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What is a Commitment Letter?

Read Time: 2 Minutes Date Published: May 13, 2021
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The mortgage commitment letter is a more formal document indicating you’ve passed the underwriting guidelines and that your loan has been approved. Essentially, it’s an agreement between you and your lender regarding the terms of your mortgage, unlike a preapproval or prequalification, which really only tells you what a lender like Newrez may be willing to loan you.

Hand holding phone with mortgage information on screen

What Does the Letter State?

A commitment letter specifies the type of mortgage being obtained, the amount of money being borrowed, the terms or length of the repayment period, and the mortgage interest rate agreed upon. Most mortgage commitments are conditional, which means there’s a list of conditions to be met for the commitment to be fulfilled. These normally pertain to the property, like hazard insurance and flood insurance. If the conditions aren’t met, the lenders are not required to move the mortgage to closing.

How Long Does it Take to Get a Mortgage Commitment Letter?

Exactly when you’ll receive the letter varies, but it typically takes between 20 and 45 days. The commitment letter is issued after you submit your application with all the required documents, such as pay stubs, bank statements, etc. Once the loan file is processed and the appraisal is received, the underwriter will examine each document, and make sure the debt-to-income (DTI) and the loan-to-value (LTV) ratios are within guidelines. If approved for lending, they will issue a commitment letter to the borrower. 

What is in a Commitment Letter?

All of the material terms of your loan will be in this letter, so it’s crucial you read and understand what’s in there. These are things like the type of mortgage, the length of the loan, the interest rate, and the property address.

At the mortgage closing, you should compare what’s on the commitment letter with the loan documents you’re signing. By doing so, you’ll be able to catch any mistakes prior to signing the closing documents. It’s easier to correct errors prior to signing the documents than after closing.


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Does the Commitment Letter Expire?

A commitment letter from a lender does have an expiration, date. This means that if the loan doesn’t fund within that period, the deal is off and the lender doesn’t have to lend the money under the terms that were stated. Not closing prior to the expiration date of the commitment letter can change the entire mortgage, including the interest.

If you’re thinking of becoming a homeowner get started by checking out our articles and mortgage calculators for all the mortgage basics. Then, get in touch with one of our mortgage consultants to begin your home buying journey.

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Why Newrez?

Newrez believes the lending business shouldn't just be about home loans - it should be about homeowners. That's why our employees get to know our customer's real needs, through final closing, and beyond.

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Simple pre-qualifications and application processes
Loans for everyone, from seasoned investors to first-time buyers
Putting power back into underserved communities

Disclosures

By refinancing an existing loan, the total finance charges may be higher over the life of the loan.

††The rate on your existing mortgage will not change. The Newrez Home Equity Loan program requires borrower to obtain a second mortgage at current market rates. Loan amount based on underwriting guidelines. Minimum 660 credit score. Minimum and maximum loan amounts apply. Program financing only available on properties with one existing mortgage lien and subject to maximum loan-to-value ratio. Not available in all states or territories. Other terms and restrictions apply. Please contact us for more information.

^ This HELOC is an open-end line of credit, available on owner occupied properties, where 75% of the approved full credit limit (minus the origination fees) will be drawn at the time of closing. Additional draws may be available after a 90-day period within the first 3 years not to exceed the available credit limit. Actual rates available to you may vary based on several factors including your credit score and combined loan-to-value. Loan amounts range from $50,000 to $350,000. We may determine home value and resulting equity through independent data sources and automated valuation models. An appraisal may also be required. Only available for eligible borrowers and property types. Not all applicants will be approved, pre-approval is based on data you have provided and certain assumptions that must be verified and subject to underwriting approval. Not available in all states or territories. Contact Newrez for more information.

This is not a commitment to lend. All loan programs are subject to credit, underwriting, and property approval. Programs, rates, terms and conditions are subject to change without notice. Other restrictions apply.