According to Zillow, buying a house with a mortgage takes 30-45 days. One of the reasons for this is the delay in getting a mortgage commitment letter (MCL) from the lender.
A mortgage commitment letter is a formal document issued by a lender to the borrower. The letter indicates the lender’s commitment to lend money to the borrower on agreed-upon terms.
The lender commitment letter assures the seller and real estate agents that the borrower has the financial backing to buy the house. Moreover, having the letter gives the borrower an edge over other buyers in a competitive market.
MCL – ALL YOU NEED TO KNOW
- Why Do I Need an MCL? You need an MCL to show the seller that you are financially qualified to buy a house. Buyers with organized money are more desirable to sellers.
- How Can I Get One? You must complete the lender’s preapproval process, to get a mortgage commitment letter. Also, you need to submit your employment, income, and debt information.
- When Should I Apply for MCL? You must apply for a mortgage commitment letter before you start looking for properties. You can estimate how much you can afford to borrow once your credit score gets reviewed.
What’s Included in a Mortgage Commitment Letter?
A mortgage commitment letter includes the following information:
- Loan Details: The commitment letter specifies the loan amount, interest rate, loan term, and repayment structure. It indicates whether the loan has a fixed or adjustable interest rate.
- Conditions: The letter outlines the requirements you must fulfill before the loan can be finalized. These conditions may include additional documentation and homeowner’s insurance. Once you fulfill these conditions, the lender grants you conditional approval.
- Expiration Date: The commitment letter has an expiration date that is typically 30 days. You must complete the loan process before this expiration date.
- Property Information: Details such as the address, appraisal value, and any special information about the property are included in the commitment letter.
- Lender Information: The commitment letter provides the lender’s contact information. Also, it may include details about the loan officer responsible for handling the application.
Types of Mortgage Commitment Letters
There are two main types of mortgage commitment letters.
1. Conditional Commitment Letter
When the lender approves your mortgage application with certain conditions, they provide a conditional commitment letter. These conditions may involve the submission of additional documents, conducting property inspections, or fixing credit issues.
Moreover, the conditional commitment letter outlines the detailed requirements set by the lender. After meeting all the conditions, the lender proceeds with funding the mortgage.
The conditional commitment letter will have the following information:
- Statement of preapproval
- Type of mortgage
- Loan amount
- Preapproval validity
- Conditions to meet before approval
2. Final Commitment Letter
The final commitment letter, also known as a firm commitment letter, is issued once the lender is satisfied with your application. It is a confirmation by the lender that there are no more conditions left.
Once you have the final commitment letter, you can proceed with the buying process. This letter will have some of the following information:
- Date of Commitment
- Rate lock expiration date
- Statement of approval
- Commitment expiration date
How to Get a Mortgage Commitment Letter?
To get a mortgage commitment letter, you must follow the steps below:
- Complete the Mortgage Application: Fill out the mortgage application form provided by your lender. The lender will collect information about your financial situation, employment history, credit score, and property details.
- Undergo a Credit Check: The lender will conduct a credit check to evaluate your creditworthiness. Furthermore, they will assess your credit score, payment history, and, financial obligations.
- Property Appraisal and Inspection: The lender may require an appraisal of the property to ensure its value matches the loan amount. A home inspection may also be conducted to assess the property’s condition and identify any potential issues.
- Review and Sign the Commitment Letter: The lender will issue you a mortgage commitment letter once they are satisfied with your application. You must then carefully review the letter and understand the terms and conditions outlined. Also, you have to sign and return the commitment letter to the lender.
Why Is a Mortgage Commitment Letter Important?
The mortgage commitment letter is important for you as well as your lender. Here are the 2 reasons why:
- Clear Agreement: The commitment letter from the lender states the terms, conditions, and details of the loan. Henceforth it provides you with a clear understanding of the lender’s commitment to fund the loan.
- Finalizes the Loan Process: The commitment letter signifies that you have completed the loan application process. Moreover, it shows that the lender is ready to proceed with the loan closing and funding.
What Does the Clear to Close Stage Mean?
Clear to close means that you have successfully fulfilled all conditions of the mortgage process. At this stage, the lender completes the inspection of your documents and creditworthiness.
Furthermore, the lender will send a closing disclosure, 3 days before the closing date. This gives you enough time to go through the mortgage terms before signing.
Bottom Line
A mortgage commitment letter helps you gain the seller’s confidence. This will give you an upper hand over other buyers wanting to buy the same house.
Furthermore, having a commitment letter means your home-buying process will take less time than usual. It’s advisable to apply for a mortgage commitment letter before starting your home search.
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Frequently Asked Questions
What is the period of expiration for the mortgage commitment letter?
Mortgage commitment letters typically have an expiration period of 60 to 90 days, depending on the lender's terms.
How long does it take to get a mortgage commitment letter?
The duration to obtain a mortgage commitment is around 30 to 40 days. It depends on factors such as loan complexity and timely provision of necessary documentation.
At what point are you committed to a mortgage lender?
You become committed to a mortgage lender when you sign a legally binding mortgage agreement at the closing of the loan process.
Can you get a commitment letter before appraisal?
Yes, it is possible to receive a letter of commitment from a lender before the property appraisal. The commitment letter may be issued based on factors such as the borrower's creditworthiness.
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