- The first item in the commitment will be the statement of approval. After the salutation, a typical opening reads, "This letter is to inform you that ABC Bank has approved you for a mortgage in the amount of X." The letter will continue with standard clauses. The bank uses these clauses in every commitment letter. While much is standard fare, make sure you read the entire letter, especially if you are unfamiliar with mortgages.
- After the standard information, the letter will delve into the specifics of your loan. The letter will list the principal amount of the loan, the interest rate and the term. Depending on the bank's procedure, the letter may go on to list other terms. These can include monthly payments, rate adjustments if applicable, rate ceiling and floor and the amortization period. The letter will also state the collateral address and lien position for the mortgage.
- Every borrower must meet the bank's criteria in order to close. The borrower must satisfy certain conditions, such as financial information, prior to approval. Some, however, can wait until closing. The letter will detail these conditions and the time frame the borrower has to meet them. These conditions include providing proof of identification, proof that debts or judgments have been satisfied or a copy of a marriage or death certificate. Closing conditions vary based on the borrower's circumstances.
- Every commitment letter has an expiration date. An expired commitment letter only proves that you were approved in the past, not that you have a firm commitment in the present. You will have a brief period of time to sign the letter and accept the terms. This can run from two weeks to 30 days. Once you accept the commitment, you will have between 60 and 90 days to close the loan. If either of these deadlines expire prior to the borrower taking action, the commitment is no longer good. The borrower will have to re-apply and will lose any lock-ins regarding the rate or other terms.
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