Definition of "What is a commitment letter?"

Joe Mason real estate agent

Written by

Joe Masonelite badge icon

RE MAX Harbor Realty

The definition of a commitment letter or letter of commitment in real estate is a letter whose purpose is to inform a loan applicant that their application has been processed and their funds are available for withdrawal. The letter also details the terms and conditions which the applicant must agree to in order to withdraw the loan. If the terms and conditions are not agreed to by the applicant, the loan will be denied or revoked. 

The letter of commitment continues by specifying the address of both the applicant and the lender. While a letter of commitment isn’t the same as the loan contract, it does serve to specify all the details of the actual contract, so as to avoid any complications due to either party being uninformed. 

The letter of commitment should also specify the amount requested by the borrower, as well as the amount granted by the lender in the final loan contract. After the terms laid out in the commitment letter have been agreed to, the funds may be accessed by the borrower. 

What is the purpose of a commitment letter?  

A letter of commitment has several purposes, but its primary purpose is to serve as proof of intent for the borrower. With a letter of intent, a home buyer can demonstrate to a seller that they are in fact serious about buying the property, giving the seller peace of mind and security. 

Not only does a commitment letter serve as proof of intent, it also shows that the buyer has a line of credit with which to purchase the property. As a home sale can be a long and drawn out process, the best way to prove a line of credit besides having cash in hand is a letter of commitment.

Comments for What Is A Commitment Letter?

Glenn Glenn said:

An Ohio Broker would like to present recruited agents with a commitment letter. Is there a template for this type of letter. I am not asking for a legal binding contract, simply a professional understanding.

Aug 21, 2018  16:08:25

Real Estate Agent

Hey, Glenn

We believe the commitment letter in your case is different from the one we showcase here. It's more of a letter of intent saying "if such and such is met, the firm would like to count on your services" type of deal; right?

We're not aware of templates for that kind of commitment letter and we're not even sure it would be a nice idea to have a generic one, because all brokerage firms have their very own specificities, don't you agree? Just think of what needs to be locked into your agreement (on your part and on the real estate agents part) and what is expected from both of them and of you within this relationship and try to sound elegant and professional and the least wordy you can. Go straight to the point; don't give too much information.  It's face to face or over the telephone where you two should really go over any real decisions. Good luck!

Aug 21, 2018  17:20:59
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