Commitment Letter

COMMITMENT LETTER 11

Massachusetts buyers need to thoroughly understand the importance of the loan commitment date when purchasing a home and how failing to do so may result in the loss of their deposits.

The failure of a buyer to receive a clean loan committed letter, extend the loan commitment deadline, or terminate the contract with the seller before the loan commitment deadline passes puts them in jeopardy of losing deposits made at the time the Offer to Purchase and Purchase and Sale agreement were signed.

WHAT IS THE LOAN COMMITMENT DATE OR DEADLINE? The loan commitment date is the day in the purchase and sale agreement that a buyer's lender (bank, credit union, or mortgage company) must provide a written commitment to the borrower that it will provide the financing for a specific property. The date is usually between 21 and 35 days after the parties have signed an Offer to Purchase contract. It is part of the mortgage contingency clause that is typically in an Offer to Purchase real estate and is carried over and made part of the Purchase and Sale agreement. The mortgage contingency will also have a loan application deadline, which is specific language that stats the buyer has to formally apply for a mortgage loan within a certain amount of time from the date of the accepted offer.

If a lender cannot provide a borrower with a commitment letter by the loan commitment deadline specified in the Purchase and Sale agreement, the buyer has two options: (1) as for and obtain a written extension, or (2) terminate the contract with the seller in order to protect their deposits.

It is important to stay in close contact with your lender and your attorney in the days leading up to the loan commitment date. An extension should be obtained as soon as possible. If it appears your lender will need more time to provide a commitment letter, many real estate lawyers will include language in their extension request that indicates the buyer is terminating the contract in the event the seller doesn't agree to the extension.

In the event that the lender determines the borrower does not qualify for the necessary home loan, the buyer must terminate the agreement before the loan commitment deadline. The seller may request a copy of the denial from the lender; however, the language in the Purchase and Sale agreement may or may not require that the buyer provide the seller with such documentation.