This BLOG On Conditional Approval Versus Clear To Close In Mortgage Process Was UPDATED And PUBLISHED On March 27th, 2020
There are various stages of the mortgage approval process.
- To get 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 the borrower to see if there are any errors on the 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 the 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 the borrower can satisfy conditions on the AUS
- Gustan Cho Associates are direct lenders with no lender overlays
- So automated findings are the final approval as long as borrowers can provide documentation of tax returns, W-2s, bank statements and other proof on the information stated on the mortgage application
In this article, we will cover and discuss the difference between a conditional mortgage approval versus a clear to close.
Documents Required To Proceed With Mortgage Process
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 underwriter underwrites mortgage file
If everything is in check, the mortgage underwriter will 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 have 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 conditional approval are the following:
- An appraisal of the subject property needs to be done and it needs to meet the lender’s criteria in regards to condition and value
- Appraisals normally take less than a week
- Once the appraisal is provided to the mortgage 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
- 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
- Verification of employment is when a 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 lender
Asset information verification:
- Borrowers need to show recent bank statements with enough funds to close
- Any large or irregular deposits need to be sourced and explained via a letter of explanation
If example, here is a case scenario:
- if there is a one time deposit of $5,000
- that is not part of a paycheck or bonus
- 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 the following are required:
- prior bankruptcy papers
- short sale HUD settlement statements
- divorce decree
- child support paperwork
- letters of explanations concerning
- charge offs
- credit inquiries
- late payments will be required
Once all conditions have been submitted, a clear to close (CTC) will be issued.
Clear To Close And Home Loan Closing
Once all of the requested conditions have been provided and satisfied, the mortgage underwriter will issue a clear to close.
- A clear to close is a clear to fund
- Conditional approval converts to a formal loan commitment which is when 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 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
This is because everything stated will need to be verified and can be part of conditions on the conditional loan approval.