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Loan Commitment Letter
A loan commitment letter is a document originated from a lender to inform an applicant that they are offering him a loan after assessing the application with their underwriting protocols.
It serves as a notification of approval and should also mention the basic terms of the prospective loan.
Intricate details of the facility would be explained to the borrower at a later stage of the acceptance process.
This is a different document from a pre-qualification or pre-approval letter as it represents a confirmation of a loan offer on the table after credit screening processes have been done, and approval has been granted.
In this loan commitment letter, the lender is basically making a mortgage commitment to finance a property, whether its a purchase or refinance.
And the offer would be valid until an expiry date indicated on the letter.
Some other information found in the document would include:
- Commitment date
- Expiration date
- Date of first payment
- Legal name of lender
- Loan reference number
- Legal name(s) of borrower(s)
- Property address
- Loan amount
- Interest rate
- Mortgage term
At times, it might also include conditions that must be met in order for the offer on the table be valid.
If the borrower satisfies any conditions stipulated and accepts the offer expressed in the letter, then the lender proceeds to prepare the legal documentation to close the mortgage.
This is also when the loan account will be opened and the facility properly tagged to the borrower in the lender’s system.
Once the paperwork has been legally executed by a lawyer and the title passes, the process of the disbursement of funds will proceed.
Sometimes a standby fee can be charged by the lender for their work when the deal does not close.