Overview

A loan commitment letter (often just “commitment letter”) is the lender’s formal, written offer that moves you from conditional approval toward closing. It typically arrives after underwriting and lists the loan amount, pricing, major terms, and the “conditions precedent” you must meet before the lender will fund the loan.

This document matters because it sets expectations and deadlines. In my 15+ years advising borrowers, I’ve seen perfectly good purchases stall because the buyer didn’t catch a condition or missed an expiration date in the commitment.

(Authoritative guidance: see the Consumer Financial Protection Bureau’s mortgage resources for borrowers at consumerfinance.gov.)

Why the Commitment Letter Is Not the Same as a Final Note

A commitment letter is legally important but not the same as the promissory note or mortgage you sign at closing. Think of it as the lender saying: “We will lend under these terms provided the following conditions are satisfied.” If conditions are not met, the lender can withdraw the offer. This is why careful review matters.

Key Components — What the Letter Usually Includes (and What Each One Means)

Below are the standard sections you should expect and what to check in each:

  • Loan amount and loan type: Confirms the principal amount approved and the product (e.g., 30‑year fixed, 5/1 ARM, FHA). Verify this matches your request.

  • Interest rate and pricing terms: May list a locked rate or a range (e.g., subject to rate lock). If the exact rate isn’t fixed, check how and when it will be determined. See our guide on Navigating Mortgage Rate Locks: Timing, Types, and Risks.

  • APR vs interest rate: APR includes certain fees and shows an annualized cost—don’t confuse it with the periodic interest rate.

  • Loan term and amortization: Look for the loan length and whether payments are fully amortizing.

  • Closing costs and estimated cash to close: This should itemize lender charges and give an estimated amount you’ll bring to closing.

  • Conditions and contingencies: The most critical section—lists documents or events required before funding (examples below).

  • Expiration or “good‑through” date: Commitment letters often expire in 30–60 days; confirm the deadline and how rate locks interact with it.

  • Appraisal and property conditions: Many letters are contingent on satisfactory appraisal and clear title.

  • Insurance requirements: Proof of homeowner’s insurance and, if applicable, flood insurance.

  • Escrow and impound accounts: Whether the lender will collect taxes and insurance through escrow.

  • Prepayment penalty or yield maintenance: Rare for consumer mortgages but important for some commercial or jumbo products. Confirm whether penalties apply.

  • Special program terms: If your loan is through an affordable‑housing program or VA/FHA, those program rules will be referenced.

Common Types of Conditions (and How to Prioritize Them)

Commitment conditions fall into two broad groups:

  1. Conditions precedent to closing: Things you must deliver before funding—current paystubs, updated bank statements, signed explanations for credit items, etc.
  2. Conditions that must be true at closing: Final appraisal value, unchanged borrower employment or debt profile, clear title, and required insurances.

High priority: items that can take weeks to fix (e.g., clear title issues, liens to be paid, appraisal value shortfalls). Lower priority: clerical items such as corrected W‑2s or updated bank statements—still required but usually quicker to provide.

Step‑by‑Step Checklist to Review a Commitment Letter

Use this checklist to avoid surprises:

  1. Confirm identity and property details: Borrower name, property address, and legal description.
  2. Verify the loan amount, product, and term match your expectations.
  3. Check the interest rate language: is the rate locked, or is it a range/subject to market movement? If unlocked, ask for a lock or a clear mechanism for when it will be set.
  4. Review fees and cash‑to‑close: Compare the lender’s good faith estimate or Loan Estimate to the commitment. Large fee changes deserve explanation.
  5. Read every condition line by line: mark anything you don’t immediately understand and ask the lender to clarify in writing.
  6. Note the expiration date and work backward to ensure you can meet all conditions in time.
  7. Confirm appraisal and title expectations: who orders them, payment responsibilities, and what happens if appraisal comes in low.
  8. Search for prepayment penalties, assumption restrictions, or unusual default remedies.
  9. Confirm escrow/impound details and whether mortgage insurance (PMI) will be required.
  10. Ask for written amendments if the lender agrees to change any term.

In my practice I also recommend creating a simple “conditions tracker” (spreadsheet) listing each condition, who’s responsible, and a target completion date.

Red Flags and Wording to Watch For

  • Vague conditions such as “satisfactory documentation” without specifics — ask the lender to list exactly which items they need.
  • An unclear rate clause: language that lets the lender change your rate without specifying limits.
  • Unexpected fees or a materially higher cash‑to‑close than earlier estimates.
  • Conditions tied to events outside your control, such as “no material adverse change” without definition. Ask for examples or thresholds.
  • Short expiration that doesn’t fit your closing timeline.

If you see any of the above, request a written correction or clarification. A documented paper trail protects you later.

Negotiation and Next Steps

Can you negotiate after you get a commitment letter? Yes, sometimes. If the lender made a pricing error, or you can show a better offer from a competing lender, you can ask for an amendment. Always: (a) get any revised term in writing, and (b) confirm whether changes affect the expiration date or rate lock.

If conditions are impossible to meet (title defects, appraisal shortfall), you may need to either renegotiate the purchase contract, bring extra cash to closing, or request loan product changes (e.g., larger down payment, different program).

Timing: What to Expect Between Commitment and Closing

Typical timeline after commitment:

  • Immediate (0–7 days): Deliver outstanding documents (paystubs, bank statements, explanations).
  • Short term (7–21 days): Appraisal returned; title search completed; lender finalizes closing package.
  • Final (21–45 days): Clear to close issued and closing scheduled.

These ranges vary by lender and loan type. Government programs (FHA, VA) may add administrative steps.

Real‑World Example (Illustrative)

A client received a commitment for a $350,000 conventional loan showing a 30‑year fixed rate but with a condition that the borrower provide a 60‑day bank statement proving reserves. The borrower delayed, the statement did not show the required reserve, and the lender withdrew the offer two days before closing. We avoided a failed purchase by rapidly transferring funds and documenting the source—an important reminder: satisfy reserve requirements early.

Resources and Where to Learn More

Professional Disclaimer

This article is educational and does not replace personalized legal, tax, or lending advice. For decisions about your loan, consult your loan officer, a licensed mortgage advisor, or an attorney.

Bottom Line

A loan commitment letter is a practical roadmap to closing. Read it carefully, verify every term, track outstanding conditions, and request written clarifications for anything ambiguous. Doing so reduces the risk of last‑minute surprises and increases your odds of a smooth closing.