With your mortgage commitment letter in hand, you’re all set to close on a home—then something goes awry. Perhaps it’s a new construction and the builders are behind schedule, or maybe the sellers need to change their closing date. In any case, the endgame gets pushed back beyond the expiration date of your mortgage commitment letter. Yikes! So is an expired mortgage commitment letter a deal breaker?
You’ll be happy to know that it’s not uncommon for a mortgage commitment letter to expire before you actually sign the mortgage papers. But to make sure your deal doesn’t go off the rails, here’s what you need to know in the event that this happens to you.
What is a mortgage commitment letter?
A mortgage commitment letter is different from a pre-approval letter, which states what a lender is willing to lend you based on a review of your finances. A mortgage commitment letter takes it one step further and certifies that the loan has been through the underwriting process and has actually been approved. It states the type of loan, the terms, any conditions for approval, and the interest rate.
It also provides a date for how long that commitment is valid. The length of the commitment, also known as the rate lock or commitment expiration, will vary by lender, but it’s typically 30 days.
If your commitment letter is about to expire
You’ll want to act fast if your commitment letter is close to expiration near the time you’re scheduled to sign on the dotted line.
The first thing to do is talk to your loan offer and request a revised letter with an approval date after your scheduled close of escrow. You might need to resubmit some of your financial documents, as lenders typically need all documents to be current—which usually means from the most recent 30-day period.
Because interest rates rise and fall daily, your initial rate might change if you have to get a new commitment letter.
“If yours is close to expiring, most lenders will extend the commitment or the interest rate lock with the payment of an additional fee,” says Kathryn Bishop, a Realtor® with Keller Williams in Studio City, CA. “If the seller is causing the delay in closing, then the seller usually will extend the contract and often pay the bank fees for the extension.”
If the seller refuses to pay the fee, then the buyer might want to contact a real estate attorney, she says.
If all else fails
So what’s the worst-case scenario? You lose the house and your deposit. But this is likely to happen only if you’re the one causing the delay. If you lose your mortgage commitment and are unable to pay for the house, the seller will have the power to decide whether to move forward with the sale.
Bishop says your best course of action is to talk to your lender about any possible scenarios when you’re applying for the loan, even if you don’t anticipate any delays. You just never know what will happen.
