Brian Scott Cohen explains the importance of commitment letters
My clients always ask me why having a commitment letter could give them more leverage when they make an offer. Do they really help in bidding wars? As a top mortgage lender in NYC, I have the answers.
What is a commitment letter? A commitment letter is a document from a mortgage lender that says it plans to loan you a designated amount of money as long your finances are consistent with your application. They signify that the lender has reviewed your credit scores, finances, and application. I typically advise my clients to request a commitment letter; they take approximately five to seven days.
If the lender is ready to loan you a specific amount of money, per the exact data on your application, they will issue you a firm commitment letter. If they’re concerned about risk associated with lending money due to credit score risk, the appraised value of your home, job security, etc., they will likely issue a conditional mortgage commitment letter. This protects the lender but also lets the buyer know they will be issued a loan pending the specified conditions. It’s important not to discount the weight a conditional mortgage commitment letter carries.
Do commitment letters mean you’re clear-to-close? No, not exactly. I always remind my clients commitment letters don’t mean they’re clear-to-close. While commitment letters don’t guarantee you’ll close on a home, they do give you an edge over your competition when you make an offer on a house. I’ll explain why shortly.
Commitment letters show sellers and real estate agents that you are serious about buying a home. Without one, sellers may not take your offer as seriously as other offers; this could put you at a disadvantage during bidding wars. Clients regularly share with me they won bidding wars because the sellers saw lower risk with their offer as they already had a commitment letter.
I always remind my clients that the commitment letter is not permanent. In fact, there’s a date on the actual letter that tells you when it will expire which usually aligns with your lock rate expiration date. It depends on the lender, but they’re usually valid for at least 30 days. You should check the terms and conditions with your lender.
First-Time Homebuyers (FTHB), this last tip is for you! Please make sure you wait to make large purchases until you have officially closed. Often FTHB buy new furniture and open a new credit card at the furniture store, to get that new homeowner’s discount. This could impact your credit and be problematic – if the total bill is larger than your credit limit – this transaction will impact your ability to buy that new home.
I can’t tell you how many clients are thankful I educate them about the importance of commitment letters before they embark on their homebuying journey. Now, it’s your turn – get pre-approved today and let us talk about your homebuying goals.
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Equal Housing Lender, Brian Scott Cohen NMLS ID: 410025; OriginPoint LLC fka Guaranteed Rate Affinity, LLC (“OriginPoint”) NMLS 1598647; For licensing information visit nmlsconsumeraccess.org. Operating in the state of New York as OriginPoint LLC fka GR Affinity, LLC. Operating in the state of California as OriginPoint Lending LLC fka Guaranteed Rate Affinity, LLC.
Information provided is for educational purposes only. It should not be construed as financial or legal advice or instruction. OriginPoint does not guarantee or assume liability for the accuracy, completeness or timeliness of the information. You should conduct additional research before making any mortgage related decisions.
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