Commitment

### What is the primary purpose of a loan commitment in real estate? - [x] To assure both parties that financing will be provided under specific conditions - [ ] To provide a preliminary estimate of loan eligibility - [ ] To finalize the sale agreement between buyer and seller - [ ] To issue tax-deductible interest statements > **Explanation:** A loan commitment assures both parties involved in the transaction that financing will be provided under specific conditions, enabling them to proceed confidently towards closing. ### What is usually required alongside a loan commitment? - [ ] Commitment to never change jobs - [ ] A notarized personal guarantee - [x] Conditions such as property appraisal and verification of income - [ ] A pledge not to enter additional financial agreements > **Explanation:** A loan commitment typically includes conditions such as satisfactory property appraisal and verification of income, ensuring all requirements are met before finalizing the loan. ### Which statement about loan commitment revocation is true? - [ ] A loan commitment cannot be revoked under any circumstances. - [x] A loan commitment can be revoked if the borrower fails to meet specified conditions. - [ ] The seller has the right to revoke the buyer’s loan commitment. - [ ] Loan commitment revocation is prohibited once initially granted. > **Explanation:** A loan commitment can be revoked if the borrower fails to meet the specified conditions such as changes in financial situation or issues uncovered during the appraisal. ### Which term refers to the evaluation that determines loan eligibility before the full application process? - [x] Pre-Approval - [ ] Closing - [ ] Underwriting - [ ] Appraisal > **Explanation:** Pre-Approval refers to the process of evaluating payment capability, which typically requires an in-depth review of financial documentation and credit history before the official loan application and commitm ### What aspect predominantly characterizes a firm loan commitment? - [ ] The possibility of changing terms and conditions - [x] Final approval with no further conditions beyond standard closing requirements - [ ] A conditional property inspection - [ ] Preliminary eligibility estimation > **Explanation:** A firm loan commitment indicates final approval with no further conditions beyond standard closing requirements, effectively making it a binding agreement. ### Which party typically offers a commitment to lend money for purchasing real estate? - [x] Lending institutions such as banks or credit unions - [ ] Real estate agents - [ ] Property management companies - [ ] Local municipalities > **Explanation:** Lending institutions such as banks or credit unions typically provide the loan commitment to ensure borrowers of financing under specified terms for purchasing real estate. ### What does the term "underwriting" refer to in the loan commitment process? - [ ] Issuing tax-exempt status certificates for mortgage interest - [ ] Conducting property inspections and local regulation compliance - [x] Evaluating the risk and creditworthiness of a borrower - [ ] Ensuring loan conditions follow urban planning guidelines > **Explanation:** Underwriting is the process where a lender evaluates the risk, creditworthiness, and ability of the borrower to repay the loan as part of the commitment process. ### What does a "conditional loan commitment" usually depend on? - [ ] Immediate funding promise within one business day - [ ] No changes in the interest rate post-issue - [x] Meeting specified requirements such as income verification or property conditions - [ ] Unlimited lending flexibility depending on borrower preference > **Explanation:** A conditional loan commitment depends on the borrower meeting specified requirements like income verification or property conditions, ensuring all criteria are satisfactorily met before final funding. ### How does a mortgage differ from a loan commitment? - [ ] Mortgages cannot include property liens under any circumstances. - [ ] Loan commitments are only applicable for commercial properties. - [ ] Mortgages involve only verbal agreements, whereas commitments are written. - [x] Mortgages are the actual loans provided, while commitments are promises to fund under certain terms. > **Explanation:** Mortgages are the actual loans that are provided, whereas loan commitments serve as promises to fund the loan under predetermined terms once specified conditions are met. ### Which factor is primarily verified during the appraisal step in the loan commitment process? - [ ] Annual tax relief amount - [ ] Property owner's decorating decisions - [x] Fair market value of the property - [ ] Neighborhood social norms and practices > **Explanation:** During the appraisal step in the loan commitment process, the fair market value of the property is verified to ensure it meets or exceeds the purchase price and secures the loan value.