What NYC buyers should know about the mortgage commitment letter
Oct 12, 2023
First, the bad news: receiving that mortgage commitment letter does not mean that you’ve definitively secured the loan for your New York City property. In fact, you should often think of it as a first step. That’s because there are often key contingencies in place (as you’ll see in the sample below) that must be satisfied, lest the bank rescind its offer. That’s why, if you’re thinking of submitting an offer with the mortgage contingency waived, you really need to know what you’re getting into.
What Is a Mortgage Commitment Letter?
A mortgage commitment letter is more than just a piece of paper. It is an official document from a lending institution that signifies an agreement between you and the bank regarding the terms of your home loan. This document is often also referred to as a mortgage approval letter because it confirms that the lender is committed to providing you with the necessary funds for your home purchase.
For potential buyers, holding a mortgage commitment letter is like having a golden ticket in the real estate world. It not only spells out the kind of loan you are eligible for but also assures sellers that your financial backing is strong, greatly enhancing your chances of securing the home you desire.
Types of Mortgage Loan Commitment Letters
When it comes to mortgage commitment letters, there are two key categories to consider:
- Conditional Mortgage Commitment Letters: These are the more common type and indicate that you will be approved for the loan, but certain conditions must be met first. These conditions may include a successful home inspection, proof of homeowners’ insurance, documentation of your down payment, and the stipulation that your credit score and income remain stable from the issuance of the letter to obtaining the mortgage.
- Final Mortgage Commitment Letters: These letters are typically provided after all the conditions specified in your conditional letter have been met. However, in some instances, lenders may opt to issue a final commitment letter directly, bypassing the conditional stage. This letter includes detailed information about your mortgage, such as the loan term, interest rate, and loan type.
How to Obtain a Mortgage Commitment Letter
Securing a mortgage commitment letter involves a multi-step process that ensures you are well-prepared for the responsibilities of homeownership:
- Get a Mortgage Pre-qualification: Your first step is pre-qualification, which can be completed before you even have a specific property in mind. This initial evaluation helps you understand your budget and what types of homes you should be considering. During pre-qualification, you’ll provide your financial information to the lender, including your credit history.
- Apply for Pre-approval: Pre-approval is a more thorough examination of your financial situation. It requires you to complete a mortgage application form and provide additional paperwork, such as proof of income, bank statements, and proof of ownership for significant assets. The lender will also perform a hard credit check to ensure your creditworthiness.
- Obtain Your Mortgage Commitment Letter: Once you’ve successfully navigated the pre-approval stage, your lender will issue your mortgage commitment letter. In most cases, this will be a conditional commitment, indicating that you need to fulfill a few more requirements before final approval. To obtain the final commitment letter, you’ll need to submit additional documentation, such as information about the property you intend to purchase, proof of your ability to cover the down payment and closing costs, and any other details necessary for the lender to finalize your approval.
When Do You Get a Mortgage Commitment Letter?
The timing of your mortgage commitment letter can vary. The conditional commitment letter can be obtained before you even have a specific property in mind, verifying that you meet the financial criteria for a loan. To secure the final commitment letter, you must have a specific property in mind and be actively engaged in the purchase process, including obtaining an estimate of the home’s value, an approved inspection, homeowners’ insurance, and other necessary details.
Does a Loan Commitment Letter Mean You Are Approved?
While a mortgage commitment letter is a significant milestone in the homebuying process, it is not equivalent to full approval. The letter confirms your eligibility for a loan, but your financial health and the details of the property must still align with the lender’s requirements before you receive your final approval.
Why Are Mortgage Commitment Letters Important?
Mortgage commitment letters are invaluable to both buyers and sellers at different stages of the homebuying process. For buyers, having a pre-approval or conditional commitment letter increases the likelihood of having their offers accepted and aids in budgeting for homes within their price range. Sellers also benefit from these letters as they reduce the chances of complications in the sale process, offering peace of mind that the deal is on solid ground.
Sample commitment letter:
This is an example of a standard mortgage loan commitment letter that would be issued
to a New York City condo or co-op apartment buyer. There are additional sections in this
NYC mortgage commitment letter sample you should review such as Commitment
MORTGAGE LOAN COMMITMENT
Borrower Mailing Address:
Type of Property: [Condo, Co-op, etc.]
