A mortgage commitment letter is a document that your mortgage lender prepares after approving your home loan application. It informsÂ you and the home sellers that you have a loan and can close on your purchase.
This letter may also be called an approval letter.Click to see your low-downpayment loan eligibility (Sep 23rd, 2017)
An approval or commitment letter usually contains this basic information:
In addition, the letter may list certain conditions that must be met before the lender will release the borrowed funds.
Most approvals come with a list of conditions that you must meet. The conditions might be â€śprior to docs,â€ť which means you canâ€™t get your loan documents until you provide these items and an underwriter signs off on them.
Examples of prior to doc conditions include:
If the lender uses an Automated Underwriting System (AUS), the software may generate the approval and a list of conditions automatically.
Prior to doc conditions are the most important, andÂ the underwriter canâ€™t make a final decision until you provide these things. Your application may say that you earn $10,000 a month, and the lender may conditionallyÂ approve your loan, subject to you proving that you actually do earn $10,000 a month.
Other conditions are considered â€śprior to funding,â€ť and these items are more â€śhousekeeping.â€ť For instance, if your parents give you the down payment, your prior to doc conditions might be proving that they have the money to give you, and that you have deposited the money into your checking account.
The prior to funding conditionÂ might be bringingÂ the money to closing in the correct form â€“ a cashierâ€™s check, for instance, or a wire transfer.
An approval with only prior to funding conditions is stronger than one with prior to doc conditions, because there is less to go wrong.
Other prior to funding conditions can include:
Prior to funding conditions are mostly handled by the lender and title company or attorney.
Your real estate purchase agreement may require you to furnish a commitment letter to prove that you have adhered to the timeline dictated by your contract.
What if the conditions are embarrassing? For instance, your letter says you have to bring your child support arrearages current, or satisfy a judgment, or document your bankruptcy discharge?
If you donâ€™t want to show the seller a conditional approval, your best bet is to provide everything the lender requests as soon as possible and get a new letter without the awkward conditions on it.
Alternatively, your loan officer may be willing to issue an approval letter stating that it is â€śsubject to certain conditionsâ€ť without saying what those conditions are.
The distinction between these terms can be confusing, because not all mortgage lenders use them the same way.
For instance, the accepted definition of prequalification is that the lender assumes that if everything the borrower says is true, he or she *should* be able to qualify for a loan amount up to X dollars. lenders don't usually check credit for a prequalification.
However, some lenders pull a credit report before issuing a prequalification, and others might even review bank statements and pay stubs. The second lenderâ€™s prequalification is stronger.
In general, prequalification is only good for telling buyers what they should be able to afford.
The next step is preapproval. This is pretty much the same as a conditional approval. The buyer submits a mortgage application, along with proof of income and assets. The lender pulls a credit report.
For pre-approvals, one of the prior to doc conditions is a satisfactory appraisal of the subject property. Another name for pre-approval is credit approval.
Submitting an offer with a pre-approval or credit approval puts you in a much stronger position than submitting an offer with just a prequalification.
Once there are only prior to funding conditions, the buyer has whatâ€™s generally considered to be a full approval. You canâ€™t have a full approval until you find a property, open escrow and obtain an appraisal.
As of this writing, current 30-year fixed mortgage rates are still under four percent for well-qualified applicants. Besides making yourself as qualified as possible before applying, you can save money by shopping aggressively for the best mortgage deals.
That means getting at least three or four quotes from competing mortgage lenders, which is easy to do online.Click to see your low-downpayment loan eligibility (Sep 23rd, 2017)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2017 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)