How to Avoid the Worst Mistakes Prior to Clear to Close

Avoiding Mistakes Prior to Clear to Close: A 2024 Guide for Homebuyers

Buying a home is an exciting journey, but it also requires attention to detail—especially during the final stages of the mortgage process. The “clear to close” (CTC) is one of the most critical milestones. It signals that your lender is ready to fund your loan, and you’re just steps away from closing on your dream home. However, many borrowers unknowingly make mistakes prior to clear to close that can delay the process or even jeopardize their loan approval.

In this guide, we’ll discuss common pitfalls to avoid, provide tips for a smooth closing process, and share updates for 2024 lending guidelines to help you successfully secure your mortgage with Gustan Cho Associates.

What Is “Clear to Close”?

“Clear to close” is the final green light from your lender, confirming that all underwriting conditions have been met. Once you’re clear to close, your loan documents can be prepared, and you’ll schedule your closing date. But remember, even after receiving the CTC, your lender can still revoke the loan if new financial red flags arise before the actual closing date. That’s why it’s vital to avoid common mistakes during this time.

Common Mistakes Prior to Clear to Close

Here are some of the most common mistakes borrowers make before reaching clear to close and why they’re such a problem:

1. Changing Jobs or Quitting Employment

Your employment is one of the cornerstones of your loan approval. Lenders verify your job status multiple times during the mortgage process, including just before closing.

• Why It’s a Problem: Your income must be re-verified if you quit your job or switch employers. This can delay the process or even disqualify you if your new income doesn’t meet the lender’s criteria.
• How to Avoid It: Stay at your current job until after closing. If a change is unavoidable, discuss it with your lender immediately.

2. Applying for New Credit

It’s tempting to start buying furniture or appliances for your new home, but opening new credit accounts or increasing your credit card balances can wreak havoc on your loan approval.

• Why It’s a Problem: Lenders perform a final soft credit pull before issuing the CTC. New credit inquiries or higher balances can increase your debt-to-income (DTI) ratio, potentially pushing you over the allowable limit.
• How to Avoid It: Wait until after closing to make significant purchases or apply for new credit.

3. Making Late Payments or Overdrawing Accounts

Timely payments and stable banking activity are non-negotiable during the mortgage process.

• Why It’s a Problem: Late payments can drop your credit score, and overdrafts signal financial instability to lenders. Even a small overdraft could raise red flags.
• How to Avoid It: Set up reminders or automatic payments to ensure all bills are paid on time. Monitor your bank account to avoid overdrafts.

4. Making Large or Irregular Bank Deposits

Unexplained large deposits in your bank account can trigger scrutiny from underwriters.

• Why It’s a Problem: Lenders need to source all deposits to ensure they’re legitimate. Failing to provide proper documentation can delay your loan approval.
• How to Avoid It: If you’re expecting a large deposit (e.g., from selling a car), keep detailed records, including bills of sale, receipts, and bank deposit slips. Avoid cash deposits whenever possible.

5. Buying a New Car

Adding a car loan during the mortgage process is one of the most detrimental financial moves you can make.

• Why It’s a Problem: Car payments significantly impact your DTI ratio. For example, a new $400 monthly car payment can reduce your mortgage approval amount by approximately $100,000.
• How to Avoid It: Delay purchasing or leasing a car until after your home loan closes.

6. Transferring or Closing Bank Accounts

Moving money between accounts or closing accounts can complicate the underwriting process.

• Why It’s a Problem: Lenders need to verify a consistent trail of funds. Closing or transferring accounts creates additional paperwork and questions.
• How to Avoid It: Keep your accounts stable and avoid unnecessary transfers.

2024 Updates to Keep in Mind

Lending guidelines can change yearly, and staying informed is crucial for a smooth mortgage process. Here are some key updates for 2024:

1. Stricter Debt-to-Income Ratios:
   • Automated underwriting systems (AUS) now have stricter thresholds for DTI ratios, making it even more important to avoid new debt during the process.
2. Enhanced Employment Verification:
   • Many lenders now require additional proof of stable employment, particularly for self-employed borrowers. Be prepared to provide more detailed documentation if you’re self-employed or changing jobs.
3. Faster Credit Rescoring Options:
   • Lenders leverage advanced tools to expedite credit rescores when needed, but this still adds unnecessary costs and delays. Avoid needing a rescore by maintaining stable credit activity.
4. Gift Fund Documentation:
   • FHA loans now require even stricter scrutiny of gift funds, ensuring all sources are fully documented.

