Firm Commitment
Definition and meaning of Firm Commitment in real estate.
A firm commitment is a lender's formal, binding agreement to provide a specific mortgage loan to a borrower under defined terms and conditions. It represents the final stage of the loan approval process, occurring after a full underwriting review of both the borrower and the property.
In more detail
This commitment goes beyond a pre-approval because it means the lender has verified all financial information and completed the property appraisal. It typically contains specific conditions that must be met before funding, such as verifying that the borrower's employment status has not changed. For home buyers, obtaining this agreement is a crucial milestone that allows them to proceed to closing with confidence.
Sellers also favor buyers who hold a firm commitment, as it significantly reduces the risk of the transaction falling through due to financing issues.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Commitment letter or final loan approval |
| Who issues | The mortgage lender |
| Typical expiration | Typically 30 to 60 days |
A buyer receives a letter from their bank stating that their mortgage application is fully approved for a loan up to a specific amount, subject only to a final title search and a verification of employment before closing.
Frequently asked questions
What is the difference between a pre-approval and a firm commitment?
A pre-approval is a preliminary estimate of what you can borrow based on basic financial checks. A firm commitment is a binding offer to lend money after the lender has fully underwritten your file and appraised the property.
Can a lender back out of a firm commitment?
Yes, a lender can cancel the commitment if there is a major change in your financial situation, such as losing your job, taking on new debt, or if fraud is discovered.