MORTGAGE COMMITMENT VS. MORTGAGE CONDITIONS

 

• Mortgage Commitment -- A lender commits to lending you money at certain terms.  This letter usually indicates (A) the type of loan being used, (B) the amount, (C) the term of the repayment period, and (D) the interest rate assigned. Mortgage commitments can be conditional, which means they entail a list of conditions that must be satisfied by the Borrower/Purchaser before the loan can be given.

• Mortgage Conditions – Items to be satisfied by the borrower to receive a final approval from the lender.  Most approvals are conditional and subject to you satisfying all underlying conditions such as proof of homeowners’ insurance, providing additional documentation when requested, additional credit checks, verbal verification of employment, and proof of mortgage insurance (when applicable).

 

Please note -- The term "mortgage commitment" is often used loosely and can mean different things to different lenders or their representatives.  For instance, some lenders issue a mortgage commitment letter before the underwriting process, while others issue the letter after underwriting.

Conditions are issues that must be satisfied before the lender will give you a "clear to close" or final approval. The underwriting department is responsible for verifying and vetting all of the documents needed for approval. This department looks to spot errors, inconsistencies, or qualifying issues that may put the loan outside of the lender's parameters.

 

Examples of mortgage conditions include the borrower following:

 

• Providing additional documents needed to verify income, assets or debts

• Paying off outstanding debts in order to reduce the debt-to-income (DTI) ratio

• Providing proof of homeowners’ insurance and/or title insurance/clear title

• Completing a termite inspection of the property being purchased

• Property having a valid certificate of occupancy or no open permits/violations

• Providing updated copies of bank statements

• Explaining certain financial withdrawals, transfers or deposits

• Showing proof that the earnest money deposit check has cleared

• Verifying employment with a letter from the borrower's employer or verbal verification

 

What is your role in all of this?

 

For one thing, borrowers/purchasers need to be patient. The mortgage underwriting process takes longer today than it did 10 years ago.  The quicker you satisfy or address mortgage conditions, the quicker you'll get through the process.

 

In the event your lender does not approve your loan and written evidence of a denial is provided to sellers’ counsel within the commitment contingency period, you are entitled to your down payment back.  At a purchasers’ request, the firm may request or negotiate for an extension of the commitment contingency period to allow the purchaser to re-apply with another lender.  However, once a loan commitment is issued to a borrower, appraisal done and deemed sufficient, and mortgage commitment is tendered to sellers’ counsel, the commitment contingency is fulfilled and the down payment cannot by contract be returned to a purchaser in the event your lender fails to fund your loan for any reason.  To protect your transaction and down payment, the firm will review the conditions in your conditional commitment and advise you to verify with your loan officer that you can fulfill all outstanding conditions and do so in a timely fashion. 

 

 

RATE LOCK FREQUENTLY ASKED QUESTIONS

 

An interest rate lock is a binding agreement between you and your Lender/Bank, by which the Lender agrees to give you a mortgage at a certain interest rate and terms.

 

Must I lock the interest rate?

 

No. A purchaser can choose to "float" or wait on the rate.  This means that your interest rate will be the market rate at the time of locking the rate at a minimum time before the closing. This allows a purchaser flexibility over longer commitment periods.  However, interest rates change with the market and the inherent risks associated with rate locks are:

 

1. having your interest rate locked at higher than market.  The results are for the purchaser to: a. pay to relock at a lower rate,b. negotiate with the lender, c. accept the higher rate or d. reapply with a new Lender

 

    OR

 

   2. having the rate lock expire before Closing. The results are a. pay to extend the rate lock, b. reapply with new lender, c. accept a higher rate, d. negotiate with your lender.

 

What happens if the interest rate changes after the rate lock?

 

If the market rates trend higher, your lock is protected unless it expires. If so, your Lender will charge a fee to extend the rate. If market rates decrease, a purchaser is contractually bound to go with the higher locked rate.

 

When should I lock my interest rate?

 

This ultimately depends on the terms of the Contract and the specifics of your purchase.  On typical transactions, it is preferred for a purchaser to withhold locking an interest rate unless a Closing date is imminent.  The list below are types of transactions generally cover longer time frames and better planning on a rate lock.

1. Short Sale

2. New Construction

3. Commercial property

4. Purchase dependent on selling another property

5. Purchase dependent on an additional renovation loan (203K Loan)

6. Contracts covering closing dates beyond 90 days of contract or requiring a seller to vacate a tenant from an apartment

7. Any transaction requiring board approval

 

Do I have to pay to extend my rate lock?

 

Most of the time, Yes.  If a lender commits to lending you a specific amount of money at a specific time frame, they generally allocate those funds in anticipation of your loan.  This may be in the form of obtaining lending commitments from their warehouse lenders or allocating in house funds to you instead of some other borrower.   They are also losing anticipated profit at a certain rate of return (your locked interest rate) if rates trend higher later.