Buying a home involves understanding many different real estate and mortgage terms. Two very important ones to learn for mortgages are “mortgage commitment” and “clear to close.” Below, we discuss the distinction between these terms and why the differences are critical to the buying process.
What Is a Mortgage Commitment
Most buyers have heard of the term “mortgage commitment” because there’s a particular deadline for it in the Contract to Buy and Sell Real Estate.
A commitment is a conditional mortgage approval. It is issued by a lender after they have reviewed your personal finances and the details of the home being purchased.
Reviewing Mortgage Conditions Closely
Your purchase contract contains a mortgage contingency clause with a commitment deadline. If you are unable to obtain a commitment by that date, then that clause allows you to terminate the contract and receive your escrow deposit back. It is extremely important to review the specific conditions listed on a mortgage commitment before allowing the deadline to lapse.
Here’s why: Let’s assume that your commitment deadline is on the 20th. On that date, you receive a commitment from your lender that lists several remaining conditions, some of which you don’t pay much attention to. Three days later, you realize that one of the remaining conditions cannot be cleared and that your mortgage will not be approved.
Since the commitment deadline has passed, you cannot terminate the contract without losing your escrow deposit. To best protect your interests, you should review all mortgage conditions carefully and resolve any major ones before the deadline. If more time is needed, discuss with your agent the possibility of negotiating an extension.
Clear to Close
A “clear to close” is when everyone can breathe easy. This is issued when all mortgage conditions are met and the file is ready to be sent to the closing attorney. For an extended closing time frame, it’s possible that you will receive your mortgage commitment long before a clear to close. This is because some final mortgage conditions, such as verbal verification of employment, are not completed until a few days before closing.
As a buyer, do not assume that a commitment letter means your loan is fully approved and ready to close; all mortgage commitments are conditional approvals. Be sure to closely review the listed conditions for risk. Seek the advice of your loan officer and real estate agent regarding deadlines and how best to handle any issues or delays
Suzanne Plewes is a broker associate at RE/MAX Alliance. Write to 750 W. Eisenhower Blvd., Loveland, CO 80537, call 970.290.0373 or e-mail [email protected]