What Does Clear To Close Mean, And How Much Longer Before I'm ...

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.