What Does Clear To Close Mean?

Buying a house might be the best event of your life but it is certainly no walk in the park. From getting pre-approved for a home loan to closing a deal, buying a home requires energy, funds, and, most of all, patience. It takes an average of 30 to 45 days to close on a home, and that’s if everything is in its place. Any unwanted incident may cause the process to drag on longer than that. When you reach the “clear to close” stage in the process of buying a home, you are ready to close the deal but haven’t yet.

Let’s be a little more in-depth on that topic and the implications for a home buyer.

What Does Clear To Close Mean?

When buying a home, “clear to close” means the buyer has met all the conditions required to get the home loan.  The buyer is now waiting for the final nod from the lender to finalize the deal. Once the lender approves and signs the mortgage documents, the buyer may ask the seller to schedule a day to sign and transfer the property.

“Cleared to close” is the last stage of the long home buying process. Once it’s over, you will be ready to close the deal.

In order to be cleared to close, you will be required to provide the following documents:

1. Proof of your Income

You will need to provide copies of your tax returns from the previous two years. You will also need to provide a copy of your pay stub for the previous two months. If you are self-employed, you should provide a yearly profit to loss statement. If you have real estate assets, you will be required to submit documentary evidence of your rental income. Besides these documents, attach evidence of any other sources of income that you may have as well.

2. Down Payment Plan

A down payment is the single largest contributor to the closing costs. It is what discourages potential buyers from buying a property in the first place. Besides, how much of a down payment you can arrange directly influences your home loan amount, especially in determining the interest rate.

You should provide bank statements if you plan to use any money from your savings for the down payment. However, if you received a financial gift or borrowed the money from friends or family, attach letters for proof. Be prepared to provide documentation to support any financial assistance you receive towards the payment.

3. Financial History

Along with the down payment, your credit score also influences whether or not you qualify for a home loan. A credit score shows how responsible you have been in the past about your financial obligations. Having a good credit score automatically increases your chances of getting approval for a loan.

A copy of your most recent credit report is required with your home loan application.  You may get a free copy of your report from any of the three credit agencies: Experian, Equifax, and TransUnion.

4. Special Documents

If there have been rough patches in your life that might have affected your financial history such as bankruptcy, divorce, or foreclosure,  attach documents that vouch for the event.

Can your Loan Still be Denied?

It doesn’t happen often, but sometimes loan applications are denied despite providing all the required information to the lender. It takes a month or more after you have submitted everything and have reached ‘clear to close’ but have not received your closing disclosure. The lender may check on the status and double-check that the information is accurate. Meanwhile, if you have changed jobs or taken out another loan, you may inadvertently fall into the higher risk category and, as a result, your loan application gets rejected.

Therefore, it’s a good idea to not undergo any major life events or make any major financial purchases until after you receive your closing disclosure.

What Happens After Clear to Close?

You typically receive your closing disclosure before your scheduled closing date. You should acknowledge receipt of the disclosure with your lender. The document will contain information about your loan terms, monthly mortgage payments, closing costs, and loan calculations.

The closing disclosure is proof that everything is accurate and that you are ready to finalize the deal.

• Final Walk Through

After you receive the closing disclosure, the closing process is practically complete. Consider paying another visit to the house before signing the deal. This will allow you a chance to double-check everything before you sign all the formalizing paperwork. If there was an inspection contingency, make sure it has been completed in accordance with the mutual agreement.

Once you confirm everything, you may move ahead to close the deal with the seller.

FAQs

Can you be denied after “clear to close”?

Yes, it is possible to be denied after receiving a clear-to-close.

Does “closing disclosure” mean “clear to close”?

No, “closing disclosure” doesn’t mean “clear to close”.

How do I know if my loan is “clear to close”?

Your lender will typically inform you when your loan is clear to close. This usually happens after all required documentation has been submitted, reviewed, and approved and any outstanding conditions or contingencies have been satisfied.

What should I do if my loan is “clear to close”?

Assuming that your loan is clear to close, it implies you are approaching the finish of the advance interaction. Be prepared to bring any necessary funds to the closing, ask any questions, and carefully review all closing documents.

Final Words

Clear to Close is the last stage of the home buying process. Chances are you will receive a closing disclosure before the closing date and you’ll proceed with the closing.

Once you receive the closing disclosure, you need to read it thoroughly to ensure it accurately states the terms of the deal. If you find a discrepancy report it to the lender immediately.