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WHAT IS A MORTGAGE COMMITMENT?
After a borrower has been approved for a mortgage, the lender will send the borrower a letter of commitment, indicating the terms and conditions of the loan. The commitment will set out, among other things, the terms of the mortgage, as well as covenants and representations, and warranties of the parties. The commitment may also list conditions that must be satisfied prior to the release of funds by the lender. Examples of conditions the lender may require prior to releasing mortgage funds include, acquiring an appraisal, proof of fire protection insurance, obtainment of title insurance, satisfactory title, and proof that the borrower can pay the closing costs and down payment, if any. Once the borrower and the lender sign the commitment letter, it becomes a binding agreement between the lender and the borrower. If the borrower does not sign the letter of commitment prior to the deadline set out in the letter of commitment, the lender may interpret this as the borrower not being serious about the transaction and rescind their approval. Other requirements of the letter of commitment may preclude the borrower from incurring any major changes in their credit prior to the closing. It is important for the borrower to carefully review the commitment letter from the lender to ensure the borrower is aware of any deadlines and actions required by the lender prior to releasing the mortgage funds to the borrower.
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Disclaimer: The information contained in this article is not to be construed as legal advice. The content is drafted and published only for the purpose of providing the public with general information regarding various real estate and business law topics. For legal advice, please contact us.
About the Author:
Shahriar Jahanshahi is the founder and principal lawyer at Jahanshahi Law Firm with a practice focus on representing business star-ups and investors in the province of Ontario. For further information about Shahriar Jahanshahi, click here.
