Mortgage Commitment Letter

The first question that anyone who is either taking a loan or giving a loan asks is what is a mortgage commitment letter. Well, the answer is not that complicated. A letter that confirms the willingness of a lender to lend finances to the borrower named in the letter is known as a commitment letter. Such a letter also states the time period in which the mortgage needs to be repaid and the rate of interest at which the borrower would be taking the funds. Most of these loan commitment letters are one of two kinds; a firm commitment letter that has specific terms under which the borrower takes the finances. In such a case, if you do not fund a loan within a specific period then the lender can charge you for the cancellation of the mortgage offer. The second type of commitment letter states that there are only certain conditions for the loan to be given to the borrower. As the borrower fulfills certain conditions, the loans are progressively processed. When you are buying a house, home sellers prefer selling the house to a borrower who has firm mortgage loan commitment letter from the lender as compared to the conditional commitment. This is because with a firm commitment, there is a certain sense of surety.

While studying the loan commitment letter it is important that you confirm whether your letter is a firm commitment letter or a conditional commitment letter. In case of a conditional letter, do ask for a list of the conditions as you may need to disclose the same to the home seller. In some cases there may be a condition wherein during the underwriting process the lender can change the appraised value of the property. In such a scenario it is important that you discuss this with your lender. So how long will you have to wait to get a commitment letter? Well, this depends on how long the lender takes to review your financial status. The entire process of submitting the application, the underwriting, and finally receiving the letter may take anywhere between six to eight weeks. While it is possible to look up commitment letter sample for mortgages online, these letters are best drafted by authorized personnel.

Commitment Letter Template

Letter writing especially writing letters that have legal ramifications can be quite a challenging task. In most cases these letters need to be drafted by a legal counsel or a notary and signed by the people concerned. In this article we give you the template. Most of these letters are in the form of templates and the organization in question uses them changing the details as required.

Lender's Name Lender's Address Date Addressee's Name Address Sub: Salutation/Greetings The first paragraph of the letter will congratulate the addressee on their loan being approved. Mention how this approval is subject to the terms and conditions as mentioned in the letter. Also mention that the addressee will have to include documentation for final approval and that it may be subject to changes depending on change in the addressee's financial condition or the property being purchased. In the next paragraph you will mention the type of loan that the addressee has applied for, the amount of loan, the time period for which the loan is being taken and the interest rate at which it is being purchased. Next the letter will mention whether the interest rate on the loan is going to be locked in or it is going to a floating interest rate. The letter will also state the monthly payments that the addressee is liable for and break up of the principal and interest amounts. The due date for each monthly installment will also be included in the letter, and also a mention of the interest that will be charged in case of late payments. The last paragraph will mention the date on which the interest rate lock in expires and the date of expiration of the commitment. Along with this mention the liability in case the addressee does not meet the time limitations. Also mention that all the other details are included as documentation with the letter. In some examples, you will find that the additional details are included in the main letter, while some sample letters have this as an enclosed document. The additional details that will be enclosed include information on interest rate adjustment, FHA/VA, Escrow, Assumability, insurance, etc. End the letter by mentioning that the lender has the right to either withdraw the agreement or change the terms of the same. Congratulate the addressee once again and give them your contact details. Valediction (Signature) Name

Now that you know how such a letter is drafted, you should have no trouble understanding one. Like most other forms of business writing, you need to be extremely careful while drafting such a letter or before signing a letter as you can be held liable in a court of law if such a letter is produced.