Loan Commitment

Loan Commitment: What the Market Actually Requires

Not every capital source issues a true commitment. Banks and life insurance companies do; their commitment letters follow credit approval and, in the life company world, often come with an early rate lock that is among the most valuable features in the market. Agency loans move through their own commitment process tied to rate lock and delivery. CMBS is the outlier: many conduit lenders never issue a binding commitment at all, keeping terms adjustable until rate lock at or near closing, which is why CMBS borrowers carry market risk longer than they expect. Debt funds sit in between, with commitment practices that vary shop to shop.

The document deserves a closer read than most borrowers give it. The operative content is the conditions precedent: satisfactory appraisal, environmental, and engineering reports, clean title and survey, estoppels and SNDAs from specified tenants, organizational documents, insurance meeting the lender's specifications, and no material adverse change in the property, the borrower, or, in some drafts, the market. Each condition is a door the lender can exit through, so the negotiation goal is specificity: defined value thresholds instead of 'satisfactory to lender,' a stated list of required estoppels, and an insurance schedule agreed before closing week.

Commitments also cost money and expire. Expect a commitment fee or good-faith deposit, frequently 0.5% to 1% of the loan amount and sometimes refundable at closing, plus an expiration date 60 to 90 days out with priced extensions. The classic borrower mistakes are treating the commitment as a formality and not diligencing the conditions, and letting the expiration date drift past the purchase contract's closing date, which converts a paperwork gap into a renegotiation.

Why It Matters for Your Loan

The commitment is the moment financing risk actually transfers; until it is signed, everything is a proposal. What it is worth depends entirely on its conditions: a commitment with vague 'satisfactory to lender' outs is barely stronger than a term sheet, while one with defined thresholds is bankable certainty you can take to a seller. Matching the commitment's expiration to your contract deadlines, and knowing which capital sources issue real commitments at all, determines whether you close on schedule or pay for extensions.