What Is a Mortgage Commitment Letter? A Guide to Conditional vs. Final Approval

A mortgage commitment letter is a lender's formal declaration of intent to fund your home loan, significantly strengthening your offer in a competitive market. There are two key types: a conditional commitment letter, issued after initial pre-approval, and a final commitment letter, granted after all underwriting conditions are met. Obtaining this document is a critical step, signaling to sellers that you are a serious, financially qualified buyer.

What Is Included in a Mortgage Commitment Letter?

A mortgage commitment letter details the specific terms of your proposed loan. While the exact format varies by lender, this document typically includes the following essential information:

• Loan Amount: The total sum the lender is willing to provide.
• Interest Rate: Specified as either a fixed or adjustable rate.
• Loan Term: The length of the loan (e.g., 30-year fixed).
• Property Address: The specific home being financed.
• Loan Type: The mortgage program (e.g., Conventional, FHA, VA).
• Monthly Payment: The estimated principal and interest payment.
• Escrow Account Information: Details about accounts for property taxes and insurance.
• Expiration Date: The date by which you must close before the letter becomes invalid.
• Contingencies: A list of conditions that must be satisfied for final approval.

This letter serves as a roadmap for the final stages of your transaction, outlining what is required to move forward.

What Are the Two Types of Mortgage Commitment Letters?

Understanding the distinction between a conditional and a final commitment is crucial for managing your home-buying timeline.

Conditional Mortgage Commitment Letter

A conditional mortgage commitment letter offers approval provided that specific requirements are fulfilled. These conditions often involve:

• A satisfactory home appraisal confirming the property’s value.
• A successful home inspection.
• Final verification of income and assets.
• Proof of homeowner’s insurance.
• A clear title search.

This letter is a significant milestone but is not a guarantee of funding. The lender is not obligated to provide financing if these conditions are not met within a specified period, typically 30 to 90 days.

Final Mortgage Commitment Letter

A final mortgage commitment letter is issued once all conditions from the underwriting process are satisfied and you have signed the Closing Disclosure. This document is a firm approval, meaning the lender is ready to disburse funds at closing, assuming your financial situation remains unchanged. Some lenders may charge a commitment fee (typically 0.25% to 1% of the loan amount) for locking in the loan terms, which may be waived if you close on time.

How and When Do You Get a Commitment Letter?

You obtain a mortgage commitment letter by completing a lender’s underwriting process, where your creditworthiness and the property’s value are assessed. The timing of when you receive the letter depends on the stage of the process.

• After Pre-Qualification: Pre-qualification is an informal estimate based on self-reported financial information. Some lenders may issue a very basic conditional letter at this stage, but it carries little weight with sellers.
• After Pre-Approval: Pre-approval is a more rigorous step involving a credit check and document review. Receiving a conditional commitment letter at this stage is powerful for making offers, as it demonstrates a lender’s preliminary endorsement.
• After Full Application Approval: The formal, final commitment letter comes only after the entire underwriting process is complete. This includes a verified appraisal, a clear title report, and the resolution of any outstanding contingencies.

Does a Commitment Letter Mean You Are Fully Approved?

It depends. A conditional commitment letter does not mean you are fully approved. Final approval is contingent on satisfying all listed conditions. A final commitment letter, however, does mean you are approved, with the closing being the final step.

Based on our experience assessment, common conditions for converting a conditional letter to a final one include:

• Final verification of all submitted documents.
• A signed purchase agreement.
• A successful home appraisal at or above the purchase price.
• Proof of homeowner’s insurance.
• Confirmation of down payment and closing cost funds.
• A clear title report with no unresolved liens.

You must maintain your financial standing from the time of conditional approval until the closing date to ensure the final commitment is issued.

Key Takeaways for Homebuyers

Receiving a mortgage commitment letter is a positive step toward homeownership. To ensure a smooth process, consider these points:

• The entire process, from application to final commitment, can take 20 to 45 days.
• A commitment letter typically expires within 30 to 90 days; it is crucial to close before this date.
• If your letter expires, you will likely need to restart the application, which could result in different loan terms if your finances or market conditions have changed.
• Having your financial documents organized and responding promptly to lender requests is the best way to secure your final approval efficiently.