Loan Commitment Letter: The Second Financing Checkpoint

One of the main hurdles in a contract is financing.  This is why their are two points at which sellers ask for verification from the buyers that things are moving forward.  Most people are familiar with the first, a pre-approval letter.  Buyers are often encouraged to get a pre-approval letter before looking for houses and most sellers require to see the letter before considering an offer.

Sellers and buyers are often not familiar with the second "checkpoint" that is built into the contract.  This is called the Loan Commitment Letter.  

The pre-approval letter is the bank communicating that they have reviewed the buyers information and believe they will be able to get a loan.  The loan commitment letter will generally come around 30 days after ratification.  This letter usually comes after the underwriters have reviewed the buyer and house in more depth. 

It is best practice to make sure you have the loan commitment not contingent upon the appraisal. There will always be contingencies to the loan commitment but a letter contingent upon an appraisal means that it the report hasn't been turned in yet, the underwriter flagged items on the report, or the underwriter hasn't reviewed it.