Understanding Clear to Close for VA Buyers

VA Loans Clear to Close (CTC)

You’ve worked with your loan officer and the day you’ve been working toward has arrived. He says the magical words, “Your loan is clear to close.” But now, you wonder, what’s next?

From the moment your loan receives approval by an underwriter a huge weight is lifted from your shoulders, but you aren’t quite finished. This guide will outline each step of the process from the moment you receive the “clear to close” until you pick up the keys to your new home.

Clear to Close issued

When your loan officer calls to say your loan is Clear to Close (CTC) that means the underwriter has approved all documentation necessary for the title company to schedule the closing and start drafting the Closing Disclosure. But it isn’t a guarantee your loan will close. Prior-to-Funding conditions have to be cleared prior to the wire transfer. We will discuss those in more detail a little later.

What is a Closing Disclosure? A Closing Disclosure outlines the final or near-final costs for both the borrower and seller.

What is a wire transfer? A wire transfer is a transaction between the mortgage company and the closing agent (title company or closing attorney). The mortgage company sends the loan funds to the closing agent to complete the transaction.

Once a CTC is issued it’s time to schedule your closing. This may occur on the original date selected on your contract; it may be earlier if you had a very simple underwrite; or unfortunately in some cases it may be after your scheduled closing date if you had issues in underwriting. One thing that is really important to note here is that your closing will not occur on the same day you receive your CTC. There is just too much that has to occur between CTC and closing for this to happen.

Once you receive your CTC an additional player will be added to the mix on your lender’s team: the closer. This specialized individual is the go-between for the title company, loan officer and underwriter. Closers ensure all final loan documents meet VA, federal and lender guidelines. The closer will also work with the underwriter to clear prior to funding conditions on your loan.

Adjusting insurance coverage dates

Depending on your insurance company and when the original policy quote was issued it may be necessary to contact the insurance company to have them move up or push back the date coverage is scheduled to start.

With many insurance providers the loan officer can handle this, but there are a few companies that require communication directly from the borrower to update the policy. Your loan officer will let you know if this is something you need to do.

Closing Disclosure

Until the Closing Disclosure is approved the closing costs you’re quoted are just estimates. These numbers are not finalized until a specific closing date is set in stone. The fluctuation occurs because the date of closing will affect how much needs to be collected for taxes, insurance and some other fees.

Once the CTC is issued your loan officer starts to work behind the scenes with the closer and the title company. Your lending team will get to work on your Closing Disclosure.

Some states require the use of a closing attorney, who acts as a go-between for the title company and lender.

States that require the use of a closing attorney: Alabama, Connecticut, Delaware, Georgia, Louisiana, Maine, Massachusetts, Mississippi, New York, North Carolina, South Carolina, Vermont and Virginia.

If you’re purchasing in a state not on this list double check with your real estate agent or a title attorney as there are a few counties that are outliers and may require an attorney as well.

The Closing Disclosure will detail how much money you need to bring to closing or how much you will be getting back.

Final walkthrough

After your closing is scheduled your real estate agent will likely arrange a final walkthrough of the property. It’s outside the scope of the loan process, so your loan officer and lender will not be involved in this step.

The final walkthrough is a time for buyers to visit the property to ensure the following:

  • Agreed upon repairs have been completed
  • All items included in the contract have been left in the home
  • The home is clean of all trash and all non-contract items have been removed

If one or more of these are not complete, then it will be up to the buyer’s real estate agent to communicate and negotiate the completion of these items with the seller.

Closing

What happens at closing?

The closing generally occurs at the title company or title attorney’s office. On the day of closing you will sign all your final loan documents. Frequently the seller and buyer sign the documents at different times but there are some instances where both parties will sit at the closing table and sign documents together.

The Closing Disclosure will itemize all closing costs for the buyer and the seller. It’s not uncommon for many VA borrowers to pay little to nothing at closing by negotiating for seller-paid closing costs. But every transaction is different.

