What is the mortgage commitment?
The short answer is the mortgage commitment is a letter from the home lender
that commits to providing the Buyer a mortgage loan for a given property.
When I write up an offer to purchase with a mortgage contingency clause, the clause always includes a mortgage commitment date. Remember, the typical timeline for a transaction looks like this:
Day 1 - Accepted Offer
By day 7 - Any inspections completed
By day 10 - Purchase and sale is signed, replacing the accepted offer as the binding agreement between Buyer and Seller
In a transaction involving a mortgage contingency, the mortgage contingency survives in the purchase and sale agreement, and the mortgage contingency clause indicates that the deal is contingent upon the Buyer obtaining a mortgage commitment by a certain date. Generally speaking, the mortgage commitment date is a date that is three to four weeks after the signing of the purchase and sale.
Consider the following example:
Offer for $500,000 with a mortgage contingency for a loan for $400,000 is accepted on February 8th.
Home and pest inspections are completed on February 14th.
Purchase and sale is signed on February 17th.
The mortgage contingency in the purchase and sale indicates the mortgage commitment date is March 17th.
The closing is scheduled for March 24th.
If the deal in this example is going to happen, the buyer must receive the mortgage commitment - a letter from the home lender that commits to providing the buyer a mortgage loan - by the mortgage commitment date. In this example the mortgage commitment date is March 17th.
A couple of notes here:
The mortgage commitment letter is a confidential document shared by the lender with the borrower (the Buyer). Typically, the only other person who sees the letter is the Buyer's attorney. When I am the listing agent, I am always surprised when the Buyer's agent sends me a copy of the commitment letter(!).
Sometimes a mortgage commitment letter states that a lender will offer the loan as long as certain conditions are fulfilled. This is known as a conditional commitment. Loans are always conditional in the early stages, but the conditions are cleared progressively as the loan moves through underwriting and processing. What the Buyer is seeking in the end - by the mortgage commitment date - is a clean commitment. That is, a mortgage commitment letter without conditions.
It is quite common for the mortgage commitment date to be extended. Often, the lender simply needs more time to clear conditions on the loan. The burden is on the Buyer to request and receive from the Seller in writing any mortgage commitment date extension. In the Cambridge and Somerville market, the norm is for the Buyer's attorney to make a written request for the mortgage commitment date extension via the Seller's attorney, and for the Seller's attorney to grant it. The norm is for a mortgage commitment date extension request to be granted. Think about it for a moment. The transaction has advanced many weeks from accepted offer, and the closing date is coming up very soon. Everyone understands that pushing through to closing is typically the wisest course.
When I am the Buyer's agent, I always make sure to remind my Buyer when the mortgage commitment date is approaching and then insure that the Buyer via the Buyer's attorney has requested a mortgage commitment date extension in writing, if an extension is necessary. Recently, in a transaction in which I served as the listing agent for the Seller, I was surprised that the Buyer's mortgage commitment date came and went, and only the day after the commitment date did the Buyer's attorney request a mortgage commitment date extension of the Seller's attorney. At that point, it was too late (commitment date extension not granted as commitment date had passed), and the Buyer had sacrificed the safety net of the mortgage contingency - basically, at that point, the Buyer's deposit was at risk. Fortunately, everything worked out and the property closed. The moral of the story is to be sure to get a mortgage commitment date extension in writing if a mortgage commitment date extension is needed.
In real estate transactions involving a mortgage contingency, the issuance of the mortgage commitment letter is usually the golden moment, as it is typically the final contingency to be met. What happens next when the mortgage commitment is in hand is that the attorneys schedule the closing:).
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