What Is A Commitment Letter?
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.
Popular Real Estate Questions
Popular Real Estate Glossary Terms
Flood insurance is a type of home insurance created to protect a homeowner’s property against damages caused by floods. Flood insurance is typically not included in the regular ...
Same as term plat book: Listing of all of the plats of subdivided plots in a jurisdiction showing the location, boundaries, and plat owners. A plat book normally shows other improvements ...
Limitation or prohibition such as on what a tenant in an apartment may not do. Local laws may also restrict certain actions such as failing to use the property for gambling purposes. ...
In real estate, a buffer zone refers to an area of land that acts as a transitional space between two different types of land use or properties. It’s like a neutral ground that ...
An iron pipe, stone, tree, or other fixed point used in making a survey. ...
A triangular shaped end of a building where a double sloped roof meets at the top of the triangle. A gable begins at the eaves of a roof and terminates at the roof ridge. ...
The real estate arbitration definition is an alternative way to settle disputes when the parties involved want to avoid a trial. There are some significant differences between an ...
A fixed asset whose utility is derived from its physical attachment to a property and which usually cannot value or damage. A fixture, under the terms of a lease or other agreement, can be ...
Nineteenth-century style home architecture featuring three dimensional ornamentation, made by hand using a chisel and gouge. ...
Comments for What Is A Commitment Letter?
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 16:08:25Hey, Glenn
Aug 21, 2018 17:20:59We 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!
Have a question or comment?
We're here to help.