Definition
Loan Commitment
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A loan commitment is a formal written promise delivered by a lender to a borrower for a specified amount of credit or loan for a specified period of time.
In terms of mortgages, the loan commitment promised by a bank comes in the form of the letter of offer.
This facility letter would contain all the key details about the home loan.
With the offer of the loan commitment, a lender essentially implies that the borrower has met all the necessary credit assessment criteria, and the loan is offered because of this.
Which this loan commitment letter generated by a lender, borrowers can use the document as proof that financing is ready for a real estate transaction to take place.
This can be a critical factor when home sellers want to know whether a potential buyer really has the means to purchase the property.
At the point of closing, the loan commitment letter is an essential piece of document for it to proceed properly.
Loan commitments don’t always come in the form of a lump sum term loan.
Sometimes they can be open ended somewhat like a HELOC where the borrower can draw funds from indefinitely as long as the terms of the facility are adhered to.
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