What Is a Loan Commitment? (Video Transcription)
Hi everyone, my name is George Belleville. I’m a realtor in Maryland, and this is a quick video to explain what a loan commitment is. It’s one of those minute details in the contract that most people don’t talk about until they’re in a contract. So I want to explain it upfront so you know what that is.
Explanation of Loan Commitment:
- When you’re buying a house, you get pre-qualified and pre-approved. Pre-approval means the lender has received and reviewed all your documentation, verified it, and everything is ready to go. Additionally, when you’re under contract, the lender analyzes the house and does the appraisal.
- Once you’re completely approved and the appraisal is back, and the house is quote-unquote approved, the lender will issue what’s called the commitment letter. It used to be a signed letter by a bank officer, but now it’s typically a computer printout.
- The commitment letter states that, other than a few required items for the closing, the buyer is completely ready to go, and so is the house. This is crucial because the contract of sale is contingent on receiving a loan commitment letter by a certain date. If you don’t provide it by that date, the seller can terminate the contract.
- It’s important to understand this and ensure you give yourself enough time to accomplish it when writing the contract. However, don’t give too much time that it makes the listing agent concerned about your readiness.
Conclusion:
- Once you’re approved, the house is approved, and you get the commitment letter, you send it over to the seller. So that’s what a commitment letter is. If you have any questions, let me know. Have a great day.