Conditional Approval Versus Clear To Close In Mortgage Process
This BLOG On Conditional Approval Versus Clear To Close In Mortgage Process Was UPDATED On August 7 2017
There are various stages of the mortgage approval process.
- To get a mortgage approval with me, mortgage loan applicants first need to complete an online application at www.gustancho.com by clicking on the APPLY NOW icon on the top right.
- Complete the four page 1003.
- I will then contact the applicant to go over the online mortgage application to make sure there are no errors and all information is as accurate as possible prior to running credit.
- A loan officer will go over credit report with borrower to see if there are any errors on report.
- Loan Officer will go over any derogatory items such as late payments, collection accounts, bankruptcy, foreclosure, short sale, or items on that is not reporting on credit report.
- If everything is in order, mortgage application and credit report will be submitted to our automated underwriting system.
- If I get an approved eligible, I know I can get the mortgage loan to the finish line and get mortgage loan close if borrower can satisfy conditions on the AUS.
- The Gustan Cho Team at USA Mortgage are direct lenders with no mortgage lender overlays so automated findings is the final approval as long as borrowers can provide documentation of tax returns, W-2s, bank statements and other proof on information stated on mortgage application.
Once borrowers provide real estate purchase contract and the list of documents to process mortgage, the mortgage file will get processed.
- A mortgage processor will be assigned to the file.
- Once the file is processed, it is submitted to underwriting and be assigned to a mortgage underwriter.
- The mortgage loan underwriter underwrites mortgage file and if everything is in check will be issue a conditional approval.
What Is A Conditional Approval?
A conditional approval from a mortgage lender is a letter of commitment that the mortgage lender will issue a formal mortgage approval and fund mortgage loan if the conditions are met.
- It is a preliminary approval.
- There are no guarantees that it will be issued a clear to close.
- Mortgage loan application needs to be processed and underwritten by an underwriter for a conditional approval.
- Conditional approval turns into a final approval and clear to close once all the conditions has been met.
- The same underwriter who issues a conditional loan approval issues the clear to close.
What Are Conditions On A Conditional Loan Approval?
Some of the conditions that are common in a conditional approval are the following:
- Appraisal: A appraisal of the subject property needs to be done and it needs to meet the mortgage lender’s criteria in regards to condition and value. Appraisals normally take less than a week. Once the appraisal is provided to the mortgage loan underwriter, the appraisal review department will need to go through an appraisal review, which normally takes 24 to 48 hours. Appraisals can be rushed for a nominal fee.
- Homeowners insurance: Once the appraisal review is done, the underwriter will require homeowners insurance coverage to protect their assets. Borrowers need to contact an insurance provider and get a bill as well as the declaration page. Home Buyers do not have to pay for homeowners insurance until at the closing table and homeowners insurance premium is part of closing costs.
- Verification of employment and current paycheck stub: Although mortgage loan applicants provided W-2s for the past two years and paycheck stub prior to the conditional approval, one of the conditions in conditional approval will be a verification of employment . A verification of employment is when a mortgage lender either contacts the human resources department verbally to verify that they are currently working there or it might be a form the HR department may have to complete and email or fax back to the mortgage lender.
- Asset information verification: Borrowers need to show recent bank statements with enough funds to close. Any large or irregular deposits needs to be sourced and explained via a letter of explanation. If example, if there is a one time deposit of $5,000 and that is not part of paycheck or bonus and it was from a sale of a vehicle, a copy of the bill of sale, copy of the check, copy of the deposit will need to be provided as well as a letter of explanation.
- Other documents: Clear to close: Other documents such as prior bankruptcy papers, short sale HUD settlement statements, divorce decree, child support paperwork, and letters of explanations concerning charge offs, collections, or late payments will be required. Once all conditions have been submitted, a clear to close (CTC) will be issued.
Clear To Close
Once all of the requested conditions have been provided and satisfied, the mortgage loan underwriter will issue a clear to close.
- A clear to close is a clear to fund.
- Conditional approval converts to a formal mortgage loan commitment which is that the mortgage lender is ready to fund the mortgage loan.
- It is up to the sellers and buyers to schedule a tentative closing date.
- Once the title company has scheduled a date, the mortgage lender will prepare the HUD also known as the Closing Disclosure (CD).
- Mortgage docs and wire will be sent electronically to the title company to close on the mortgage loan.
- If conditions on the conditional approval cannot be met, a clear to close to will not be issued by the mortgage underwriter.
- It is extremely important to list on the initial mortgage application can be verified because everything stated will need to be verified and can be part of conditions on the conditional loan approval.
Gustan Cho NMLS ID 873293