How to Prepare for a Smooth Closing

Avoiding mistakes prior to clear to close isn’t just about steering clear of the big pitfalls. It’s also about staying proactive and organized. Here are some tips:

1. Communicate with Your Lender: Keep an open line of communication with your loan officer. If you’re unsure about a financial move, ask before acting.
2. Stay Organized: Keep all financial documents (e.g., pay stubs, bank statements, tax returns) readily accessible. You may need to provide updated copies quickly.
3. Follow Your Loan Officer’s Advice: Your loan officer is there to guide you. Please pay close attention to their recommendations to avoid jeopardizing your loan approval.
4. Plan for Closing Costs: Having sufficient liquid assets on hand is essential to meet your closing costs. To prevent any unexpected issues, take the time to review both your Loan Estimate and Closing Disclosure thoroughly. This careful preparation can help ensure a smoother transaction process.
5. Avoid Assumptions: Never assume your loan is a done deal until you’ve signed the closing documents. Stay cautious and follow the rules until the process is complete.

Why Choose Gustan Cho Associates?

At Gustan Cho Associates, we are dedicated to helping borrowers successfully navigate the mortgage process. Whether you’re a first-time homebuyer or an experienced homeowner, our team is ready to support you at every stage. We proudly provide the following features:

• No Lender Overlays: Flexible underwriting guidelines to help you qualify.
• Expert Guidance: Advice tailored to your unique situation.
• Fast Closings: Our streamlined process helps you close on time.

If you need guidance or want to avoid missteps before achieving a clear to close, feel free to contact us at 800-900-8569 or email us at gcho@gustancho.com. We’re here for you every day of the week to offer our support and assistance.

Final Thoughts

Reaching clear to close is an exciting milestone but requires discipline and careful financial management. By avoiding the common mistakes outlined in this guide, you can ensure a smooth path to homeownership. Remember, the team at Gustan Cho Associates is here to support you every step of the way. Let’s make your dream of owning a home a reality in 2024!

Frequently Asked Questions About Mistakes Prior to Clear to Close:

Q: What is Clear to Close, and Why is it Important?

A: Clear to close means your lender has approved your loan, and you’re ready to move forward with closing. Avoiding mistakes prior to clear to close ensures your final loan approval is maintained.

Q: Can I Change Jobs Before Closing on My Home?

A: No, changing jobs during the mortgage process can delay or even cancel your loan approval. Your lender must verify your income and job stability multiple times before closing.

Q: Why Shouldn’t I Apply for New Credit During the Mortgage Process?

A: Applying for new credit can impact your debt-to-income ratio, affecting your loan approval chances. It’s important to note that lenders will evaluate any new credit inquiries during the final credit check prior to granting the clear to close. To avoid complications, consider the following:

• Limit new credit applications during the loan process
• Monitor your credit score and report regularly

You can navigate the credit landscape more effectively by staying informed and proactive.

Q: Can I Use My Credit Cards for Big Purchases While Waiting for Clear to Close?

A: No, using your credit cards for large purchases can increase your balances and negatively impact your approval. Wait until after closing to make major purchases like furniture or appliances.

Q: Why are Large or Unusual Bank Deposits a Problem?

A: Lenders need to verify the source of all large deposits to ensure they’re legitimate. It may delay or cancel your loan approval if you can’t provide proper documentation.

Q: Can I Buy a New Car Before Closing on My Mortgage?

A: No, buying a new car can significantly impact your debt-to-income ratio and reduce your mortgage approval amount. Even a small car payment can affect your loan.

Q: Is it Okay to Transfer Money Between Bank Accounts During the Mortgage Process?

A: Avoid transferring money unless absolutely necessary. Lenders require a clear trail of funds, and unnecessary account activity can create delays or complications.

Q: What Happens if I Miss a Payment Before Clear to Close?

A: Missing a payment can negatively impact your credit score, which may signal to lenders that you are facing financial difficulties. This situation could lead to your loan approval being reconsidered. To avoid these consequences, it’s important to stay on top of your payments and explore options if you’re struggling.

Q: Why do Lenders Check my Credit Again Before Issuing a Clear to Close?

A: Lenders perform a final credit check to confirm that you haven’t taken on new debt or missed payments. This ensures that your financial situation has remained the same since your initial approval.

Q: How Can Gustan Cho Associates Help me Avoid Mistakes Prior to Clear to Close?

A: Gustan Cho Associates provides expert guidance and personalized advice to help you navigate the mortgage process smoothly. We ensure you understand what to avoid and help you stay on track for a successful closing.

This blog about the waiting period after foreclosure requirements for borrowers on title but not on mortgage was updated on December 12th, 2024.