Commitment
Definition and meaning of Commitment in real estate.
A commitment is a binding pledge by a lender to provide a mortgage loan to a borrower under specified terms, conditions, and timeframes.
In more detail
This agreement represents a formal approval stage in the mortgage process, occurring after a thorough review of the borrower's credit, income, and assets, as well as a property appraisal. The commitment specifies key loan terms such as the interest rate, loan amount, and monthly payment structure.
It also outlines remaining conditions that must be met before funds are disbursed, such as verifying employment or resolving title issues. Borrowers should pay close attention to the expiration date of the commitment, as the lender is not obligated to honor the terms if the loan does not close within the specified period.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Issued By | The mortgage underwriter on behalf of the lender |
| Binding Nature | Legally binding on the lender, subject to the buyer meeting all conditions |
| Expiration | Typically valid for a specified window, such as 30 to 60 days |
After reviewing the appraisal report and verifying the buyer's financial documents, the bank issued a formal commitment to fund the mortgage.
Frequently asked questions
What is the difference between a pre-approval and a loan commitment?
A pre-approval is an initial estimate of borrowing power based on basic checks, while a commitment is a formal, underwriter-approved pledge to lend funds.
Can a lender back out of a loan commitment?
Yes, a lender can cancel a commitment if the borrower's financial situation changes significantly, if they lose their job, or if fraud is discovered.
Related terms
Sources & references
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