Although the average time it takes for a lender to completely close a mortgage is 53 days, it could be as little as 15 days. The actual timing of the mortgage commitment letter arriving in escrow depends on many factors and must arrive before the house can close.
The residential purchase contract outlines the timeframe for financing to be approved and spells out the conditions that must be met for the sale to go through. The buyer has a specified number of days — the default is three days in the California purchase agreement — to submit a letter of prequalification or preapproval from the lender.
The preapproval letter says that the lender is willing to extend credit to the borrower for the sale based on their financial situation. It's the first step on the road to getting a mortgage commitment letter. A mortgage commitment letter won't happen until after an appraiser submits a report of the property's market value. The appraisal must appraise for the purchase price. Pre-approval demonstrates to the seller that the buyer is serious and most likely will be able to obtain financing to close the deal.
Again, sellers do not want to take their house off the market unless they are fairly certain the transaction will be completed. To satisfy the condition relating to the property, the property must appraise for the purchase price or greater and may need to pass a physical inspection.
Unfortunately, buyers often underestimate the seriousness of this warning. They see loan commitment as a green light to move on with their lives and go out and make purchases to prepare for that new life. This can leave them with a bunch of new stuff and no place to keep it. The loan commitment is not some legally binding guarantee of a mortgage.
This is a reassurance to the seller who has taken their home off the market and off the radar of other potential buyers in anticipation of closing this sale. Please note this approval is subject to the following conditions:. I am looking forward to working with you towards the successful close of this transaction. You can trust that my team will keep you informed every step of the way. If you have any questions or need additional information, please feel free to contact me.
To clarify how the pre-qualification, pre-approval, and loan commitment all fit into the big picture, here is a look at the steps in the buying process leading up to the loan commitment:.
From this point, the chosen loan officer can provide the Loan Commitment Letter and move the transaction into the final stage of the financing process, and finish processing the loan documents.
To reiterate, the loan commitment is conditional, so the loan commitment letter does not constitute official approval of the loan. Official approval can only be granted after the two conditions are met.
Buyers will need to provide complete documentation to confirm that they are financially stable and likely able to accept this new debt in addition to their existing debt payments and other living expenses. Buyers will need to provide their most recent financial documents to show that their financial position has not changed since their pre-approval.
It is possible for the buyer to fail to meet the condition of the loan commitment, thereby losing their loan commitment and even their pre-approval. Lenders are looking for financially stable borrowers.
Examples of behavior that could result in a revocation of the loan commitment and pre-approval include:. As a general rule, buyers should avoid doing anything that might change their financial position from the time pre-approval is granted until the close of escrow. During the due diligence phase of the transaction, a more detailed evaluation of the property takes place. This should include an appraisal and often includes an inspection of the physical condition of the property. Yes, by getting a pre-approval letter from the lender first and continually updating the loan officer with new documentation if the time limits on the submitted documentation elapse.
If additional documentation is required respond quickly. Often a bank will issue a commitment letter along with certain conditions or stipulations to secure the loan. If you do not provide the information to satisfy these conditions you can still get turned down for a loan. Typically, these are the kind of conditions a bank will ask for:. These are standard house keeping conditions which means your loan is on its way to being fully approved.
These can be submitted just prior to closing:. Proof of purchase of a homeowners policy for your new home with the next 12 months premium paid upfront. A portfolio loan is when a lender keeps a loan on their books instead of selling it to a third party. For real estate, this means a lender keeps the mortgage instead of pawning it off on a federal insurer such as Fannie A home buyer is Fannie Mae eligible when the government-backed company will buy their mortgage from a lender.
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