Clear To Close: What To Expect And What Happens Next

Hearing "clear to close" can bring a huge relief in your home buying journey. As the term implies, you're nearing the end of the mortgage process. With underwriting, document verification, and the offer out of the way, being clear to close – sometimes referred to as "CTC" – in real estate signals that your lender will give you the green light for the home loan you need.

All that said, being clear to close doesn't mean you've reached the finish line. While there's a light at the end of the tunnel, you'll need to complete a few final steps before you get the keys to the property.

What Does 'Clear To Close' Mean?

"Clear to close" means you've met the requirements and conditions to close on your mortgage. At this late stage, your lender has fully inspected your documents and verified that you meet the expectations of the type and requested amount on your home loan.

Once a borrower is cleared to close a mortgage, lenders typically start prepping for the closing day. Your loan officer will schedule a date and time for your closing meeting and reach out to parties who plan on being in attendance (for example, your title company and real estate attorney). Your lender will also gather any final documents you'll need to sign on your closing date.

Mortgage Commitment Letter Vs. Clear To Close: Are They Different?

While they're often confused, there is a clear difference between a mortgage commitment letter and a clear-to-close letter.

Your lender usually issues a mortgage commitment letter after you've successfully completed the preapproval process. The letter states that you've been given the green light for your home loan. However, it also signals that certain contingencies still need to be met.

The letter usually includes the loan amount that will likely get approved. It's a handy document to keep in tow, as you can use it to show home sellers and real estate agents that you're a creditworthy, financially responsible borrower and are ready to buy a home.

A mortgage commitment letter can fall under two camps: a conditional commitment letter or a firm commitment letter. With a conditional commitment letter, you'll still need to check out certain conditions. Your lender gives you a firm commitment letter later when they're set on giving you approval on your home loan amount. This is after the underwriting process has been completed.

On the other hand, a clear to close is issued when all the loan conditions have been met. You're basically at the final step to getting your home loan and must sign off on a few documents. A firm mortgage commitment letter may come right before you receive a CTC.

While they're different types of documents, and the lender issues them at varying stages of the home buying process, they both signal that you've reached crucial checkpoints. They can provide peace of mind for both the seller and buyer that there is money available for the sale to go through.

How To Get Your Loan Cleared To Close

Reaching the "clear to close" stage requires a fair amount of work for both the lender and the borrower.

To get your mortgage cleared for its closing day, you'll have to complete the following steps ahead of time:

1. Provide Documentation

Your mortgage provider (that can be a credit union, an online lender, or a retail bank) will need to review a handful of documents before fully approving your application. You might also need to give your lender written permission so they can access your credit score.

Your lender typically may ask for:

• Current bank statements
• Recent tax returns
• Paycheck stubs from the last 2 years (W-2s, 1099s)
• Statements for investment accounts (4019(k)s, IRAs, CDs)
• Any income from alimony or child support
• Documentation of any rental income
• Other proof of verification of your income and assets
• A copy of the signed purchase agreement
• Proof that you haven't taken on additional debt (like providing details or information about large deposits to your accounts)
• Documented explanation of any unusual financial circumstances
• A gift letter documenting funds gifted from friends or family

2. Make An Offer On A Home

Remember: You can't get clear to close on a home until a seller accepts your offer. Many factors play into the final amount you put on the table.

You should also consider the length of time the house has been on the market, the number and extent of the repairs you'll need to make, and the number of other buyers who have their eye on the home.

3. Have The Home Appraised And Inspected

During your appraisal, a third-party licensed appraiser will determine the property's fair market value. This assures you and your lender that the amount you'll pay for the home is in step with its actual worth. On the other hand, home inspections help buyers pinpoint issues with a home before buying it.

4. Get Approved By Underwriting

The underwriting process helps lenders approve your loan. Underwriters will not only look at the documents you've submitted, but they'll also inspect:

• Details about your income
• Credit history
• Debt-to-income ratio (DTI)
• Assets
• The amount and type of loan you've requested

Working through each step is part of why moving from underwriting to closing can take 30–45 days on average. In some cases, it can take up to 60 days.

