What Does Clear To Close Mean?
“Clear to close” means you’ve met your mortgage lender’s requirements and conditions and are ready to finalize your home purchase. Think of it as getting the green light from your lender. Once you’re cleared to close, you can schedule a time to sign the required documents, pay your down payment and closing costs, and officially take ownership of your new home.
Key Takeaways:
- Clear to close means you’ve met all your lender’s requirements, and your mortgage application is approved.
- Your lender will give you a closing disclosure listing the specifics of your approved mortgage and closing costs at least three days before closing.
- With your loan approved, you can finalize the deal by signing the required documents, making your down payment and paying your closing costs.
What Must Happen Before You’re Clear To Close?
So, how do you get cleared to close? We’ll walk you through the steps to get there.
Get Mortgage Preapproval
The first step to getting a mortgage is applying for preapproval. Your lender will review the application and provide you a preapproval letter estimating how much it expects you can borrow. While it’s not a guarantee you can borrow that much, preapproval gives you an idea of how much house you can afford. It also shows agents and sellers you’re ready to buy and can likely get financing. Many agents require clients to be preapproved, and many sellers want to see preapproval before considering your offer.
Make A Successful Offer
Next, you’ll need to find a home you want and make the owner a successful offer to buy it. You should expect competition from rival buyers, especially in a hot real estate market. A real estate agent can help you decide how much to offer and submit it on your behalf. If the seller accepts your offer, both parties will sign a purchase and sale agreement, which is a legally binding contract that spells out the terms and conditions of the sale.
Apply For A Loan And Document Your Finances
Now, it’s time to officially apply for a mortgage. In addition to an application form, you’ll need to provide your lender with documents verifying your finances. Your lender will verify your income, assets, debts, and credit history to confirm that you can afford to pay your mortgage. Expect to be asked for copies of the following documents:
- Recent pay stubs
- W-2 and 1099 forms
- Bank statements
- Retirement account statements
- Investment account statements
- Credit card debt
- Student loans
- Auto loans
- Medical debts
Your lender will provide a loan estimate within three days of receiving your application. This document will detail the mortgage your lender is offering and list the expected closing costs you’ll have to pay.
Order A Home Inspection
You’ll want to schedule a home inspection as soon as possible. A licensed, third-party professional will evaluate the physical condition of the home and its systems. The inspector will provide you with a report of their findings. The inspection is important because it lets the buyer know if the home is unsafe or requires repairs. If significant problems are found, you can renegotiate the terms of the sale with the seller or cancel the deal if you included an inspection contingency in the purchase and sale agreement. Expect the home inspection to cost $300 to $500.
Get The Home Appraisal
Your lender will require a professional appraisal of the home’s value. The appraiser usually examines the home’s features and condition and compares it to comparable homes that have recently sold in the same area. Lenders won’t let you borrow more than a home is worth, so if the appraised value of the home you’re buying is less than expected, you may have to pay the difference out of pocket or cancel the deal if you included an appraisal contingency in your purchase and sale agreement. Appraisals usually cost between $600 and $2,000.
Meet All Contingencies
Contingencies are conditions in the purchase agreement that must be met for the sale to be completed. Contingencies typically allow the buyer to walk away from the deal without penalty if something unexpected happens during the sale. Common contingencies include:
- Financing contingency. The buyer can walk away from the deal without penalty if they cannot secure a mortgage.
- Appraisal contingency. The buyer can back out of the deal if the home appraises for less than the purchase price.
- Home inspection contingency. The buyer can walk away if the home inspection reveals serious problems with the home.
- Title contingency. The buyer can back out if the title search reveals any existing claims or liens against the property.
- Home sale contingency. If you need to sell your current home to afford the new one and cannot do so, this contingency gets you out of the deal.
Await Loan Approval
Once your lender has completed underwriting and approved your loan, you’ll receive a closing disclosure. This five-page form lists the final terms of the mortgage you’ve been approved for and your final estimated closing costs. You will receive it at least three days before closing. You’ll want to review this form carefully, as it includes your loan amount, interest rate, projected monthly payments, and the amount you need to pay in closing costs to finalize the sale.
At this point, the sale is cleared to close.
What’s Your Goal?
Home Purchase
Home Refinance
Tap Into Equity
What Happens After You’re Clear To Close?
Things really start to heat up once you’re clear to close. Here’s what happens next.
Prepare To Pay Closing Costs
Closing costs are all the fees you must pay to fund your loan and transfer legal ownership of the home. You can expect closing costs to be anywhere from 2% to 5% of the purchase price. You must pay your closing costs to finalize the sale, usually using a cashier’s check or wire transfer. Here are some examples of typical closing costs:
- Application fee
- Appraisal fee
- Closing fee
- Discount points
- Escrow funds
- Homeowners insurance
- Loan origination fee
- Property taxes
- Survey fee
- Title insurance
- Title search fee
Schedule A Final Walk-through
The last thing that happens before closing day is the final walk-through. This is your chance to confirm that the home is in the agreed-upon condition and there haven’t been any changes or damage since the home inspection. It’s also a chance to confirm any required repairs have been completed. This can help give you peace of mind that you won’t inherit any surprises when you become the home’s new owner.
Sign All Documents At Closing Day
On closing day, you’ll sign all the final documents, make your down payment, and pay your closing costs. Closing day typically takes place at the title company with your real estate agent, the seller and their agent, an escrow officer, and the closing agent. Then, the title for the home will be officially transferred to your name, and you’ll become the legal owner.
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FAQ
Here are answers to some frequently asked questions about getting clear to close.
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The Bottom Line
Clear to close is an exciting part of the home buying process that signifies you’ve met all the requirements set by your lender to close on your mortgage. It’s a great sign that your home purchase is all systems go – you’ll just need to complete the final steps to conclude the sale and take possession of your new home.