You hear the words ‘clear to close’ and you get excited. You made it through the obstacles that securing a mortgage involve. Now you can count on buying the home you always wanted. Before you get too excited, you should know that the ‘clear,’ really isn’t the ‘all clear’ you think it is. There are a few details the lender still has to verify before you can truly close on the loan.
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What Does Clear to Close Mean?
Technically, ‘clear to close,’ means the lender can start preparing the closing documents and securing the closing date and time for you. For you, it means that you can start getting your money together that you need to bring to the closing and finalizing any details you need to figure out before you take possession of the home (in a purchase.)
What it truly means, though, is that the lender still needs to
re-verify your credit and your employment status. The lender will pull your credit one last time right before the closing (or even the day of closing.) The lender will also verify your employment one last time, again either right before or on the day of closing.
Pulling Your Credit
You might wonder why a lender would pull your credit again if you are already approved for the loan. It’s a way to make sure nothing changed between the point of application and closing on the loan. Usually, there is a span of a month or two between starting the process and closing on the loan. A lot could happen within that time.
The lender will generally do a ‘soft pull’ on your credit. They just want to make sure that you did not open any new credit since you applied for the mortgage. They will look for any new open accounts as well as any new inquiries. If you have inquiries, it could signify that you opened a new account or two but they are too new to report on the credit report. In other words, it could pose an issue with your loan, at the very least, causing a delay in the closing.
If the lender does find that you
opened new credit, it could bring you back to square one. They will have to run your numbers again, including the amount of the newly acquired debt. This could affect your debt ratio, which could leave you without an approval if your debt ratio increases too much.
Verifying Your Employment
The lender will also verify your employment before the closing. They usually call your employer to make sure you still work there. This is just another precautionary measure to make sure the income you claimed you make still exists.
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You might wonder why a lender would do this again, but a lot can happen in the month or two time span. What if you lost your job whether you got fired or quit? Now you don’t have the income you claimed on your loan application. This changes the entire scope of your loan. Without proper income, you won’t be able to qualify for the loan.
If you did lose your job, it’s best if you talk to the lender right away. Be honest about your job change. If you secure another job fairly quickly, let the lender know. Each lender and loan program has
different requirements regarding how long you must have the job before you can use the income. For many lenders, it may only mean a month or two before you can re-apply for the loan.
Avoiding a Loan Denial
So how do you avoid getting that loan denial? Try to keep everything as stable as possible. Keep paying your bills on time and don’t open any new credit. Don’t even apply for anything while you wait for your loan to close. You have plenty of time after the loan closes to apply for new credit if you need it. Apply for the credit before you close could lead to a loan denial.
Also, do what you can to keep your job. Of course, no one can prevent being let go if the company downsizes or your job is eliminated. But, quitting your job can wait until after you close (if you plan to do so). Keeping everything the same is the best way to ensure that your ‘clear to close’ stands.
Bottom line, yes, your loan can be denied after a ‘clear to close.’ It’s up to you to keep everything the same that is within your control to ensure that you still have the loan you want.
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