Commitment Expiration Date:
It is a pleasure to notify you that your application for a mortgage loan has been approved
subject to the following matters set forth below and on pages 2 and 3.
Please sign, date and return Lender’s copy of this Commitment, along with any required
fees and items requested, to the Lender at the following address, within 15 days of the
date hereof, or at the option of Lender, this Commitment shall become null and void.
Should you have any questions, please contact:
This approval is not a final commitment. Due to the fact that interest rates are subject to
change without notice, your approved payment and loan amount may change if interest
rates increase or decrease.
EFFECTIVE DATE AND COMMITMENT FEE
This commitment will become effective upon compliance with the terms herein and, if
applicable, the receipt of your check in the amount of any non-refundable commitment
fee (“stand-by fee”). It is understood and agreed that if this mortgage loan is not settled
in accordance with the terms and conditions of this commitment, the Lender shall retain
this fee as earned charges for the origination and approval of this loan.
AMOUNTS, TERMS AND FEES
Amount of Loan $[Amount]
Initial (Contract) Interest Rate [Rate]%
Loan Term [Number] months
Balloon Term (if applicable) [X] months
Lien Position 1st Lien
Your initial interest only principal and interest (P&I) amount is $[Amount]. This amount
does not include any escrowed amounts and may change if there is a change in loan
[ X ] An Escrow Account is not required.
[ ] An Escrow Account is required.
Even if an Escrow (Impound) Account is not required at time of settlement, subject to
the terms of your specific loan documents, the Lender may set up and require an Account
should the taxes or insurance on the subject property ever become delinquent.
EVIDENCE OF TITLE
The Evidence of Title is to be provided to the Lender and must indicate no liens,
encumbrances, or any adverse covenants or conditions to title unless approved by
Lender. The Evidence of Title must be issued from a firm or source, and in a form,
acceptable to Lender. Borrower will be charged for the cost of providing such title and
the cost of recording documents, all of which will be ordered by Lender unless requested
The Lender reserves the right to terminate this commitment prior to the settlement of
the loan in the event of an adverse change in your personal or financial status, or if the
improvements on the property are damaged by fire or other casualty.
REQUIRED ITEMS OR CONDITIONS
All Items Listed on the Commitment Conditions Addendum Apply.
THE FOLLOWING CONDITIONS MAY APPLY TO YOUR LOAN DEPENDING ON THE
LOAN TYPE AND TERMS.
A balloon loan matures before the loan is fully amortized. The balance of the loan will be
due in a lump sum payment at maturity.
FIRE AND EXTENDED COVERAGE INSURANCE
Prior to settlement, we will require an original insurance policy and/or binder containing
fire and extended coverage (i.e., windstorm, hurricane, hail damages, or any other perils
that are normally included under an extended coverage endorsement) insurance in an
amount equal to the lesser of 100% of the insurable value of the improvements, or the
unpaid principal balance of the mortgage as long as it equals the minimum amount (80%
of the insurable value of improvements) required to compensate for damage or loss on
a replacement cost basis through a company acceptable to the Lender, and a receipt
showing premiums paid in advance for one year. The insurance policy shall also contain
a standard mortgage clause in favor of Lender. We cannot require you to obtain a policy
which exceeds the guaranteed replacement cost of the improvements securing the loan.
If the property is new construction and you are not able to occupy the property
immediately after closing, you will be required to furnish an original fire/hazard insurance
policy or binder, including a Builder’s Risk Rider. If this is a renovation of an existing
dwelling that will remain occupied, a Builder’s Risk Rider is not necessary.
GOVERNMENT INSURED LOANS
Loan Commitments issued for these types of mortgage loans, including, but not limited
to FmHA, RHS, FHA, and VA, are subject to all the terms and conditions of the Agency’s
commitment, or the VA certificate of reasonable value, as well as the rules, and
regulations, and all applicable requirements of the Farmers Home Administration, Rural
Housing Service, Department of Housing and Urban Development, the Department of
Veterans Affairs, and/or other state or municipal authority.
