What is a mortgage commitment letter?

A mortgage commitment letter is a crucial document in the loan process that signifies a lender's agreement to provide a loan to a borrower under defined terms. This letter outlines the loan amount, interest rate, repayment terms, and any conditions that must be met before the loan can be finalized. Essentially, it serves as a formal promise from the lender, giving the borrower assurance that their financing is secured, contingent upon meeting specified requirements.

The importance of the commitment letter is that it signifies a higher level of commitment from the lender than just a pre-approval or pre-qualification. It indicates that the lender has reviewed the borrower's financial information in detail and found them creditworthy for the specific loan terms laid out in the letter. This can be a crucial factor in home buying, as it provides sellers with more confidence that the buyer can secure financing, making the offer more attractive.

In contrast, the other options do not accurately represent what a mortgage commitment letter entails. A guarantee from the borrower to pay the loan refers to the borrower's responsibility, while a document requesting a loan application is about initiating the loan process. A statement of the loan balance reflects the amount owed on an existing loan rather than a commitment to a new loan.