This letter, issued by your lender, confirms that you’ve passed the underwriting process and that your loan is officially approved, pending final conditions like an appraisal or title review. While not every lender or seller requires a commitment letter, having one can make your offer more competitive and give you confidence as you move toward closing.
Why is a mortgage commitment letter important?
A mortgage commitment letter provides both the borrower and the seller with reassurance that the home purchase can proceed smoothly. Here’s why it matters:
➣ It strengthens your offer
Sellers prefer buyers who are financially secure. A commitment letter shows that your financing is nearly finalized, making your offer more attractive, especially in a competitive housing market.
➣ It provides loan clarity
Unlike a preapproval, which is an estimate, a commitment letter offers clear loan details, including the exact amount and terms. This helps you plan for closing costs and monthly payments.
➣ It identifies remaining conditions
Your lender may still require final conditions before issuing full approval. The commitment letter outlines these so you can take action and avoid last-minute surprises.
Types of mortgage commitment letters
Lenders issue commitment letters in two forms, which indicate different levels of approval:
1. Conditional mortgage commitment letter
This is the most common type of commitment letter. It means you’re approved as long as you meet certain conditions. These conditions might include:
- Additional documentation (proof of income, tax returns, bank statements)
- A satisfactory home appraisal
- A final credit check
- Debt-to-income ratio verification
- A clear title report
2. Final (clear-to-close) mortgage commitment letter
A final mortgage commitment, also known as a clear-to-close, means the lender has reviewed everything, and the loan is fully approved with no remaining conditions. At this stage:
- The home appraisal is complete.
- All financial documentation is verified.
- Underwriting has given final approval.
- The closing date is scheduled.
This is the last major financing hurdle before signing closing documents and receiving the keys to your new home.
How to get a mortgage commitment letter
The process of securing a mortgage commitment letter follows these key steps:
1. Loan preapproval
Before you can receive a commitment letter, you typically go through preapproval. This involves:
- Submitting basic financial information.
- Having your credit checked.
- Receiving an estimate of how much you may be eligible to borrow.
Preapproval is not a guarantee of financing, but it gives you an idea of your budget.
2. Full loan application & underwriting
Once you’ve made an offer on a home, you’ll formally apply for a mortgage. This kicks off the underwriting process, where the lender thoroughly reviews your financials. You’ll need to provide:
- Tax returns and W-2s from the past two years.
- Recent pay stubs.
- Bank statements.
- Proof of assets and debts.
- Identification and Social Security number.
The lender will also:
- Verify your employment.
- Order a credit check.
- Review your debt-to-income (DTI) ratio.
- Order a property appraisal to confirm the home’s market value.
3. Issuance of the commitment letter
Once the lender completes underwriting, they will issue a mortgage commitment letter outlining your loan terms and conditions.
Does a mortgage commitment letter mean you’re approved?
Not necessarily. A commitment letter is a strong step toward full approval, but it is not a guarantee. Until you receive final clearance (often called “clear to close”), your loan is still contingent on meeting the conditions listed in the letter.
What could still go wrong?
Even after receiving a commitment letter, certain things could jeopardize your mortgage approval:
- Financial changes: Making a large purchase (e.g., a car) or opening new credit lines can affect your debt-to-income ratio.
- Job loss or income reduction: Lenders verify employment before closing. Any sudden income changes could delay or cancel your approval.
- Low appraisal: If the home appraises for less than expected, the lender may not approve the full loan amount, requiring renegotiation or a larger down payment.
- Unresolved title issues: Problems with property ownership or outstanding liens could prevent the loan from closing.
FAQ: Answers to common questions about mortgage commitment letters
What’s the difference between preapproval, prequalification, and mortgage commitment?
Many homebuyers confuse these terms. Here’s how they differ:
| Stage | What it means | How strong is it? |
| Prequalification | Basic estimate based on self-reported information | Weak, no real verification. |
| Preapproval | Lender reviews some financials & credit. | Stronger, but not a guarantee. |
| Commitment letter | Full underwriting completed, pending conditions. | Very strong, close to full approval. |
Can you be denied a home loan after receiving a mortgage commitment letter?
Yes. A mortgage commitment letter is a strong indication of loan approval, but it is not a final guarantee. If something changes in your financial situation (such as job loss, a drop in credit score, or new debt), the lender may revoke the commitment. Additionally, if you fail to meet the conditions listed in the letter, such as providing required documents or resolving title issues, your loan could be denied before closing.
How long does it take to get a mortgage commitment letter?
The timeline varies depending on your lender and how quickly you provide the required documentation. On average, it takes 20 to 45 days to receive a mortgage commitment letter after submitting a full loan application. The underwriting process, which includes income verification, credit checks, and an appraisal, is the primary factor in determining how long it takes.
Can you get a mortgage commitment letter without an appraisal?
Most of the time, no. Lenders typically require an appraisal to confirm the home’s value before issuing a commitment letter. However, in some cases, such as when using certain conventional loans or appraisal waivers for highly qualified borrowers, a lender may skip the appraisal requirement. This is more common with loans backed by Fannie Mae or Freddie Mac, where automated underwriting systems determine that an appraisal is unnecessary.
How long after mortgage commitment can I close?
Once you receive a mortgage commitment letter, closing typically happens within one to three weeks, depending on the conditions outlined in the letter. If all conditions are already met, you may be able to close sooner. However, if additional steps (like employment verification or title clearance) are still pending, closing may take longer.
What happens if my mortgage commitment letter expires?
Most commitment letters have an expiration date, usually 30 to 60 days from the issue date. If your letter expires before closing, your lender may need to reevaluate your financials, potentially requiring updated income verification, credit checks, and even a new appraisal. This could lead to delays or changes in loan terms, especially if interest rates have fluctuated.
Do I need a mortgage commitment letter for a cash offer?
No. A mortgage commitment letter is only relevant for buyers financing a home purchase with a loan. If you’re making a cash offer, you won’t need one, but sellers may ask for proof of funds, such as a bank statement, to verify you have the money available.
Can I change lenders after receiving a mortgage commitment letter?
Yes, but it’s not always advisable. If you switch mortgage lenders after receiving a commitment letter, you will have to start the entire underwriting process over again. This can lead to delays and potential changes in loan terms, interest rates, or approval status. However, if your current lender is offering unfavorable terms or you find a significantly better rate elsewhere, switching may still be worth considering.
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