By signing and accepting this commitment, you acknowledge that if the property
securing this loan is in an area identified as having a special flood hazard you agree to
these insurance requirements.
Our policy, in order to best protect collateral interest, is to adhere to the more common
industry practice of requiring flood coverage for the lesser of: the full 100% Replacement
Cost Value or the maximum amount of insurance available under NFIP for the particular
type of building; currently $250,000 per residential dwelling/condominium unit. A copy
of the declaration page or application signed by the agent, along with proof premium
has been paid, is required prior to closing.
Flood insurance is mandatory now or in the future if this property has been or will be
determined to be in an area which has a special flood hazard. Federal Law requires that
flood insurance, available through any agent, must cover the lowest of: the outstanding
principal balance of the loan[s]; the maximum amount of coverage allowed for the type
of building under NFIP or the full replacement cost value of the building or contents
securing the loan.
TAX AND INSURANCE PAYMENTS
Monthly deposits and initial deposits as determined by Lender are required to cover the
payment of estimated annual real estate taxes, special assessments and, if applicable,
FHA or Private Mortgage Insurance Premiums. Lender may also require additional
deposits for hazard or other insurance if required for this loan. Such deposits are to be
placed in a separate escrow or impound account.
If required, all unpaid and future special assessment installments must be paid in full
prior to, or at time of settlement.
The mortgage or deed of trust, note and other pertinent loan documents will be
provided by Lender and must be signed by all applicants that are to be contractually
liable under this obligation. Further, the mortgage or deed of trust must be signed by
any non-applicant spouses if their signature is required under state law to create a valid
lien, pass clear title, or waive unclear rights to property. Note: Samples of loan
documents are available upon request.
ADDITIONAL CONDITIONS FOR CONSTRUCTION LOANS.
CONSTRUCTION LOANS: ONE PAYOUT AND MULTIPLE PAYOUT
Improvements are to be built in a good and workman-like manner in strict accordance
with plans and specifications furnished Lender and in compliance with applicable
building codes. After completion, said improvements shall be approved by a
representative of Lender and an occupancy permit shall be issued by local municipality.
Any changes, whether they be additions, deletions, or alterations, of the plans and
specifications, must be approved in writing by Lender in order that this loan commitment
remain in effect.
CONSTRUCTION LOANS: MULTIPLE PAYOUT
Evidence must be submitted that the net proceeds of our loan are sufficient to complete
the construction of the building, free and clear of all claims of Mechanic’s Liens for labor
and material. All disbursements will be made upon the order of the borrower upon
presentment of proper waivers of lien, subject to compliance inspections by the
Department of Veterans Affairs, the Federal Housing Administration, or Lender, not to
exceed 80% of the value of the work done. The remaining funds will be held back until
the certificate of completion and/or occupancy certificate is issued.
I (WE) accept the terms and Conditions of this Commitment and will notify Lender if there
are any changes to the information provided on the application before the closing of the
COMMITMENT ISSUED ON BEHALF OF LENDER BY:
Take special note of the cancellation clause listed above. If you lose your job or suffer
some other financial setback, the bank will have cause to terminate your loan
Sample Mortgage Commitment Letter
Your application for a [Bank Name] Co-op Loan has just been approved. Enclosed you
will find a commitment letter which provides you with specific details regarding your loan
approval. We urge you to read it carefully as it contains important information on the
financing terms and the documentation that is required in order to close your loan.
WHAT ARE THE NEXT STEPS?
You must sign the commitment and return it to us within ten (10) days of the commitment
or before the expiration date, whichever is sooner with any fees specified. Please note
that this commitment letter contains two critical dates. If you elected to lock in your
interest rate and points there is a rate expiration date. If you do not close your loan on
or before the rate expiration date, the terms and conditions will change.
In addition, there is credit document expiration date. If you do not close your loan on
before this date you will need to satisfactorily update certain credit documents in order
for the terms and conditions of this commitment letter to apply. If your rate and points
have not been locked, the rate expiration date will be established once you elect to lock
in your rate. You must lock in your rate at least five business days prior to loan closing.
