Wondering whether you need a “mortgage commitment letter”? Certain terms in the mortgage industry sound alike but are completely different. For instance, pre-qualification, pre-approval, and mortgage commitment all sound similar. But these three terms- which describe three different types of letters you can get from a lender- mean three different things.
Lenders usually provide one of the three and at different times in the mortgage approval process.
Pre-Qualification Letter: This is the loosest OK from a lender, indication that they may possibly grant you a mortgage. It may come in the form of a letter or a verbal agreement. The lender most likely talked to you about your income, assets, debt and credit however did not collect any documentation from you for proof. This may be ok to get you started but means nothing at all until you have supplied the documents required to approve.
Pre-Approval Letter: a pre-approval letter is a step up from the pre-qualification letter in that the lender has actually checked over your documents of proof and your eligibility for a mortgage. This evaluation is based on the criteria of the lender. There usually is a dollar amount determined and you may be given some assurance that they believe in your ability to afford a mortgage.
Commitment Letter: the underwriter has approved your credit, your income and further has approved the property you are buying. This is the only step of the three that actually approves you along with the property you are buying and is the one you can rely on in going forward not only with you personally approved however along with the property as well and both are 100% needed in order to get a mortgage. There will most likely still be conditions that need to be fulfilled however this assurance is based on facts provided.
Do not be fooled by thinking you are approved for your mortgage until you get at least to the commitment stage as the other two are only preliminary and based on what has or has not been provided. They are also not connected yet to the property you are buying and a full approval has to have both.
I hope this has helped better explain these steps in the home buying process.
