What Does Clear to Close Mean, And How Much Longer Before I’m a Homeowner?

Mortgage commitment letter vs. clear to close

It’s easy to confuse a “mortgage commitment letter” with being “clear to close,” but there’s a key difference between these two significant milestones in your homebuying journey.

• Mortgage Commitment Letter: This document is typically issued earlier in the process, often after you’ve completed pre-approval and initial underwriting reviews. It states that your lender is generally willing to lend you the money, but it usually comes with a list of conditions or contingencies you still need to meet (like a satisfactory appraisal or title search). Think of it as a “conditional yes.”
• Clear to Close (CTC): This is the definitive “yes!”. It means you’ve successfully met
  all the requirements and conditions outlined by your lender. All documents have been inspected, verifications completed, and your loan is fully approved and ready for funding. This green light signals that your lender is preparing for the closing day.

What happens before the clear to close?

According to ICE Mortgage Technology, the average closing takes about 42 days from start to finish. This, of course, depends on a few variables, such as getting preapproved for a mortgage or whether you’re taking out an FHA or a VA loan, which may take a bit longer. (We aren’t even counting all of the possible delays that can push back the closing date!)

During those weeks prior to getting the green light and being clear to close, there are quite a few things that need to happen first.

1. The seller accepts your offer to purchase

The very first step that must take place before a loan officer can submit your application for processing is that the seller must accept your offer.

Once the offer has been accepted, your real estate agent will draw up a purchase agreement.

A purchase agreement will break down various aspects of the contract, including:

• Who the buyer and seller are
• The condition and a description of the property
• Any and all conditions and contingencies of the loan
• Obligations and rights of the buyer and the seller
• Items included or excluded in the sale
• The amount of earnest money put down
• Itemized list of closing costs and who is responsible for what
• Closing date
• When you’ll get the keys to the property (also known as terms of possession)
• Signatures of the buyer and seller

Note: The closing process will officially begin when the seller signs the agreement.

2. Order a home inspection and appraisal

The next task on the list is to get a home inspection and an appraisal of the home. The home inspection isn’t necessarily a must-have when applying for a mortgage, as it’s typically done at the discretion of a buyer, but it will help to negotiate if there are any repairs that need to be made.

During a home inspection, a third-party, licensed home inspector will come to the house and will look at every aspect of the house. This will include the electrical system, HVAC system, structural components, and appliances. You’ll need to hire a specialized inspector to find potential hidden issues, such as lead paint, mold, radon, and termite damage.

The home appraisal is a necessary component of the homebuying process when you use a mortgage. An appraisal is required by mortgage lenders, because it prevents you and the lender from paying more than the house is worth. In the event the property is worth more than the asking price, it’s your lucky day because you aren’t required to tell the seller the appraiser’s assessment. As long as the purchase agreement has been signed by both parties, the seller cannot raise the asking price.

Note: You, the buyer, are responsible for paying the fees for the inspection and appraiser, usually out-of-pocket. The average cost of a home inspection can range from $300 to $500. Larger homes can cost $600 and up! Home appraisals can cost the same amount as an inspection. Keep in mind that the actual cost will depend on your location and the size of the house. 

3. Underwriter reviews the loan

Now that the appraisal and inspection are completed, the loan officer will submit a completed file to the underwriter to review. The underwriter will scour the entire file to make sure everything is correct.

This includes a look at an updated credit score, final verification of employment, and checking to ensure the title is clear. Should the underwriter have any questions, they may ask for additional documentation before the loan is approved.

Once the underwriter has completed their review and conditionally approves the loan, the buyer will get a list of outstanding conditions that must be met before they can get a “clear to close” notification.

Potential roadblocks even after clear to close (and how to steer clear)

While “clear to close” brings immense relief, it’s wise to remain vigilant until the ink is dry at the closing table. Though rare, a loan can still be denied even after receiving CTC. These rejections are almost always due to drastic, last-minute changes in your financial situation that raise red flags for your lender.

To ensure a smooth path to homeownership, avoid these common pitfalls:

• Don’t change jobs: A significant change in employment or income can cause your lender to re-evaluate your loan.
• Don’t take out new loans or credit: Opening new credit cards, financing a car, or taking on any new debt can negatively impact your debt-to-income ratio (DTI) and credit score, jeopardizing your approval.
• Avoid large, undocumented deposits: Lenders need to verify the source of all funds. Large, unexplained deposits into your bank accounts can trigger scrutiny and delays.
• Keep communication open: If any financial changes are unavoidable, communicate immediately with your loan officer to understand the potential impact.

Who delivers the “clear to close” news?

When you reach this exciting stage, you might wonder who exactly gives you the official “clear to close” notification.

