The Mechanics Of Mortgage Commitments And Why You Need One

| November 06, 2016

The Mechanics Of Mortgage Commitments And Why You Need One
What exactly is a mortgage commitment and why is it so important that a drop dead date is included in most home purchase contracts for when you have to have your mortgage approved?

A mortgage commitment is that coveted document that says your mortgage financing hopes have been paper chased, verified, appraised, double checked, underwritten, updated and formally offered up as ready to go by your mortgage lender. It is formal evidence, a bona fide personal letter of credit issued by your lender that says you really do have your mortgage financing ducks in a row.

Every mortgage loan commitment has two parts to evaluate, first separately then as one; the collateral and the credit package.

The collateral is the house you are buying and your lender will be attaching a string to it until you pay back all of that mortgage money you are borrowing.  That being the case, an appraisal will determine whether the market value and the purchase price are in harmony.  The appraisal is done independently and is ordered through a third party Appraisal Management Company.  An appraiser will evaluate, compare, contrast and otherwise fortify or not fortify the value of your hopefully soon to be new home.  This happens early in the mortgage approval process and once completed and submitted for underwriting consideration, it will join the already in progress credit package review.

The credit package is you and everything that has anything to do with your mortgage borrowing wherewithal. The journey to mortgage commitment is a process of chasing paper and navigating product and program underwriting guidelines.  Borrower circumstances vary like DNA profiles and satisfying Qualified Mortgage (QM) and Ability-To-Repay (ATR) guidelines is often a rigorous adventure.  QM and ATR are the means by which lenders and borrowers can successfully traverse the home buying/borrowing process.

pproving the credit package is a not-so-simple matter of gathering every shred of your credit, income and asset life and then securing corroborative proof that what you say is what is.

How you manage your credit spending, what you owe the financial universe and whether or not you pay your bills on time is fundamental to the credit package review.  Credit scoring and credit histories can be life giving or they can collapse home buying dreams as the only carved in stone, no nuance, draw a line in the sand make or break guideline.  Credit scores can determine what kind of mortgage financing package you are eligible for and what kind of interest rate you can expect to pay.  If there are credit issues lurking in your debt management past, you would do well to address them as best as you can and as early in the mortgage commitment process as possible.  In fact, when you get pre-approved and before you actually bid on a house, find out what credit repository misdeeds you have been accused of and get right to work fixing whatever you can legitimately fix.

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