Loan Commitment
A loan commitment is a formal written agreement from a lender stating they will provide a mortgage loan to a borrower under specific terms and conditions. This document outlines the loan amount, interest rate, repayment terms, and any conditions that must be met before closing.
Example
“After weeks of document review, Sarah finally received her loan commitment letter, guaranteeing her mortgage approval for the downtown condo purchase.”
Memory Tip
Think 'commitment ceremony' - just like marriage vows, a loan commitment is the lender's formal vow to give you money.
Why It Matters
Having a loan commitment gives buyers confidence when making offers and shows sellers that the buyer is financially qualified to complete the purchase. It also locks in specific loan terms, protecting the borrower from potential rate increases during the home buying process.
Common Misconception
Many people think a loan commitment guarantees final approval, but the lender can still withdraw the commitment if conditions aren't met or if the borrower's financial situation changes significantly.
In Practice
After reviewing a buyer's application and documentation, the lender issues a loan commitment letter that the buyer can present with their home purchase offer. The commitment typically includes conditions like a satisfactory home appraisal and final employment verification before closing.
Etymology
From Latin 'committere' meaning 'to entrust' or 'to pledge,' reflecting the lender's formal promise to entrust money to the borrower.
Common Misspellings
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