If you want to reach CTC status as quickly as possible, prepare your documents in advance, complete your mortgage application, satisfy all of your underwriting requirements, and keep an open line of communication with your lender.

5. Receive A Mortgage Commitment Letter And Clear To Close

Before you receive a clear to close, you'll receive a firm mortgage commitment letter, usually followed by a clear to close. At this point, you've already gone through the steps of getting a preapproval letter from a mortgage lender, landing on the home you want to buy, and making an offer. You've also completed a mortgage application and provided the lender with supporting documents, and have had the home appraised.

You've also met all the contingencies. For example, if required, you've arranged for a home inspection and done a title search. You've also obtained homeowners insurance.

A firm mortgage commitment letter is a more formal letter in which the lender promises to loan you the money and has the money in tow for your home purchase. The conditions of the letter hinge on your current financial situation. For the lender to seal the deal, you might need to pay a commitment fee, which might be a flat fee or anywhere between 0.25% and 1.0% of the loan amount.

It can feel like a bit of a waiting game before you get a clear to close. After you've done everything on your end, the mortgage lender will handle their part in finishing up the underwriting process. Once they do, they'll let you and the title company know you're clear to close.

What Happens After You're Clear To Close On Your Mortgage?

Once your lender has let you know you're clear to close, a fair amount of the mortgage process will be behind you. However, a few crucial stages still stand between you and homeownership.

You should be completely clear to close once you:

Receive Your Closing Disclosure

After you've cleared underwriting and conditional approvals, your loan officer will send you a Closing Disclosure. This document outlines your mortgage terms, costs, and fees. By law, you should receive this disclosure at least 3 business days before you sign your final mortgage paperwork.

Because you're on the hook for any and all expenses mentioned, getting your head around the Closing Disclosure is one of the most crucial steps of the home buying process. You should compare it against your initial loan estimate to make sure you're getting the deal you and the seller agreed upon.

Complete A Final Walk-Through

A final walk-through is your chance to make sure the property is in the condition you and the seller have agreed upon. Although walk-throughs aren't technically a required step after you're clear to close, skipping out on a final inspection could be a costly mistake.

In most cases, the home should be ready to go by the time you conduct your final walk-through. But if anything is wrong with the house, this is your last chance to catch these problems before they become your responsibility.

Attend Closing Day

Your closing date is when the home title officially transfers, and you become the new legal owner of the property. (Congrats, you've made it!) "Clear to close" means you're raring to go for the closing process, while "closing" refers to closing on your mortgage loan.

You'll sign all the remaining paperwork, have the deed updated, make your down payment and pay closing costs. After all, you're officially the owner of a new home.

Can A Lender Still Deny Your Loan After The Closing Disclosure?

Clear to close buyers aren't usually denied after their loan is approved and they've signed the Closing Disclosure. However, there are some instances when a lender may decline an applicant at this stage.

These rejections are usually caused by drastic changes to your financial situation, like:

• Leaving your job
• Applying for a new large credit line
• Taking out another loan

Why's that? That's because these can all be red flags for your mortgage lender. If possible, you should avoid making any dramatic financial changes until the house is yours.

How Long Does It Take To Close After You've Been Cleared?

Most buyers won't have to wait very long to meet at the closing table once they're clear to close. You should expect the process to follow the clear to close 3-day rule, where you receive your Closing Disclosure three business days before your closing date.

Should you encounter any roadblocks, your closing timeline might take longer. This is the period between the time you're clear to close and the closing itself.

For example, if you notice a fair number of issues with the home during your final walk-through, you might need to postpone your closing meeting. That way, you can give the seller enough time to tend to these repairs.

The Bottom Line: Steps To Reach Clear To Close

Being clear to close means you're almost ready to close on your home buying journey. Knowing how the clear to close process works can help you and your lender reach the final stage that much quicker and make for a smoother journey.

As long as you have all of your documents in tow and no issues with the home itself pop up, becoming clear to close should put you mere days away from owning your new home.