Mortgage Commitment Letter: What It Is, How It Works

Dori Zinn is a personal finance journalist with more than a decade helping people understand money. Her work has appeared in Wirecutter, CNET, Credit Karma, Huffington Post, and more.

Betsy began her career in international finance and it has since grown into a comprehensive approach to journalism as she's been able to tap into that experience along with her time spent in academia and professional services.

What Is a Mortgage Commitment Letter?

A mortgage commitment letter is a written pre-approval for a home loan. It shows that a lender has reviewed your loan application and agreed that, based on your finances, it will likely accept you for a mortgage. Some mortgage commitment letters have conditions and contingencies you need to meet before you can get fully approved for a mortgage.

Key Takeaways

• A mortgage commitment letter is a document from a lender that confirms you’re pre-approved for a loan.
• A pre-approval assures the vendor that the buyer is likely to secure financing and is serious about buying a home.
• Mortgage commitment letters include information about the loan amount, interest rate, and any conditions for approval.
• Getting a mortgage commitment letter involves submitting an application, providing documents, and undergoing a financial review.

How a Mortgage Commitment Letter Works

A mortgage commitment letter is important for both lenders and borrowers. These letters confirm that a lender is willing to work with you and that you’ve completed all the necessary documents to get a loan. A mortgage commitment letter also signifies that you’re serious about buying a home, giving you more bargaining power than others who could just be casually browsing.

Contents of a Mortgage Commitment Letter

Most mortgage commitment letters include:

• The name and address of both the borrower and the lender
• The type of loan, loan amount, interest rate, and repayment terms
• Estimated monthly repayments
• Lock-in date (if applicable)
• Type of property (single-family, for example) and address of the home
• Date the loan goes into effect and associated fees with the loan
• Cancellation policy of the lender

There are two types of mortgage commitment letters: conditional commitment and final commitment. Where you are in the homebuying process will determine the type of letter you get.

Conditional Commitment

A conditional commitment letter is a mortgage commitment letter where the lender agrees to pay for your mortgage as long as certain conditions are met (either by you, the seller of the home, or both). For most conditional commitments, there’ll be a specific time frame within which these requirements must be met.

The types of conditions vary based on a few different factors. For instance, some mortgages are conditional on a property appraisal or the buyer’s credit score not changing before closing. You might need to show proof of homeowners insurance or a home inspection as well.

Final Commitment Letter

A final mortgage commitment letter is given without any conditions or circumstances required for approval, meaning the lender is ready to approve you right away. Keep in mind that these letters still have an expiration date, so if you don’t secure a home within a set time frame, you might be required to reapply for a loan.

How to Obtain a Mortgage Commitment Letter

Getting a mortgage commitment letter means applying for a loan and going through the mortgage approval process. Here’s a step-by-step guide you can follow when applying for a mortgage.

1. Compare lenders: Start by seeing which mortgage lenders have the terms you’re looking for and offer the lowest interest rates, fewest fees, and best loan terms for home prices in your budget. It might help to see if you pre-qualify for a lender, which doesn’t trigger a hard credit check, before applying.
2. Complete an application: Once you've found a lender, complete a pre-approval application. You’ll need to provide plenty of information about yourself, including your tax returns, pay stubs, banking forms, employment history, and credit history. If you’re applying with someone else, like a spouse or partner, they’ll also need to provide this information.
3. Go through underwriting: Once you complete an application, your lender will usually require an appraisal of the property. Following this, they’ll start the underwriting process. This is when the lender combs through your financial history to assess any and all risks of lending you money.
4. Get approval: After your lender checks your employment, credit, and finances, you’ll ideally be pre-approved for a mortgage. This is your mortgage commitment letter, which may include any conditions that must be met before the final loan approval.

Understanding the Implications

A mortgage commitment letter tells vendors you’re serious about buying a home. It means you’ve got a lender behind you and aren’t casually browsing.

Without a mortgage commitment letter, you might lose a home you want to another buyer.

If your mortgage commitment letter has conditions, there’s usually a deadline for when they need to be met. For instance, if you need to send in additional paperwork or get a home inspection, you may have a few weeks to fulfill these requirements. If you don’t, your mortgage commitment letter will likely expire, and you’ll need to reapply.

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

It could take a couple of weeks to get a mortgage commitment letter. In some cases, you may have to wait even longer, especially if you have to submit more documents for lenders to complete the underwriting process. For some lenders, the process might not take as long.

How Long Is a Mortgage Commitment Letter Valid For?

Mortgage commitment letters are usually valid for 30 to 60 days after the letter has been issued. However, these terms will vary based on the lender.

What Happens If the Rate Lock Expires?

If your rate lock expires, you could lose out on the interest rate you were initially approved for in your mortgage commitment letter. You may be able to extend your lock period for a fee.

The Bottom Line

A mortgage commitment letter is a valuable tool in the homebuying process because it shows sellers you’re serious about buying a home and have the means to do it. Reach out to several lenders to compare rates and terms before applying so that you can ensure you’re getting the best possible loan to suit your needs.

1. Federal Deposit Insurance Corporation. “Applying for Your First Mortgage Loan.”
2. Chase. “Mortgage Commitment Letter: What Is It, and How Do I Get One?”
3. Rocket Mortgage. “Mortgage Rate Lock: A Guide to Protect You From Rate Fluctuations.”

A principal reduction is a decrease in the principal owed on a loan, typically a mortgage, as an alternative to foreclosure on the home.

A judicial foreclosure is a legal proceeding that allows lenders to obtain a power of sale through the courts when a borrower defaults on their mortgage.

A reverse mortgage initial principal limit is the amount of money a reverse mortgage borrower can receive from the loan.

Adjustment frequency refers to the rate at which an adjustable-rate mortgage rate (ARM) is adjusted once the initial period has expired.

The primary mortgage market is the market where borrowers can obtain a mortgage loan from a primary lender such as a bank or community bank.

A silent second mortgage is a second mortgage placed on an asset for down payment funds that are not disclosed to the original mortgage lender.

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