Legal Definitions - mortgage commitment

A mortgage commitment is a formal, written promise from a lender (such as a bank or credit union) to a borrower, outlining the specific conditions under which the lender will provide a loan to purchase a particular piece of real estate. This document details key terms like the loan amount, interest rate, repayment schedule, and any specific requirements the borrower must fulfill before the loan is finalized. Importantly, a mortgage commitment typically includes an expiration date, meaning the offer is only valid for a defined period.

Here are a few examples to illustrate this concept:

• Example 1: First-Time Homebuyer

  After applying for a home loan, a young couple, Sarah and Tom, receive a document from their bank. This document states that the bank agrees to lend them $380,000 at a fixed interest rate of 4.2% for 30 years to purchase the house at 123 Oak Avenue. It also specifies that the loan is contingent upon a satisfactory appraisal and that the closing must occur within 60 days. This document is their mortgage commitment, as it's the bank's written promise to provide the loan under these specific terms for that particular property, with a clear time limit.

• Example 2: Real Estate Investor

  Mr. Henderson, a real estate investor, is looking to acquire a small apartment building. After submitting his financial information and the property details, his commercial lender sends him a letter. This letter confirms the lender's intent to provide a $1.5 million loan for the property located at 456 Maple Street, with a variable interest rate tied to the prime rate. It also stipulates that Mr. Henderson must provide proof of adequate rental income projections before the final funding. The commitment letter states this offer is valid for 90 days. This serves as a mortgage commitment because it's a formal agreement from the lender to finance a specific property for Mr. Henderson, detailing the financial terms and conditions, along with an expiration date.

• Example 3: Conditional Loan for a New Construction

  Maria is building a custom home and needs financing for the completed property. Her bank issues a document promising to lend her $750,000 at a 4.8% fixed interest rate, but only once the construction is fully completed and a certificate of occupancy has been issued by the local municipality. The commitment also states that the loan must be drawn within 18 months of the commitment date. This is a mortgage commitment because it's the bank's written pledge to provide a loan for Maria's specific new home, clearly outlining the loan amount, interest rate, and crucial conditions that must be met before the funds are disbursed, all within a defined timeframe.