Mortgage Commitement Letters - For Buyers Only

Many versions of Mortgage Commitment Letters exist within the commercial mortgage market. This document provides written proof that the lender is willing to loan a specific sum, by way of a set mortgage amount, which allows the Buyer to complete the purchase of the property. They can be ‘conditional’ or ‘non-conditional’, but in most instances they are conditional - meaning the Buyer (or mortgagor) must meet certain conditions in order to qualify for the advance of funds.

Typically it should contain much of the following:

·        Mortgagor Details – Name, address, postal, email coordinates

·        Collateral – Description of the property type and location

·        Interest Rate – Fixed or Variable

·        Term – Set for a specific period

·        Amortization – Time period for 100% payback

·        Title Insurance – possible requirement

·        Survey – possible requirement

·        Guarantor Requirements – corporate/personal

·        Prepayment Options – if any (NB: if not included, mortgage is closed)

·        Expenses – All costs to lender, including legal,registration, and admin.

·        Secondary Financing – may not be permitted and excluded specifically

·        Expiration Date – time period by which MCL is executed & mortgage finalized

Specifically in the case of a conditional MCL, it  may include the following:

·        Satisfactory Environmental Report(s)

·        Full Appraisal Report (supportive of the value)

·        Structural/Physical Building Report (indicating no deficiencies)

·        Financial Reports – either corporate or personal as necessary

·        Credit Reports – to the satisfaction of the lender

Again, be aware that any conditions contained in the MCL must be met before the commitment is set and binding. As always, the DEVIL IS IN THE DETAILS, so make sure you understand the requirements as they are contained within the letter to ensure your funding is in place come closing date.

As a final note, it is always a good idea to review a MCL with your lawyer upon receipt, and especially given the fact that much of it affects their task in closing the transaction.