A commitment letter is an instrument often issued on behalf of a borrower. It is not required in all instances, but some sellers may require a commitment letter as one of the conditions of a purchase and sale agreement. Typically, a lender does not issue a commitment letter until all conditions of the loan application have been satisfied. In some circumstances, however, you may be able to get a commitment even without an appraisal.
At the beginning of the loan qualification process, your lender typically issues a pre-approval letter. A pre-approval is different from a commitment letter, because it only suggests how much you might be qualified to borrow, following deeper review of your loan application. This letter is based on a preliminary review of your credit worthiness, your current financial obligations, your work history, and your current income. The pre-approval letter is a good addition to a purchase contract when you make an offer on a property, because it lets sellers know you are a qualified buyer and have the means to afford the house.
A property appraisal is a standard part of any real estate transaction. Appraisals are conducted by an independent third party who examines the property, takes note of its size, features, and location and assesses a value based on the current market value of similar properties. Appraisals are key to ensure the lender's money is backed by a physical asset at least equal to the loan amount.
The mortgage commitment letter is one of the final steps in the process of closing on a home loan. The lender conducts a final inspection of your credit and finances, and makes a final review of the property in question. According to Exit Upstate Realty of Greenville, S.C., lenders most often require the completion of an independent appraisal of the property before issuing any type of commitment. This is because the commitment letter generally references a particular property and not just the loan applicant.
Although most lenders require an appraisal to be completed before issuing a commitment letter, some may make an exception. If it's vital that you have a commitment letter to finalize a real estate deal, speak with your lender or mortgage broker. In some cases, you may be able to get a conditional commitment which states that your loan is guaranteed providing the property appraisal comes back at a specific value.
Sara Melone is a mother of three and a graduate of UNH. With prior careers in insurance and finance, photography, as well as certifications in fitness and nutrition, Melone draws directly from past experience and varying interests. She contributes with equal passion to birth journals, investment blogs, and self-help websites.