What Does Clear to Close Mean?

August 20, 2021by Brandon Banks

Purchasing a home is an exciting process. Prospective buyers get to browse local listings, tour their favorite properties, and work hard to find the exact place they’re looking for.

Sounds thrilling, right? It certainly is.

Most of the time, however—unless you’re paying cash for the home—you won’t make progress without loan approval. In other words, you cannot move into your dream property until you’re “clear to close.”

This article will outline what being clear to close means for homebuyers.

The BasicsWhat Does Being
Clear to Close Entail?

Being clear to close means that you’ve reached the final stages of the homebuying process.

That said, the concept is a little more complicated than that. Clear-to-close status is granted when the buyer meets the lender’s closing conditions, right down to finding homeowner’s insurance and title insurance policies being in place.

The underwriter has likely confirmed your financial status at this point, closely examined the property you’re hoping to buy, and cross-checked other critical details.

Clear to close officially means the lender can confirm the closing date with the title company overseeing the transaction. Specifically, it implies that you—the buyer—have satisfied the lender’s:

  • Underwriting conditions (by providing current and recent bank statements)
  • Funding conditions (such as the ability to cover the down payment and closing costs)
  • Quality control criteria (complete with a final credit check and income verification)

After confirming your finances and paperwork are in order, and once the home has been appraised and inspected, then you’ll be clear to close. Let’s discuss this further.

The ProcessWhen Will You
Be Clear to Close?

The closing process begins when the seller of a piece of property accepts your offer on their home. However, the time it takes to be clear to close may vary.

Here’s how it works: Once you have an offer agreement in place, you will need to get the property appraised and inspected to make sure it’s in sound condition. The inspection will bring to light any undisclosed or unknown damages (think electrical problems or a potential roofing issue), while the appraisal is designed to identify the value of the property.

The appraisal is critical because—the same way buyers don’t want to pay more than they need to for a home—lenders don’t want to provide more money than necessary. So, the sooner you get the home inspected and appraised, the quicker you can close on the property.

From here, the underwriter will get all the relevant paperwork in order, review the loan, review the title, and then share any outstanding conditions getting in the way of clear-to-close status. Once the lenders conditions are met, you will be clear to close on the home.

How LongAfter Clear to Close When
Can You Close on the Property?

While the average time it takes to close on a home is 47 days—from the time you submit your loan application, to the moment you sign the final documents at closing—the period between clear to close and closing is much shorter.

If you’ve been granted clear-to-close status, then you can typically close on your home within three days of receiving a crucial document known as a closing disclosure.

How does this work? Your lender will send you the disclosure once you are cleared to close. Buyers must acknowledge the disclosure immediately to avoid having their closing date postponed.

This document provides a detailed overview of the loan terms, including the monthly mortgage payment, closing costs, fees, and a transaction summary. Essentially, it’s a summary of all the financial information surrounding the transaction.

It’s important to note that the details of the disclosure shouldn’t be new to you. Your underwriter should have already guided you through the loan terms during the pre-approval process—so the closing disclosure, aside from any minor adjustments, is simply for your personal records.

After the three-day waiting period between being clear to close and actually closing on the home, you can notarize your documents and prepare to move into your dream property.

You're Not Done YetYour Clear To Close
Status Can Be Revoked

The truth is that despite being clear to close, you aren’t in the actual clear just yet. You can still be denied your loan once you’re clear to close.

How so? Though clear to close indicates the closing date is fast approaching, the lender can rescind the agreement if something worrisome comes up. They may deny the loan before closing after double-checking your finances, for instance.

If you open or close new bank accounts, make large transfers or withdrawals, or change your employment status, you risk having your lender revoke the loan. This means that applying for a mortgage, and then opening a new credit card to purchase new furniture or buying a new car, could put you at risk (by increasing your debt-to-income ratio and impacting your financial profile).

In fact, missing any sort of monthly payment could alter your credit score and disqualify you from the loan. To this end, we cannot emphasize enough how important it is to keep your finances and income stable between being cleared to close and the actual closing date.

By maintaining this sense of stability, it is highly unlikely the lender will revoke the loan approval. And, if anything does come up, responding promptly and communicating regularly with your title company can go a long way.

Simply put, don’t make any unnecessary financial decisions during this process. This will help to protect your clear-to-close status.

Be CautiousWhat Should You Do
Once You’re Clear to Close?

The ideal thing to do once you’re clear to close is simple: nothing at all.

Buyers who have been cleared to close on a piece of property should continue to pay their bills as they always do, and refrain from taking out new credit until after they’ve closed on their new home.

What if your lender has questions about your finances during this time? Chances are there’s no need to be concerned. These questions could either be a check on your financial profile, or minor things that came up at the last minute and simply need to be taken care of before the closing date.

In short, though, playing it safe is critical—because the loan won’t be finalized until you sign the last bit of paperwork at closing. Congratulations on being one step closer to your new property!

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