Mortgage Commitment

Definition

A Mortgage Commitment is a formal agreement between a lender and a borrower wherein the lender agrees to provide a specified amount of financing to the borrower at a future date, subject to specific terms and conditions outlined in the agreement. This commitment usually follows the initial approval of the borrower’s loan application and involves several stipulations that must be met before the loan funds are disbursed.

Examples

Standard Mortgage Commitment
- A borrower applies for a mortgage to purchase a residential property. The lender approves the loan contingent upon the borrower providing additional documentation, completing a home inspection, and obtaining homeowners insurance.
Construction Loan Commitment
- A developer receives a mortgage commitment from a bank to fund the construction of a new housing project. The commitment is conditional upon zoning approval and meeting certain construction milestones.
Bridge Loan Commitment
- An existing homeowner secures a mortgage commitment for a short-term bridge loan to cover the down payment on a new property, with the commitment dependent on the sale of the homeowner’s current residence.

Frequently Asked Questions (FAQs)

What are the typical contingencies in a mortgage commitment?

Typical contingencies may include:

Approval of property appraisal.
Verification of borrower’s income and employment.
Satisfactory credit report.
Obtaining homeowners insurance.
Completion of a satisfactory home inspection.

How long does a mortgage commitment last?

The duration of a mortgage commitment can vary, but it is generally valid for 30 to 90 days. Specific timelines will be detailed within the commitment letter.

What happens if the conditions of the mortgage commitment are not met?

If the conditions specified in the mortgage commitment are not met, the lender may withdraw the commitment, and the borrower will not receive the loan.

Can a mortgage commitment be extended?

Yes, a mortgage commitment can often be extended if both the lender and borrower agree to the extension and any revised terms.

Is a mortgage commitment the same as a pre-approval?

No, a mortgage commitment is more formal and specific than a pre-approval. It is issued after detailed verification and approval steps, whereas pre-approval is an initial assessment based on preliminary information provided by the borrower.

Loan Commitment: A general term for an agreement between a lender and a borrower to lend a specific amount of money, subject to certain terms and conditions.

Pre-Approval: An initial qualification by a lender indicating a willingness to lend a specified amount to a borrower based on preliminary information.

Underwriting: The process by which a lender determines the creditworthiness of a borrower and the corresponding terms of the loan.

Closing Disclosure: A document provided to the borrower before finalizing the loan, detailing the agreed terms and all costs involved in the loan transaction.

Online References

Suggested Books for Further Studies

“The Mortgage Encyclopedia: The Authoritative Guide to Mortgage Programs, Practices, Prices and Pitfalls, Second Edition” by Jack Guttentag
“Home Buying Kit For Dummies” by Eric Tyson and Ray Brown
“Mortgage Management for Real Estate Investors: How to Manage Mortgage Debt For Lifetime Wealth” by Michael Steven

Fundamentals of Mortgage Commitment: Real Estate Management Basics Quiz

### Does a mortgage commitment guarantee loan disbursement? - [ ] Yes, it guarantees loan disbursement. - [x] No, it is contingent upon meeting specific conditions. - [ ] Yes, unless the borrower withdraws. - [ ] Yes, all commitments guarantee disbursement. > **Explanation:** A mortgage commitment does not guarantee loan disbursement as it is contingent upon meeting specific conditions outlined in the agreement. ### What is a typical validity period for a mortgage commitment? - [ ] 10–15 days - [x] 30–90 days - [ ] 120–180 days - [ ] Indefinitely > **Explanation:** A mortgage commitment typically lasts for 30 to 90 days, during which the borrower must satisfy all stated conditions for the loan to be finalized. ### Which document details the exact terms and contingencies of a mortgage loan? - [ ] Pre-Approval Letter - [ ] Purchase Agreement - [x] Mortgage Commitment - [ ] Deed of Trust > **Explanation:** A mortgage commitment document details the exact terms, contingencies, and conditions that must be met for the loan to be disbursed. ### Can the validity period of a mortgage commitment be extended? - [x] Yes, with mutual agreement and potential revised terms. - [ ] No, it cannot be extended. - [ ] Yes, unilaterally by the borrower. - [ ] Yes, only if all conditions are already met. > **Explanation:** The validity period of a mortgage commitment can be extended if both the lender and borrower agree and any necessary terms are revised. ### What might be a typical contingency for a mortgage commitment? - [ ] Borrower's friends' approval - [ ] Long-term market interest rate fluctuation - [x] Satisfactory property appraisal - [ ] Non-mandatory lender’s discretion > **Explanation:** A typical contingency for a mortgage commitment includes a satisfactory property appraisal to ensure the loan amount is justified. ### What happens if the contingencies in a mortgage commitment are not met? - [ ] The loan amount is reduced. - [x] The lender may withdraw the commitment. - [ ] The borrower must find a new lender. - [ ] The property transaction is automatically voided. > **Explanation:** If the contingencies are not met, the lender may withdraw the mortgage commitment, potentially halting the property transaction. ### Is a mortgage commitment the same as a pre-approval? - [ ] Yes, they are identical. - [ ] No, pre-approval is more formal. - [x] No, a mortgage commitment is more formal and specific. - [ ] Yes, but only for first-time homebuyers. > **Explanation:** A mortgage commitment is more formal and specific than a pre-approval, which is an initial assessment based on preliminary information. ### What process verifies the creditworthiness of a borrower? - [ ] Appraisal - [x] Underwriting - [ ] Home Inspection - [ ] Survey > **Explanation:** Underwriting is the process by which a lender verifies the creditworthiness of a borrower and determines the terms of the loan. ### Which document describes all closing costs and loan terms provided before finalizing a mortgage? - [ ] Mortgage Commitment - [ ] Purchase Agreement - [ ] Pre-Approval Letter - [x] Closing Disclosure > **Explanation:** The Closing Disclosure provides all closing costs and loan terms and is provided to the borrower before finalizing the mortgage. ### Who typically provides a mortgage commitment? - [ ] Real Estate Agent - [ ] Borrower's Attorney - [x] Lender - [ ] Home Inspector > **Explanation:** A mortgage commitment is typically provided by the lender after the borrower's loan application is approved and stipulations are outlined.

Thank you for enhancing your understanding of mortgage commitments through this detailed overview and quiz. Continue to deep dive into the nuanced aspects of real estate finance to sharpen your expertise!