Loan Commitment
Definition and meaning of Loan Commitment in real estate.
A loan commitment is a formal, written agreement from a lender promising to provide a mortgage loan to a borrower under specific terms and conditions.
In more detail
This document is issued after the lender has fully underwritten the borrower's financial profile and approved the property appraisal. It is much stronger than a pre-qualification or pre-approval, as it represents a binding obligation on the lender, subject only to minor conditions like a final credit check before closing.
Sellers often prefer offers from buyers who can produce a loan commitment letter because it reduces the risk of the transaction falling through due to financing issues. The commitment letter will outline the loan amount, interest rate, term, and the expiration date of the offer.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Document strength | Stronger than pre-approval or pre-qualification |
| Expiration | Typically expires in thirty to sixty days |
| Subject to | Underwriting approval and satisfactory property appraisal |
A buyer receives a loan commitment letter from their bank, allowing them to satisfy the financing contingency in their purchase contract and proceed to closing.
Frequently asked questions
Can a lender back out of a loan commitment?
Yes, if there is a significant change in the borrower's financial situation, such as job loss, new debt, or a drop in credit score before closing.
What is the difference between a conditional loan commitment and a final approval?
A conditional commitment is approved pending minor tasks like updated pay stubs or home insurance verification, while a final approval means all conditions have been met.