Back in the 20th century, "cleared to close" meant what it sounds like. Your lender had checked your financials, everything looked good and you only had to schedule your closing: then you'd get the mortgage. In the 21st century, however, even after your lender clears you to close, you may find roadblocks in your path.
When you apply to your lender for a mortgage loan, the lender submits your documents -- pay stubs, tax records, student-loan payments, appraisal and so on -- to an underwriter, or runs it through underwriting software. The underwriter reviews everything and gives you a thumbs up or thumbs down -- or alternatively, she sets "conditions to close," which are a list of added items she needs. Once she has all the information, if she approves your mortgage, you're cleared to close.
Second Credit Check
In the wake of the 21st century's housing slump, Fannie Mae, a government-backed corporation that buys mortgages from lenders, has encouraged lenders to make a second credit check after you're cleared. The lender pulls your report and looks for any changes, such as you taking out a car loan, since you first filed your financials. The intent is to uncover last-minute financial problems that may make it harder for you to pay off the mortgage.
No Longer Clear
If the lender finds substantial changes in your credit report, he can reject the loan at the last minute or return it to the underwriter, which postpones the closing. Grounds for turning down your loan include you taking on too much debt after you were cleared, or your credit score dropping sharply. Instead of just throwing out your application, the loan officer might tell you that with your new credit score, you have to take on a higher interest rate.
Even if your lender doesn't turn up problems after you're cleared to close, obstacles can crop up. Your seller may discover she can't move into her new house yet, and request a postponement. If you're currently renting, you have to coordinate the end of your lease with your landlord. You also need enough money in the bank that you can get a cashier's check to bring to the closing. It's important to get the money in the account well ahead of time so that the financial end of things moves smoothly.
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- How Does Guaranteeing a Loan Affect Your Credit Score?