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 Was UPDATED On July 15, 2017

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 have processed the mortgage loan application.
  • Clear To Close are 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 is 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
  • Update
  • Paycheck stubs
  • Final verification of employment has been confirmed. 
  • Some mortgage lenders have a quality control department that every mortgage application needs to go though 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’ work.
  • This is done to make sure there is 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 approve.
  • With a CTC, the mortgage loan can close. 
  • All docs need to be complete, verified, and make sure that is 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.

FHA Loans

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 goes into foreclosure. FHA will insure lenders against losses due to the default on FHA borrowers. However, in order for FHA to insure lenders, the FHA Loan originated and funded by FHA Approved Banks and Lenders need to meet all FHA Guidelines.
  • HUD, the United States Department of Housing and Urban Development, is the parent of the Federal Housing Administration. 
  • FHA insures mortgage loans originated from FHA approved mortgage lenders in the event a FHA mortgage loan borrower defaults in their loan and the loan goes into foreclosure. 
  • Due to FHA’s guarantee and insurance, many mortgage 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 as well as originate mortgage loans with borrowers with prior bad credit and higher debt to income ratios. 
  • FHA mortgage lenders need to adhere to the FHA mortgage lending guidelines and must make sure that every FHA mortgage loan application meets the guidelines set by FHA in order for FHA to be able to insure the mortgage loan.

FHA Mortgage Loan Process

Processing and underwriting a FHA mortgage loan is similar to processing a conventional mortgage loan.

  • Many home sellers refuse to sell a property to a FHA approved home buyer 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 a FHA appraisal and Conventional appraisal is that safety and security is stressed with a FHA appraisal. 
  • Both conventional and FHA appraisals need to have the property habitable and all mechanics in working order as well as the utilities functional when the appraiser is present 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 and require employment verification form the current employer. 
  • Both FHA and Conventional mortgage 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 loan underwriters will require a final verbal verification of employment and final verification of funds prior to issuing a clear to close.

  • Updated bank statements may be required by the mortgage loan borrower. 
  • A final verbal verification of employment will be done by the mortgage loan underwriter. 
  • Once the mortgage loan underwriter feels comfortable that all conditions have been met, the mortgage loan underwriter will issue a clear to close which means that they are ready to fund the loan. 
  • Once a cleared to close has been issued, the mortgage 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 a 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. 
  • 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 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 45%. 
  • If a conventional loan borrower has a slight increase on homeowner insurance policy and that home loan borrower is on the 45% debt to income ratio cap, that slight increase can blow the deal because they went over the 45% 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

Mortgage 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.

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

2 Comments

  1. Carolyn says:

    Hi should I start the application process to get detailed feedback on what I need to qualify?

    If there is an update pending that may impact my score will a new report be pulled that may improve my interest rate? Does this show as 2 inquires?

    Thanks.

    • Gustan Cho says:

      You can call me at 262-716-8151 or email me at GLCProperties@aol.com. To qualify for a FHA Loan, you need a minimum credit score of 580 credit scores. Open collections and charge offs are fine as long as you have been timely with all of your payments in the past 12 months. Maximum debt to income ratios will be limited to 43% debt to income ratios for borrowers with credit scores of 43% DTI and under. Debt to income ratios can be as high as 56.9% DTI if your credit scores are 620 FICO or higher. Interest rates will depend on your credit scores. The best interest rates for FHA Loans, you would need a 640 FICO credit scores or higher. Please feel free to call me or email me with any questions.

      Gustan Cho NMLS 873293
      http://www.gustancho.com
      262-716-8151
      GLCProperties@aol.com

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