Please read the commitment letter and riders carefully, as they contain conditions that
must be satisfied prior to your loan closing. It is incumbent upon you to make sure that
we are in receipt of all items listed. These items must be reviewed and approved at least
three (3) days prior to loan closing. Again we must emphasize that you cannot close your
loan unless all these items have been satisfied.
We have notified the closing attorney for [Bank Name] of this loan transaction.
Arrangement and instructions for closing your loan should be obtained by contacting
the [Bank Name] attorney named in your commitment letter. A loan closing can be
scheduled shortly after all necessary documents have been received by [Bank Name].
The [Bank Name] attorney will be able to provide you with specific information regarding
-Prepaid Interest and Escrow Funds
-Co-op Lien Search Requirements
-Survey Coverage Requirements
-Insurance Requirements (Hazard/Flood/Condominium/Co-op)
We encourage you to have your attorney contact the [Bank Name] closing attorney to
review the requirements. This should help to ensure that your closing goes smoothly.
Thank you for choosing [Bank Name] for your financing needs. We are delighted to have
you as a client.
What are sample closing conditions in NYC?
We have received today from [Bank Name] a copy of a commitment letter for a co-op
loan and will represent [Bank Name] at the closing. Please be advised that we cannot
schedule a closing unless we receive confirmation that the conditions required by [Bank
Name], prior to closing, have been satisfied and the conditions required at closing will
be obtainable and brought to the loan closing.
Enclosed with this letter you will find three copies of Recognition Agreements. The
Recognition Agreement must be delivered to and executed by an Officer of the
Cooperative Corporation. The fully executed Recognition Agreement must be delivered
to our office prior to loan closing or it must be brought to loan closing. We will be unable
to close a co-op loan without the original executed Recognition Agreement with the
Enclosed with this letter you will find a Uniform Commercial Code Authorization Form.
This document must be signed by each person who will be on title and promptly returned
to our office. This document is necessary for [Bank Name], to obtain a security interest
in the cooperative. Upon our receipt and/or confirmation of certain information i.e.
section/block/lot numbers of the building same will be inserted in the financing
statement prior to filing. Please be sure to note that the executed Uniform Commercial
Code Authorization Form and the check required by paragraph 3 below must be
remitted to our attention at the time you accept your commitment letter to a assure a
To ensure that [Bank Name] has a proper security interest, a Cooperative search of the
appropriate records will be conducted solely for [Bank Name]’s benefit. The search will
be ordered by our firm and will be reviewed and approved by our office prior to loan
closing. Payment of the lien search must be remitted to our office at the time you send
back the UCC-1 Authorization form. The cost of the search is $275.00 and the filing fee
for the UCC-1 is $100.00. Please remit a check for $375.00 made payable to [Name] for
the lien search and the recording of the financing statement.
Unless paid prior to loan closing, all charges and fees due to [Bank Name] must be paid
from the loan proceeds. If you call our office the day before loan closing, we will advise
you of the exact amount being deducted from loan proceeds.
The commitment letter has two expiration dates; one is the Commitment Expiration and
one is the Rate Lock Expiration. The loan must close and funds must be disbursed on or
before the earlier of the Commitment Expiration or the Lock-In Expiration. In the event
the loan is a refinance transaction and it is subject to the required three (3) business-
day right of recission it must close four (4) business days prior to the expiration of any
applicable rate lock agreement.
Please note that a closing cannot be scheduled until the following items have been
– We have been advised by [Bank Name] that all commitment conditions have been
– The U.C.C. -1 financing statement has been filed.
– The co-op search has been reviewed and approved
– We have a copy of the proposed Stock Certificate and the first page of the Proprietary
Lease. At closing, the original Stock Certificate and Proprietary Lease must be delivered
to [Bank Name] Closing Attorney.
– We must be in receipt prior to or at loan closing of a blanket insurance policy for the
co-op evidencing sufficient dwelling coverage.
[Bank Name] requires at least two (2) business days to schedule a loan closing.
We are committed to providing you with the highest level of customer service. If you
should have any questions please feel free to call us at [Phone Number].