Question 1

What is a loan commitment in Florida real estate?

Accepted Answer

A loan commitment is a written document from a lender stating that the lender has approved a loan for a specific borrower, for a specific property, at specific terms. The commitment typically specifies: the loan amount, the interest rate, the loan term, the loan type (fixed-rate, adjustable-rate, FHA, VA, conventional), the conditions that must be satisfied before the loan closes (appraisal, title insurance, insurance, employment verification), and the commitment’s expiration date. A loan commitment is: more than a pre-approval (which is based on preliminary information), less than a closed loan (the borrower must still satisfy the conditions), and an indication of the lender’s intent to fund the loan if conditions are met.

Question 2

What types of loan commitments exist in Florida?

Accepted Answer

Types: conditional commitment (the lender will fund the loan if specified conditions are met; this is the most common type and includes conditions such as: satisfactory appraisal, clear title, verification of employment and income, and no material change in the borrower’s financial condition), unconditional commitment (the lender will fund the loan without further conditions; this is rare and typically issued only after all conditions have been satisfied), and lock-in commitment (the lender commits to a specific interest rate for a specified period, typically 30-90 days; the borrower is protected against rate increases during the lock period). The commitment letter should clearly state whether the commitment is conditional or unconditional.

Question 3

What happens if a Florida lender fails to honor a loan commitment?

Accepted Answer

Lender’s failure: if the lender fails to fund the loan after issuing a commitment (and all conditions have been satisfied), the borrower may have a claim for: breach of contract (the commitment letter is a contract; the lender’s failure to fund is a breach), consequential damages (the borrower may lose the property, incur additional costs, or miss investment opportunities), and in some cases, specific performance (a court order requiring the lender to fund the loan). However, most commitment letters include: conditions precedent (the lender’s obligation is contingent on satisfaction of all conditions), escape clauses (the lender can withdraw the commitment if material adverse changes occur), and expiration dates (the commitment expires if not exercised within the specified period). The borrower should carefully review the commitment letter to understand the lender’s obligations and limitations.

Loan Commitment

Loan Commitments in Florida Real Estate

What It Includes

Types

Lender Failure

Related Terms

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