When would an individual use an LOI?
A very common situation in which a regular person would use an LOI is a home purchase. Upon securing a mortgage preapproval and identifying a property you’d like to buy, you might be asked by your mortgage lender to write an LOI outlining your intent to purchase.
This formally sets in motion the mortgage approval process and acts as a starting point for the lender to begin its due diligence on the property. In this context, the LOI might include the address of the new property, the amount you intend to finance, and the names of all borrowers requesting the loan.
The terms of the loan might vary over time, depending on the borrower’s overall financial picture, as well as their willingness to take on certain types of mortgage debt. But the general provisions of the letter will be the same, i.e., the address of the new property and the people borrowing money.
Note, again, that the LOI is not a binding document and does not obligate the writer to purchase the property; instead, the LOI should be seen as a formality to properly start off the actual borrowing process. Ultimately, the property will trade when there is a signed contract between buyer and seller, and the mortgage company has agreed, in full, to lend money to the borrower (if applicable).
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