What is a letter of commitment in real estate transactions?

A letter of commitment in real estate transactions is specifically a document that outlines the loan terms provided by a lender to a borrower. This letter is significant because it serves as a formal approval of the loan application, detailing important elements such as the loan amount, interest rates, and repayment terms.

This document is reassuring for both parties involved; to the borrower, it indicates that they have secured financing necessary for the property purchase, and to the seller, it reflects the borrower's financial readiness to complete the transaction. It typically follows an initial mortgage pre-approval and may contain contingencies that must be satisfied before the final loan agreement is executed.

Understanding this concept is crucial for real estate professionals, as it directly impacts the transaction process and the ability of buyers to finalize their purchases.