Clear to Close On Mortgage And Timeline From Application To CTC
This BLOG On Clear to Close On Mortgage And Timeline From Application To CTC
What does clear to close mortgage mean? A clear to close on mortgage (CTC) is ultimately the finish line in the mortgage process.
- A clear to close is when the mortgage lender has processed the mortgage loan application.
- Clear To Close is issued by mortgage underwriters.
- Prior to CTC, the mortgage underwriter has underwritten the mortgage loan.
- The mortgage loan applicant has provided all of the conditions requested by the mortgage loan underwriter
Documents Reviewed By Mortgage Underwriter Prior To CTC
All mortgage documents are scrubbed by the mortgage processor before it is submitted to the mortgage underwriter. Any incomplete mortgage docs will be kicked back to the mortgage processor by the underwriter. Incomplete mortgage docs are one of the main reasons for delays in the mortgage process.
The following documents will be thoroughly reviewed by the mortgage underwriter prior to issuance of a CTC:
- Updated bank statement
- Paycheck stubs
- The final verification of employment has been confirmed.
- Some mortgage lenders have a quality control department that every mortgage application needs to go through prior to a clear to close can be issued.
- The quality control department has a quality control mortgage loan underwriter who will review the original mortgage underwriter’s work
- This is done to make sure there are no mistakes made and that the mortgage loan can be sold on the secondary market to Fannie Mae or Freddie Mac
- Once a clear to close has been issued, the mortgage lender prepares docs
- A clear to close means that funds can get wired once final figures are approved
- With a CTC, the mortgage loan can close
- All docs need to be complete, verified, and make sure that is insurable on government loans
- Conventional Loans are double-checked to make sure that the lender can sell it to the secondary market and need to meet Fannie and/or Freddie Mortgage Guidelines
Mortgage loans that are backed by FHA, Federal Housing Administration, require additional items than conventional mortgage loans which we will discuss in the following paragraphs.
The Federal Housing Administration
FHA is not a mortgage lender.
- The U.S. Department of Housing and Urban Development (HUD) is the parent of the Federal Housing Administration (FHA)
- FHA insures and guarantees FHA Loans to banks and private lenders in the event borrowers default on their FHA Loans and go into foreclosure
- HUD will insure lenders against losses due to the default on FHA borrowers
- Due to FHA’s guarantee and insurance, many lenders are able to originate mortgage loans with 3.5% down payment and low mortgage interest rates
- Due to FHA Guarantee, lenders are able to offer low down payments
- Also due to the guarantee, lenders can originate mortgage loans for borrowers with prior bad credit
- Mortgage lenders need to adhere to the FHA mortgage lending guidelines
- All lenders must make sure that every FHA mortgage loan application meets the guidelines set by FHA in order for FHA to be able to insure them
- Many home sellers refuse to sell a property to an FHA approved home buyer
- This because they feel that FHA loans are much tougher than conventional mortgage loans especially when it comes to appraisals
- This is not the case
- A home buyer who is FHA approved needs to get an FHA appraisal done on the subject property
- Conventional home buyers need to get a conventional appraisal done
The only difference between an FHA appraisal and a Conventional appraisal is that safety and security are stressed with an FHA appraisal.
Underwriting FHA Versus Conventional Appraisals By Mortgage Underwriters
Both conventional and FHA appraisals need to have the property habitable.
- All mechanical systems need to be in working order as well as the utilities functional when the appraiser is presently appraising the home
- FHA mortgage lenders go through the same process as conventional mortgage lenders in requiring the documents
- Again, all documents such as two years tax returns, two years W-2s, 60 days bank statements, 2-year employment and residence history, and other documents pertaining to the mortgage application need to be complete without missing pages
- Nothing is different between the processing and underwriting for both mortgage loan programs
- Both FHA and Conventional mortgage lenders require IRS 4506T tax verification from the Internal Revenue Service
- All lenders will require employment verification form the current employer
Both FHA and Conventional Lenders will require two years seasoning requirement to be able to use part-time income, overtime income, and bonus income.
Final Conditions For Clear To Close On Mortgage
Mortgage underwriters will require a final verbal verification of employment and final verification of funds prior to issuing Clear To Close On Mortgage:
- Updated bank statements may be required by borrowers
- Final verbal verification of employment will be done by the mortgage underwriter prior to Clear To Close On Mortgage
- Once the mortgage underwriter feels comfortable that all conditions have been met, the mortgage underwriter will issue a clear to close which means that they are ready to fund the loan
Once a clear to close has been issued, the lender will then prepare docs and wire the funds to the title company.
Mortgage Process And Clear To Close On Mortgage
What happens after clear to close?
- The mortgage process and clear to close process timeline is the same for both FHA and Conventional Loans as well as other loan programs
- Many home sellers are worried about clear to close on mortgage process timeline
- Most mortgage loans should close in 30 days
- FHA loans are one of the most popular mortgage loan programs in today’s market and many times is easier to get an FHA loan cleared to close than a conventional loans
The reason being is because FHA guidelines have much lax debt to income ratio caps than conventional loan programs.
Private Mortgage Insurance Guidelines On Conventional Loans
Conventional Borrowers with less than 20% down payment require private mortgage insurance like FHA MIP:
- Private Mortgage Insurance varies on borrowers credit and income profile and may take time to get PMI approved
- FHA has a maximum of 46.9% front end DTI and 56.9% back end debt to income ratio requirements whereas conventional mortgage loan programs have a cap on debt to income ratios at 50%
- If a conventional loan borrower has a slight increase on a homeowner insurance policy and that home loan borrower is on the 50% debt to income ratio cap, that slight increase can blow the deal
- This is because they went over the 50% debt to income ratio cap
With FHA loan programs, borrowers have up to 56.9% and plus, with FHA loans, borrowers can have non-occupant co-borrowers as well as 100% gift funds.
When Can Mortgage Close After CTC?
Due to new TRID Mortgage Guidelines, once a CTC is issued, there needs to be a three day waiting period before a loan can close. Just because a clear to close has been issued does not mean that the closing is guaranteed. Up to the date of the closing, borrowers should not do the following:
- Apply for new credit
- Shop for new furniture
- Make irregular deposits or withdraw funds from bank accounts
- Quit their jobs
- Be late on payments
Lenders can pull credit up to the date of closing. Lenders may do a final Verification of Employment, Verification of Deposit, or other QC control up to the date of closing.
Qualifying For Mortgage With Direct Lender With No Overlays
Home Buyers or homeowners needing to qualify for a mortgage with a mortgage company licensed in multiple states with no lender overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.