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Buying a home can be pretty exciting. And while getting approved for a mortgage loan may rank lower on the excitement scale, it’s an essential step to purchasing a home.
You’ll need to satisfy many of these steps with a loan officer before your mortgage application is approved and a lender declares you are clear to close (or CTC). Clear to close gets you closer to the finish line, but you haven’t quite crossed it yet.
We’ll explore what “clear to close” means and, most importantly, help you avoid putting your mortgage approval at risk during the underwriting process.
What Does Clear To Close Mean?
“Clear to close,” a term commonly used during the underwriting process of a home loan, means an underwriter has approved your paperwork and concluded that you have the income and creditworthiness required for loan approval.
At this point, your lender will change the loan’s status to clear to close and schedule a closing date with the title company. You can breathe a little easier after receiving a clear to close letter because it confirms two things: You’re approved to close on your home – and the end is in sight.
What Are the Steps to Achieving Clear To Close?
The steps you’ll take to be deemed clear to close are the lengthiest part of the home buying process.
To keep things running smoothly, you should hold off on any big changes in your life. Don’t quit your job. Don’t open new credit cards. And please try not to apply for any other loans. Keep your focus on getting approved for the mortgage. Your top priority at this point should be to comply with your lender’s requirements.
Provide closing documents
Your loan officer will request several documents for final approval, including bank statements and W-2s. And they will request access to your credit report to determine your debt-to-income (DTI) ratio.
Stay organized by filing your financial documents in a digital or paper file. Keep the file up to date as you move through the underwriting process. Your loan officer may request new or updated paperwork at any time.
Get your home appraised
While the lender is reviewing your finances, they’ll require a professional appraisal of the home you’re buying. If the home’s value is less than the amount you want to borrow, you may need to renegotiate the sale price with the seller or make a larger down payment.
Get approved by underwriting
Your loan officer will hand over your paperwork to the underwriters. The underwriters will thoroughly inspect your paperwork and finances, including your assets, credit history and DTI. Their top priority is to confirm you can afford the home and cover the monthly mortgage payments.
Underwriting may also include additional conditions you’ll need to satisfy to reach clear to close status, such as:
- Producing copies of the signed purchase agreement
- Providing details about large deposits into your bank account
- Clarifying anything unusual in your finances
- Submitting a gift letter(s) if some or all of the down payment is a gift from friends or family
Once you’ve cleared underwriting, the lender will schedule the closing date.
How Much Longer Till Close?
You’ll generally hit the clear to close milestone 3 days before you can close on the home. Legally, lenders must send borrowers a Closing Disclosure at least 3 business days before the closing date to give them enough time to review the closing documents before signing. This is commonly known as the clear to close 3-day rule.
How long does it take to close?
Because your lender must give you 3 days to review and sign your Closing Disclosure, you can expect at least a 3-day buffer between being cleared to close and the scheduled closing date.
By the way, you should keep paying your bills on time and resist opening new lines of credit until the keys to your new home are securely in your hand. The lender can check your credit and employment status after you’re cleared to close, so it’s best to play it safe.
It typically takes about 40 – 60 days to close on a house, from application to closing.
What Happens After You’re Cleared To Close?
After you get the green light from your lender and are cleared to close, a few final steps are all that will stand between you and your new home.
- Closing Disclosure: A Closing Disclosure is a 5-page document that outlines the details of your mortgage, including fees, interest rate, taxes, insurance, closing costs and other expenses. Be sure to give the form a close read. Make sure you don’t have questions about anything in the disclosure before you sign and return it to your lender.
- Final walkthrough: The final walkthrough is an opportunity to confirm the home is in the condition you and the seller agreed on. If anything is amiss, this is your chance to voice any issues.
- Closing day: It’s the day you’ll seal the deal. The title company, loan officer, buyer and seller finalize all the paperwork on closing day. You should clear your schedule because paying closing costs and signing all the final mortgage documents could take several hours.
Can a Loan Be Denied After Clear To Close?
If your loan is denied at any point, the lender must send you a disclosure letter explaining why. Hopefully, you can address their concerns and get your loan back on track. But it could also be the case that you’ll need to hit “pause” on home shopping and concentrate on improving your financial situation and addressing any other issues before applying for a mortgage again.
Unfortunately, some borrowers make the mistake of thinking clear to close means the deal is done. It’s true, loans are rarely denied after clear to close – but it’s possible. Your lender may verify your employment status and credit one last time before closing. If any red flags pop up, it may cause the lender to delay closing until the issue(s) is resolved.
Can you delay closing as a buyer?
Even after clear to close is reached, there are times when you can delay closing. Let’s say the seller agreed to make repairs before closing. But during your final walkthrough, you see the repairs weren’t completed. In this case, you can push back the closing date until the repairs are made.
When you schedule your closing at the end of the month, you pay less in mortgage interest, which could amount to hundreds or even thousands of dollars in savings.
A mortgage commitment letter verifies that you’ve satisfied the underwriting process for the mortgage, and the lender is committed to providing the funds. But there may be other conditions you’ll need to satisfy before you’re declared clear to close.
The lender will request documents, including up-to-date bank statements, tax returns, pay stubs and a copy of your signed purchase agreement. They may ask about any large deposits to your bank accounts. Make sure to have your paperwork ready if you receive any gifts or down payment assistance.
You can close on your new home 3 days after you are cleared to close.
Close Is Around the Corner
Clear to close is a sought-after marker on everyone’s journey to homeownership. When you see it, you know closing is just around the corner. To achieve that milestone as soon as you can – and hopefully with fewer headaches – organize your paperwork, keep your finances in check and keep your eyes on the clear to close prize.
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The Short Version
- “Clear to close,” a term commonly used during the underwriting process of a home loan, means an underwriter has approved your paperwork
- There are a few steps you’ll take as a home buyer to get to clear to close
- A loan can still be denied even after reaching clear to close