It’s important to note that title companies often have restrictions on the methods of payment they will accept. Many will only accept a certified check or money order and will not accept a personal check or debit/credit card. Talk with your loan officer in the lead up to your closing about how best to handle cash due at the closing table.

Prior-to-Funding Conditions

After you receive the Clear to Close your loan officer will notify you of any remaining Prior-to-Funding conditions. These are conditions outlined by the underwriter that have to be met before the funds are wired to the title company.

A couple examples of common Prior-to-Funding conditions:

Alive and Well statement
If you are active duty using power of attorney, the underwriter will need an alive and well statement. The purpose of this document is to confirm that the borrower on the loan documents is alive and well at the time of closing. There are a few different versions of this statement depending on where you are deployed.

If you have easy access to a telephone and can speak with your loan officer on the day of closing, your loan officer can draft a statement confirming this information.

If you won’t be available for phone contact on the day of closing, you will have to furnish a written statement confirming you are alive and well as of the date of closing.

Talk with your loan officer for more information about Alive and Well statements.

Re-inspection
If repairs are noted on the appraisal, the appraiser will have to conduct a re-inspection to confirm they were completed. You’ll also have to show evidence of who paid for the repairs.

Spouses not on the loan will likely still have to sign certain documents at closing, but this can vary by state.

If you were originally scheduled to close on June 30 but your closing gets pushed back to July 1, active duty and reserve personnel will have to provide an updated Leave and Earnings Statement (LES).

All prior-to-funding conditions will have to be cleared by the underwriter or closer before the funds are wired to the title company.

Wire/Funding

Once all prior-to-funding conditions are met and you’ve signed all closing documents, your lender will wire the funds to the title company or closing agent. This is called funding. In some states, loans fund the same day as closing (called table funding), and in others they occur the next business day.

You should consult with your loan officer on when your funding will occur. Why does this matter?

Some title companies hold onto the keys to the home until the loan has funded. If you’re in a next-day funding state, you’ll want to plan your move accordingly.

Keys and Moving

Once you receive your CTC and schedule your closing it’s time to start packing and arranging your final moving plans. Whether you’re moving across town or across the country, it’s always a good idea to wait finalize these plans until you receive your CTC. That way, if there’s an unforeseen issue with your loan that requires a few extra days of work, you haven’t already packed up and moved out.

Depending on the title company and your arrangements with the seller you will either receive the keys to your new home the day of closing or at a later date.

Key Questions to Ask

Q: Does my spouse need to be present at closing?

A: In most cases the answer is “Yes,” even if your spouse isn’t on the loan. Make sure to check with your loan officer and the title company prior to closing. Guidelines on this vary by state.

Q: Does my power of attorney meet the title company or attorney’s standards?

A: Some title companies are very particular on the power of attorney forms they will accept if you are not going to be physically present at closing. Check in advance to avoid delays.

Q: How much money do I need to bring to closing?

A: Once your loan officer has approved the Closing Disclosure, you should know to the penny how much you need to bring to closing, if any. Changes to the disclosure are possible, but major changes will result in the issuance of a new Closing Disclosure (which will also trigger a three-day waiting period).

Q: What methods of payment are accepted?

A: Many closing agents will only accept cash or money order. If you will owe money at closing, confirm with the closing agent in advance so that you can be prepared with the proper method of payment.

Things to Avoid

Changes in employment
One of the jobs of the closer is to verify that you’re still employed where you say you are. Any changes in employment could cost you the house.

Big purchases
Your loan has been approved, which means you are good to go, right? Wrong. Until your loan has funded do not make any large purchases that could alter your debt to income ratio. If you do, your loan will have to go back through underwriting to determine if you still meet lending guidelines.

Credit Inquiries
You are buying a new home and understandably you want to make sure it looks nice. Just know that now is not the time to open a new credit card to purchase furniture or home goods. If you intend to open a line of credit, wait until after your loan has funded to even think about applying.

Talk with your loan officer if you have any questions about your closing costs, cash-to-close or anything else related to your Clear to Close and your impending loan closing.

Photo courtesy Flickr user Leandro Neumann Ciuffo under CC BY 2.0