Financing in 11755>Question Details

First Time B…, Home Buyer in Setauket, NY

What exactly is a mortgage commitment letter?

Asked by First Time Buyer, Setauket, NY Thu Mar 8, 2012

And once I obtain one, am I obligated to go with that lender?

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The commitment will expire when the oldest document expires. Lenders keep commitments current by refreshing documentation every 90 to 120 days. It's the borrower's responsibility to ensure they stay approved (I.E. Don't rack up a bunch of credit or do anything to damage your credit or get fired from your job, etc) until the sale is final. Most new construction is done in the manner mentioned. The builder is spending a lot of money to finish your home the way you want it, they want to know if they should cut bait after 45 days or if you're going to cash them out. This is also way you're required to put down a usually significant deposit to ensure you don't back out of the contract after the builder has put ten's of thousands of dollars into building "your" home.

Your lock will only expire if you don't get a lock for the appropriate amount of time. You can elect to lock for the entire duration of construction or stay floating until later down the road. Ultimately it's your responsibility to tell the lender when to lock you (you and your lender will discuss how that process is done and how you'll stay on top of the information you need to make an informed decision. Keep in mind, when you do a long term lock like this, lenders will ALWAYS require you to pay up to (possibly more) 1% of your loan amount as a deposit so you don't hop to the next lender everytime the market improves by 0.125%. Like stocks, you can't un-sell them once you pul the trigger. That being said, most lenders now offer a one-time float down option incase rates improve, then you can take advantage of the better rates.

At the end of the day, find a competent loan officer who can explain your options to you and set your expectations properly.
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2 votes Thank Flag Link Mon Mar 19, 2012
Thank you for all of your answers. The reason I am asking if it obligates me is because I am purchasing new construction. In the contract with the builder, it asks that we obtain a mortgage commitment letter within 45 days of signing the contract. The property is not set to be built for another 10 months. If I obtain a mortgage commitment, wouldn't it expire in this time? And if rates change substantially, would I still be obligated to go with that lender? I do have a lawyer and will be speaking with loan officers about this, but I just wanted some input from all of you. Thanks!
1 vote Thank Flag Link Thu Mar 15, 2012
Ask your loan officer for a detailed explanation; it's a document that confirms the lender is willing to give you a mortgage and it's terms and conditions; at this point, if you are in contract to purchase a specific property not sure why you would like to switch lenders, however cosult with your attorney, see if the contract allows you extra time for a switch...
1 vote Thank Flag Link Fri Mar 9, 2012
Would be very helpful , if you could explain how this process works , as it seems , it is quite different for a new construction than a re-sale. My specific questions :

Facts :

1. Builder wants me to go with their preferred lender and wants me to get a mortgage commitment from that lender.

2. Tentative closing Date is in 3 months.

Questions:


1. Do i shop for Lenders/Rates now or later when i need to lock down the rates (This would be done when i get exact dates from my builder on closing date ) ?

2. If i get a Mortgage commitment now and then want to switch the lender at the time of closing , based on who gives me the best deal , is that allowed ? I understand that i might lose on the fees that i paid to get a mortgage commitment.
0 votes Thank Flag Link Tue Jan 13, 2015
No you are not, but bear in mind you will loose the fees you paid for commitment
0 votes Thank Flag Link Mon Jul 1, 2013
A commitment letter obligates the bank to you, not the other way around, the rate can change until you lock.
0 votes Thank Flag Link Thu Mar 15, 2012
It is a contract on behalf of the lender obligating them to lend you the funds requested in the loan application. Probably something you are not going to get, I have only issued one in the last 20 years. They are rare in my area, most of the time lenders provide a pre-approval letter. Part of the reason most lenders will not issue a commitment letter is exactly because of the other question you asked about you being obligated. You want the lender to fully process the loan, remove all contingencies, spend a ton of money, and then you apply somewhere else? Is that how you want them to treat you? Good luck,
0 votes Thank Flag Link Fri Mar 9, 2012
All of the above...however, the commitment does have an expiration date which may or may not cause your interest rate to rise, depending on the market and if you locked in a rate.
0 votes Thank Flag Link Fri Mar 9, 2012
It also should tell you the terms and conditions of the prospective mortgage. Once you get this, you then know that you will be able to close and that the mortgage contingency has been met.
0 votes Thank Flag Link Thu Mar 8, 2012
Exactly as it sounds..a commitment from a lender to give a mortgage.
0 votes Thank Flag Link Thu Mar 8, 2012
It is the document from the mortgage company/bank that confirms they are willing to give you the mortgage.

The commitment letter is one of the last few steps towards closing
0 votes Thank Flag Link Thu Mar 8, 2012
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