In today’s real estate market your loan approval plays a pivotal role in negotiations and offer acceptance. Securing a firm loan commitment from your lender is the key to not only a successful closing of your new home but an advantage in negotiating the best price. It also puts you in the best position to have your offer accepted when there are competing offers for the same property.
When navigating through the mortgage loan and homebuying process, it’s beneficial to know the type of loan commitment you have from your lender and how it affects your home purchase.
before beginning the search for your new home. The “pre-approval” is not a mortgage commitment or guarantee. It only intended to provide you with guidance on what you can afford to spend when purchasing your new home. This type of “approval” doesn’t mean much because it only factors information that appears on a credit report (i.e debt history and credit score) and your gross monthly income you provided your lender. It is a great first step but you want to be working on the next step as soon as possible.
A Conditional Loan Commitment
A conditional loan commitment is a lender’s promise to provide you with a stated amount of mortgage debt under specified terms and conditions. This commitment is in writing and has an end-date; if you don’t fund the loan within that period, the offer expires. Once that commitment expires, all bets are off. If you still want the loan, you will need to re-apply.
Home sellers and the real estate professionals who represent them take notice of offers from buyers who have a loan commitment letter. A loan commitment letter with your contract offer demonstrates that you and your lender are motivated to close. It also adds a layer of assurance for the seller that the deal will likely go through, depending on a successful appraisal report and inspections of the property.
Loans are always conditional in the early stages, but the conditions are cleared progressively as the loan moves through underwriting and processing. Conditional commitments can be problematic when the requirements aren’t concretely defined and met early in the process.
Handling Your Loan Approval (Commitment)
- First, determine if you have only a pre-approval or a conditional loan commitment. If it’s a conditional loan approval, you can focus your attention on the list of conditions and do what you can to fulfill them. If there are conditions on the list that you know cannot be fulfilled, consult with your loan officer immediately to remedy a solution.
- The conditions you can’t control are those related to the appraisal and home inspections. In addition, all lenders reserve the right to verify employment and funds to close prior to funding the loan.
The goal is to secure your conditional loan approval prior to shopping for your new home and have as many of the conditions fulfilled as possible. This will give you the best advantage in the purchase negotiations and make the closing process move much smoother.