As described in 5 Essentials Steps to Buying Property in New York I will be writing a series of more detailed articles about each of the 5 essential steps.
This article covers the fourth step in buying property in New York, getting cleared to close.
Getting Cleared to Close
Clear to close simply means, that you’ve met the requirements and conditions to close on your mortgage. At this stage, your lender has fully reviewed your documents and verified that you meet the expectations of the type and amount of mortgage you’re requesting.
Being clear to close isn’t the final destination for your loan, but most home buyers can look forward to a closing date right around the corner.
Once your loan officer has cleared all of your loan commitment conditions and the lender’s attorney has approved the documents, you will be able to schedule a date where both parties can meet for the close.
Depending on the bank’s regulations, once you are cleared to close you will not be able to schedule your closing date within 72 hours of having acknowledged your closing disclosure.
How to Get Your Loan Cleared to Close?
Reaching clear to close requires a considerable amount of work for both the lender and the borrower.
Here are some steps you will be following before you are cleared to close:
1) Documentation: whichever lender you choose will need to see some specific documents before you are fully approved for your loan. This will include verification of your income and assets, such as pay stubs and recent bank statements. You will also need to present documentation of any current liabilities, which will help your lender determine your debt-to-income ratio. Finally, you might need to provide your lender with written permission to access your credit score last time prior to closing.
2) Appraisal: It is more than likely the lender will require an appraisal of the property during the underwriting process. In order to the borrower the loan amount requested and meet the terms that you negotiated with your lender, the appraisal must appraise at or above the purchase price. If the property appraises below the purchase price then the terms of your loan payment may change or, in a worst-case scenario, the lender may not provide you with the loan. Many times the contract will be negotiated to ensure that the transaction is conditioned upon a satisfactory appraisal, i.e. the property appraises at value or your lender is willing to write the loan based upon the appraisal amount regardless of the low appraisal. If the contract is not conditioned upon a satisfactory appraisal then you will be required to make up the difference in the appriasal and proceed with the transaction.
3) Accumulating Debt: While in contract to purchase your dream home, it is important not to accumulate additional debt when financing the purchase. We understand purchasing a home is an exciting life event and you want to make it feel like home, however, making large credit purchases to furnish the home or renovation materials prior to closing may affect your credit score. If you accumulate too much debt during this time period your credit score will more than likely decrease and put your financing at risk. In the event your credit score or your debt-to-income ratio falls below a certain lender threshold, the lender will more than likely decline your loan after you obtained a commitment. If the lender has already issued a commitment and then declines the loan for the aforementioned reasons, then this act would be considered bad faith in the contract and you are putting your down payment at risk. Further, while in contract, it is important not to enter into multiple financed purchases, purchase or finance a new vehicle, or take out additional credit cards. These acts all affect your credit score and could lead to problems with the financing of your purchase.
Getting cleared to close can take 45-75 days. If you are requesting a loan, and want to get cleared to close as quickly as possible, make sure you prepare your documents in advance, fill out your mortgage application to completion, satisfy all of your underwriting requirements and keep an open line of communication with your lender and attorney.