In real estate, a firm commitment is the irrevocable promise by a bank or any lending institution to grant a mortgage or a home loan to a buyer for a specified amount, which is usually fixed. However, the amount can also be a percentage of the appraised value of a property.
In the secondary mortgage market, it is an agreement entered by a lender when it sells a loan to a buyer in a specific time period. Prominent buyers in this type of market, such as Freddie Mac and Fannie Mae, usually purchase loans with a 2 to 4-month forward delivery.
Terms in a Firm Commitment
Typically, a firm commitment specifies the term, interest rate, and collateral. In commercial real estate, those who apply for a mortgage or a loan will see the firm commitment including legal fees and other related expenses.
The letter that contains a firm commitment also has an end-date within which you should pay the loan. If you fail to pay within the stipulated period, the lender’s offer will expires, and you could even be charged for the cancellation. Nonetheless, you can still take a loan out, though you will be required to re-apply, and the interest rate would be different.