Mortgage Commitment

Definition

A mortgage commitment is a formal agreement between a lender and a borrower that stipulates the lender’s promise to provide a loan at a future date, assuming all pre-defined conditions are met. This commitment comes after the initial mortgage application and indicates that the lender has reviewed the borrower’s documentation and found them eligible for the loan, pending certain final conditions like property appraisal, final title searches, and sometimes, employment verification.

Examples

1. New Construction Financing: John plans to build a new home. The construction is scheduled to take approximately six months. To secure funding ahead of the completion, John gets a mortgage commitment from ABC Bank for permanent financing that will be utilized once the construction is complete.

2. Home Purchase: Lisa is in the process of buying a new home. After her mortgage application, the bank issues a mortgage commitment letter stating they will provide the loan after verifying the property’s appraisal, title, and Lisa’s financial condition.

Frequently Asked Questions

1. What is included in the mortgage commitment letter?

• The mortgage commitment letter typically includes the loan amount, interest rate, type of loan, term length, and any conditions that must be met before closing.

2. How long is a mortgage commitment valid?

• The validity of a mortgage commitment depends on the lender but is generally valid for 60 to 90 days. Extension requests can sometimes be approved under certain conditions.

3. Can a borrower be denied after receiving a mortgage commitment?

• Yes, if the borrower fails to meet the conditions outlined in the mortgage commitment, or if there are significant changes in the borrower’s financial status, the lender can withdraw the commitment.

4. What is the difference between mortgage pre-approval and mortgage commitment?

• Pre-approval is an initial assessment of a borrower’s financial status, providing an estimate of the loan amount they qualify for. A mortgage commitment, on the other hand, is a formal promise to provide financing after a thorough review of the application, pending final conditions.

5. What are common conditions in a mortgage commitment?

• Conditions typically include property appraisal, ensuring clear title, inspection results, final verification of income and employment, among others.

Related Terms with Definitions

• Mortgage Pre-Approval: A preliminary agreement that a lender will loan a potential borrower a specific amount of money for the purchase of real estate, based on an initial appraise of their creditworthiness and income.
• Down Payment: The initial payment made by a borrower when buying a home, typically expressed as a percentage of the total property value.
• Loan-to-Value (LTV) Ratio: A financial term used by lenders to express the ratio of a loan to the value of an asset purchased, crucial in determining loan eligibility.
• Underwriting: The process by which lenders evaluate the risk of lending money to a borrower, playing a pivotal role in the mortgage commitment phase.
• Property Appraisal: An assessment of a property’s market value conducted by a certified appraiser, crucial for securing mortgage approval.

Online Resources

• Investopedia: Mortgage Loan Commitment
• Consumer Financial Protection Bureau: Mortgage Considerations
• U.S. Department of Housing and Urban Development

References

1. “The Books on Real Estate Loans” by E. Peter Yescombe.
2. “The Real Estate Investment Handbook” by S. Mitchell Grant.
3. “Real Estate Finance and Investments” by William Brueggeman and Jeffrey Fisher.

Suggested Books for Further Studies

1. “Mortgage Lending Loan Officer Training” by Patricia Hughes.
2. “Real Estate Finance & Investments” by William J. Brueggeman and Jeffrey D. Fisher.
3. “Guide to Real Estate Lending and Investment” by Benjamin Rosa.

Real Estate Basics: Mortgage Commitment Fundamentals Quiz