• Your lender takes the lead: Primarily, your mortgage lender or your dedicated loan officer is the one who issues the “clear to close” status. They communicate that all underwriting conditions have been satisfied and your loan is ready to fund.
• Team communication: Once your lender issues the CTC, they will typically notify other key parties involved in the transaction, including your real estate agent and the title company or closing attorney. This notification sets the final gears in motion for scheduling your closing meeting. Your agent will then relay this exciting news to you!

What happens after clear to close?

Once you’re clear to close, one of the most crucial steps is understanding the “3-day rule” associated with your Closing Disclosure.

• The Disclosure: After the underwriter has concluded their review and the loan has been approved, you are going to receive a Closing Disclosure no fewer than three days before your scheduled closing date. This vital document details your final loan terms, estimated monthly mortgage payment, and all closing costs. You must acknowledge receipt of the Closing Disclosure as soon as possible; otherwise, the closing date could be pushed back.
• The Rule: By federal law (specifically the TRID rule), you must receive this Closing Disclosure at least three business days before your scheduled closing date. This mandatory waiting period gives you ample time to thoroughly review all the terms, compare them to your initial Loan Estimate, and ask any questions before you sign legally binding documents.
• Impact of Changes: Be aware that certain significant changes to the loan terms (like an increase in the APR, a change in the loan product, or adding a prepayment penalty) can trigger a new 3-day waiting period, potentially pushing back your closing date. Review your CD carefully and promptly acknowledge its receipt to keep things on track.

The Closing Disclosure is going to include:

• Loan terms
• Estimated monthly mortgage payment
• Closing costs
• Costs to process the loan
• Cash-to-close table
• Transaction summary table
• Loan disclosures
• Loan calculations
• Contact information
• Confirmation of receipt

“Once the lender issues the Closing Disclosure, that pretty much means you’ve done everything needed to do as a buyer and you’re good to go,” says Sanchez. Once the three-day period has expired, you can have your documents notarized at the title company or have a mobile notary come to you.

Final walkthrough

Congratulations! You’re in the home stretch if you’re doing a final walkthrough.

This is the time when you want to double-check every aspect of the home to make sure it is in the same condition as when you submitted your offer.

During the walkthrough, you’re checking to be sure the seller has taken care of the repairs listed in the buyer repair request — if applicable. Buyers may waive the repair request or the seller may decide to sell the house as-is and won’t even entertain the thought of repairing anything in the house after the inspection.

In the event the home has incurred major damages or new issues have popped up, you can ask to delay the closing while your agent negotiates with the listing agent to come up with a fair resolution.

Closing day

It’s finally closing day! Today is the day where everyone involved with the transaction will come together and sign a lot of documents to finalize the sale. You will want to bring a photo ID and a cashier’s check with the funds to cover closing costs and the rest of the down payment, minus your earnest money.

Note: It isn’t uncommon for lenders to recommend having these funds wired because it’s the easiest and most efficient option. But make sure you triple-check any account information before you wire those funds; fraud does happen, and you don’t want to lose your down payment.

Funds are transferred

Once all the documents have been signed, the lender will send the funds over to the title company or the closing attorney. From there, the seller will receive their portion of the funds, or in the case of refinancing, the previous mortgage will be paid off, and the seller will start paying on their new mortgage.

Tips to get to clear to close faster

Buyers who are anxious to move into their new homes can get to closing faster by following these simple tips:

1. Have your financial documents on hand.

Ideally, you’ll have done this before you even began looking at homes.

2. Get preapproved before looking at houses.

This will let you know how much house you can afford. A preapproval will also give you the confidence to make a strong offer once you find a house you want to bid on.

3. Keep an eye on your credit report.

An “excellent” credit score will give you the best rates possible, but that doesn’t mean you’re out of luck if your score is less than exemplary. You can have a score of 580 and still be approved for a loan, but most conventional loans will require at least a score of 620.

Also, now is not the time to make large purchases because it will have a negative impact on your credit, which could make the lender reconsider their decision.

4. Read the Closing Disclosure thoroughly.

It’s important to go through your Closing Disclosure line by line. Keep an eye out for any misspellings, discrepancies, or other things that are different from what you were expecting.

5. Get insurance right away.

Lenders usually require buyers to have homeowner’s insurance to protect their investment. However, even if your lender doesn’t require it, it would be in your best interest to get homeowner’s insurance anyway. If something happens to your house, you could face financial ruin if you don’t have the funds for repairs… and heaven forbid someone gets hurt on your property, because you could face a hefty lawsuit.

The weeks leading up to closing day can be a little nerve-racking because nothing is set in stone. However, fear not, because once you get a notification that you’re clear to close, you’re golden!

“Buyers can pretty much just relax and wait the three days to sign their loan documents, and then your loan should close the next day,” notes Sanchez.

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