Confusing Mortgage Commitment Letter

Anonymous · ‎05-11-2015

I received a commitment letter for my mortgage, but I do not understand what pretty much everything on it says. When I asked the lender, they said it was just standard language, but it makes me extremely uncomfortable. Under conditions needed, it contains three bullet points:

- Compliance Required- File has been selected for Compliance Review. Underwriting will submit for Compliance Review once

all conditions have been cleared. Please allow up to 24 hours for review.

- The current APR must be within .125% (for Fixed Rate) or .25% (for ARMs) from the last disclosed TIL. This includes both

increases and decreases in APR.

- VERIFY COPY OF CHECK/WIRE RECEIPT FOR FUNDS TO CLOSE

The first one sounds like something the lender themselves have to do, but I am unsure why that has not been done already. Closing is in a week, and we were expecting to have final approval already.

The second one also seems like it is the lender who would need to do this. I would have thought the APR would not change after we receive approval, which apparently it can.

The third one makes no sense - how can we provide a copy of the check used for closing before we close on the house?

After the conditions section, it had a couple paragraphs about insurance. I am buying a condo, and the insurance is covered in the HOA (it is all-in master insurance, covering 100% of the replacement cost). I already provided the certificate of insurance, so I'm not sure what it is asking for. The second section says I need $1 million hazard and liability insurance - that is over double the size of the loan. Why would I be required to take out insurance that exceeds the value by that much?

ezdriver · ‎05-11-2015

That is normal internal process at lenders. Nothing unusual in any way shape or form.

StartingOver10 · ‎05-11-2015

@Anonymous wrote:
I received a commitment letter for my mortgage, but I do not understand what pretty much everything on it says. When I asked the lender, they said it was just standard language, but it makes me extremely uncomfortable. Under conditions needed, it contains three bullet points:

- Compliance Required- File has been selected for Compliance Review. Underwriting will submit for Compliance Review once
all conditions have been cleared. Please allow up to 24 hours for review. yes, this is handled by the lender and there is nothing for you to do
- The current APR must be within .125% (for Fixed Rate) or .25% (for ARMs) from the last disclosed TIL. This includes both
increases and decreases in APR. yes, this is handled by the lender, nothing for you to do
- VERIFY COPY OF CHECK/WIRE RECEIPT FOR FUNDS TO CLOSE Just going to verify that you have enough cash to close

The first one sounds like something the lender themselves have to do, but I am unsure why that has not been done already. Closing is in a week, and we were expecting to have final approval already.

The second one also seems like it is the lender who would need to do this. I would have thought the APR would not change after we receive approval, which apparently it can.

The third one makes no sense - how can we provide a copy of the check used for closing before we close on the house?

After the conditions section, it had a couple paragraphs about insurance. I am buying a condo, and the insurance is covered in the HOA (it is all-in master insurance, covering 100% of the replacement cost). I already provided the certificate of insurance, so I'm not sure what it is asking for. The second section says I need $1 million hazard and liability insurance - that is over double the size of the loan. Why would I be required to take out insurance that exceeds the value by that much?

^^^Condo's have more than one insurance policy. Most have a Master Insurance policy that the lender checks to make sure there is enough coverage. The condo insurance policy covers the building only. Normally as a unit owner you get another policy to cover the interior walls, applicances, personal property and valuables. Most lenders require that you have this insurance in addition to the Master Policy. Having said that, it sounds like they are trying to verify the limits of your condo Master Policy. This is something the bank does direclty with the insurance co handling the master policy in the normal course of processing the loan.

Anonymous · ‎05-11-2015

I understand that conditions are a normal part of the process, but I expected to be ready for closing next week. Everything I have read about mortgages says that you are not clear to close until you receive a commitment letter without conditions. This letter has 3 conditions, but they all seem like things the lender itself should have already done, or cannot possibly be done until after closing.

Anonymous · ‎05-11-2015

StartingOver10 wrote:^^^Condo's have more than one insurance policy. Most have a Master Insurance policy that the lender checks to make sure there is enough coverage. The condo insurance policy covers the building only. Normally as a unit owner you get another policy to cover the interior walls, applicances, personal property and valuables. Most lenders require that you have this insurance in addition to the Master Policy. Having said that, it sounds like they are trying to verify the limits of your condo Master Policy. This is something the bank does direclty with the insurance co handling the master policy in the normal course of processing the loan.

The master insurance covers interior walls and appliances. The entire building is worth less than the amount they are asking us to insure. I got separate insurance for my personal property, but they are asking for $1 million of coverage, and my personal property doesn't come anywhere near that amount.

frugalQ · ‎05-11-2015

It appears that they are saying that your actual closing costs shouldn't exceed what's been disclosed to you in the GFE more than a certain percentage. Your apr is a factor of the interest rate of the loan and the closing costs.

ezdriver · ‎05-12-2015

@Anonymous wrote:
I understand that conditions are a normal part of the process, but I expected to be ready for closing next week. Everything I have read about mortgages says that you are not clear to close until you receive a commitment letter without conditions. This letter has 3 conditions, but they all seem like things the lender itself should have already done, or cannot possibly be done until after closing.

A commitment letter and a clear-to-close are two entirely different things. A commitment letter commonly contains some conditions. A clear-to-close is the status when a lender has prepared and vetted the closing documents. Lenders move at their own pace and no amount of fretting on the borrower's part will change that. Today is Tuesday so closing next week is very doable. The process can be daunting for a first-time homebuyer. I don't see any reason for concern.

StartingOver10 · ‎05-12-2015

@ezdriver wrote:
@Anonymous wrote:
I understand that conditions are a normal part of the process, but I expected to be ready for closing next week. Everything I have read about mortgages says that you are not clear to close until you receive a commitment letter without conditions. This letter has 3 conditions, but they all seem like things the lender itself should have already done, or cannot possibly be done until after closing.
A commitment letter and a clear-to-close are two entirely different things. A commitment letter commonly contains some conditions. A clear-to-close is the status when a lender has prepared and vetted the closing documents. Lenders move at their own pace and no amount of fretting on the borrower's part will change that. Today is Tuesday so closing next week is very doable. The process can be daunting for a first-time homebuyer. I don't see any reason for concern.

^^^Well said EZ. Boston, there is plenty of time for your loan to close next week.