Financing Commitment

The commitment or approval letter is the most important document a borrower receives from the lender prior to closing. It informs the borrowers that the loan application has been approved and that the bank or mortgage company has committed itself to lending the requested funds. However, this obligation is often condition upon certain requirements that must be met before oat the time of closing. Some of the typical requirements are:

  • Explanation of any unfavorable item in a credit report
  • Verification of the borrower’s employment
  • Homeowner’s insurance
  • Inspections of the property
  • Appraisal
  • Proof of necessary cash funds to close the transaction

The commitment also sets forth the basic terms of the loan and the associated loan fees to be chafed by the lender. The lender may require that the borrower sign and return a copy of the commitment of approval letter within a specified period in order for the loan commitment to be binding.

Since most purchase contracts are contingent upon the buyers’ obtaining financing by a specific date, it is essential that the attorney be informed as soon as the commitment is received. At that point, the contract becomes unconditional, and all parties and their attorneys can begin the necessary preparations for the closing. Of course, the attorney should be notified immediately if the lender declines or rejects the loan, since this can affect the buyers’ liability under the purchase and sale contract.