After the arduous process of finding a home and qualifying for a loan, getting a Cleared to Close (CTC) letter from the bank providing the mortgage, is a huge relief. It means that any conditions or stipulations (often referred to as “stips”) have been met for the loan to proceed. These conditions could be from the buyer’s or lender’s side. It is the final step in being approved for a loan. Generally, once a Cleared to Close letter has been issued, buyers and sellers will be at the closing table, ratifying the sale within a week.
The immediate steps following a Cleared to Close letter
At the same time you receive your CTC, the lender will start to prepare your mortgage documents. After a minimum of three days, you can proceed to the closing. There you will review and sign the loan documents, deed and title. The lender will wire funds to your title company.
Additionally, during this 3 day period, the title company will receive the outstanding utility bills and add these to the settlement sheet. If the buyer has not yet purchased the home owner’s insurance they will have to do so.
On the day of the closing, the buyer is usually permitted to conduct a final walkthrough of the property to check that it is in the same condition as they last saw it or that certain repairs, specified in the addendum to the Purchase & Sale agreement, have been completed.
Can a loan be denied after a Cleared to Close letter?
If you apply for a credit card before the loan closes, or lose your job or face legal issues, the bank could rescind their ‘cleared to close’ letter. Usually, they will do a final round of due diligence before the loan closes to confirm everything is still the same as when they issued the letter. This is particularly true if you have applied for an FHA loan. Most lenders who offer FHA loans will check your credit score at least twice. They do an initial pull shortly after you apply for financing, and they often do a second pull just before the scheduled closing day.
How long before closing do you get a Cleared to Close letter?
According to the Consumer Financial Protection Bureau’s final rule, the creditor must deliver the Closing Disclosure (the same as a Cleared To Close letter) to the consumer at least three business days prior to the date of consummation of the transaction. This time period is measured by days and not the equivalent hours. It’s customary to close with 4-5 days of receiving the closing disclosure.
