A critical step in the home buying process is the mortgage commitment. Most people assume that once they receive a commitment, everything is all set. This is actually not true! Here’s why it’s important to review mortgage commitment letters in detail before the contingency deadline.

What Is a Mortgage Commitment Letter?

The term “mortgage commitment” has been around for a long time, but what it means now is probably not the same as what it did in the past. Lenders don’t actually provide a “commitment” or even a “letter.”  What they do provide is a conditional approval which is a status update on the progress of a loan. This document normally lists all pending items. If cleared, then the loan is likely, not guaranteed,  to receive full approval and clear to close.

Details Are Important

It’s extremely critical to pay close attention to every pending item on the conditional approval list. Some may be standard items to be completed immediately before closing, but others may be bigger issues. For instance, if the appraisal is still pending, that’s a major condition. There may also be questions or issues related to buyer qualification for the loan. Anything that could jeopardize the loan’s approval is important.

Deadlines & Extensions

A conditional approval is not really an approval. It’s often best to extend the mortgage commitment deadline in the P&S to allow time for any major conditions to be cleared. Why? If you find out after that deadline that your loan is denied, your deposit will be at risk! That deadline is essentially the drop dead date for notifying the seller of your inability to obtain a mortgage while still preserving your rights to a deposit refund.

Summary of Why It’s Important to Review Mortgage Commitment Letters

Not all commitment letters, or conditional approvals, are created equal. Some may have 5 items listed and others may have 30. Some may contain minor tasks while others may contain major concerns. That’s why it’s important to review mortgage commitment letters closely. It will help you gauge your risk and determine what to do in light of a looming mortgage commitment deadline. Consult with your lender, real estate agent, and/or attorney for advice on how to proceed.