After loan approval, your mortgage lender will provide you with a mortgage commitment letter. Once financing has been secured, you and the sellers will be notified that the transaction is about to close. This letter is also known as a letter of approval.
In a typical approval or commitment letter, the following information is included:
- The type of loan you’ll obtain – for example, a VA home loan – will impact your credit score.
- The borrowed sum of money.
- Term of the loan, such as a 30-year repayment plan.
- The loan’s annual percentage rate
- Before the lender will release the funds, the letter may also include a list of conditions.
Most approvals are accompanied by a list of requirements. “Prior to docs” denotes that you will not receive your loan documents until you provide the necessary materials and an underwriter approves them.
Here are a few examples of pre-doc requirements:
- Revising your income or property documents
- Making a payment on delinquent debt
- Examination of a septic system or a well
- Explanations of particular withdrawals, transfers, and deposits
- Monitoring the source of your initial deposit
- If the lender utilizes an Automated Underwriting System, the software may automatically generate approval and a list of conditions.
The conditions prior to doc are the most important, and the underwriter will not be able to make a final decision until they are provided. Your application may indicate that you earn $10,000 per month, and the lender may conditionally approve your loan pending verification of your income.
Other “prior to funding” requirements are more administrative, such as demonstrating that your parents have the funds to give you and that you have deposited the funds into your checking account.
Pre-funding conditions may include bringing the money to closing in the appropriate form, such as a cashier’s check or wire transfer.
How To Get A “Declining” Mortgage Re-Approved
A grant approval with only prior to funding conditions is more robust than one with prior to doc conditions because there are fewer potential issues.
Other conditions that must be met before receiving funding are as follows:
- Demonstrating that the property in question is insured
- If you are simultaneously closing on the sale and purchase of a home, you will be required to provide evidence that your current home has been sold.
- You have a three-day right of rescission period before your lender releases funds if you are refinancing.
- The majority of pre-funding requirements are handled by the lender, title company, or attorney.
Do you need to display your terms to the seller?
Your real estate purchase agreement may require you to provide a commitment letter to demonstrate that you adhered to the contract’s timeline. What if there are humiliating circumstances? For instance, your letter specifies that you must repay child support arrears, satisfy a judgment, or provide proof of your bankruptcy discharge. If you don’t want to show the seller a conditional approval, the best course of action is to provide the lender with everything they need as soon as possible and request a new letter without the annoying conditions.
Your loan officer may also approve your loan “subject to certain conditions,” but he or she may not specify what those conditions are.
Prior Qualification, Prior Acceptance, And Commitment
Additionally, not all mortgage lenders use these terms in the same way. Prequalification, for instance, signifies that the lender believes the borrower *should* qualify for a loan of up to X dollars if everything they say is true. When prequalifying, a majority of lenders do not check credit.
Mortgage prequalifications are advantageous.
Some prequalifications may require a credit check, bank accounts, and pay stubs. Prequalification of the second lender is more robust. Prequalification merely informs prospective buyers of their general purchasing power. Preapproval comes next. The equivalent of a conditional approval. The purchaser submits a mortgage application and documentation of income and assets. A credit report is retrieved by the lender. Preapprovals necessitate a thorough property evaluation. Pre-approval is sometimes used as a synonym.
How to Obtain Approval for a Mortgage in Eight Easy Steps
If you submit an offer accompanied by a pre-approval or credit approval, you will be in a much stronger position than if you submit a prequalification. Once there are no funding conditions remaining, the buyer has what is generally regarded as a full approval. You will not receive a full approval until you have found a home, opened escrow, and obtained an appraisal.