When you are buying a house, there are two main financial documents you will encounter: the mortgage commitment letter and the clear to close. Both of these documents are important, but what is the difference between them?
In this article, we will look at the Mortgage Commitment Letter Vs Clear to Close in detail and help you decide which one is best for you.
Mortgage Commitment Letter Vs Clear to Close Table of Contents
What is a Mortgage Commitment Letter?
A mortgage commitment letter is a document that is provided by a lender to a borrower that outlines the terms and conditions of the loan. This document usually includes information such as the interest rate, monthly payment amount, and loan term.
A mortgage commitment letter is typically issued after the borrower has applied for a loan and provided all of the necessary documentation to the lender. The letter is a way for the lender to let the borrower know that they have been approved for the loan and what the next steps are.
What is a Clear to Close?
A Clear to Close (CTC) is a letter that indicates that your mortgage loan has been approved and is ready to be closed. This means that all conditions have been met and the lender is prepared to fund the loan.
A CTC typically comes after the mortgage commitment letter, which is a preliminary approval for the loan.
What is The Difference Between a Mortgage Commitment Letter and a Clear to Close?
The main difference between a mortgage commitment letter and a clear to close one is that the former commits the lender to lend you money while the latter means that all conditions have been met for the loan to be finalized.
A mortgage commitment letter is basically a promise from the lender that they will give you a loan for a certain amount of money, provided that you meet all the conditions that they have set.
A clear to close, on the other hand, means that all the conditions have been met and you are now cleared to close on the loan.
What Are The Different Types of Mortgage Commitment Letters?
There are two different types of mortgage commitment letters.
The first is the conditional mortgage commitment letter and the second is the unconditional mortgage commitment letter.
Conditional Mortgage Commitment Letter
A conditional mortgage commitment letter is subject to certain conditions being met before the loan can be approved.
Unconditional Mortgage Commitment Letter
An unconditional mortgage commitment letter means that there are no conditions that need to be met and the loan can be approved immediately.
What Are The Different Types of Clear to Close?
Now that we've gone over what a mortgage commitment letter is, let's take a look at the different types of clear to close. There are two main types of clear to close: pre-approval and final approval.
Pre-approval is when you have been approved for a loan but have not yet closed on the property. This means that you are not yet legally obligated to repay the loan.
Final approval is when you have closed on the property and are now legally responsible for repaying the loan.
What Are The Advantages of a Mortgage Commitment Letter?
There are a few advantages to having a mortgage commitment letter.
The first is that it gives you more negotiating power with sellers. A seller is more likely to accept your offer if they know you have financing in place.
Secondly, a commitment letter can speed up the closing process. If there are no issues with your loan application, you could close on your home much sooner than if you were waiting for final approval.
What Are The Advantages of a Clear to Close?
The advantage of a clear to close is that it means your loan has been fully approved. This gives you more negotiating power with the seller, as they will know that you are a serious buyer. Additionally, it can give you more time to shop around for the best interest rate and terms on your mortgage.
What Are The Disadvantages of a Mortgage Commitment Letter?
While a mortgage commitment letter does offer some advantages, there are also some potential disadvantages that borrowers should be aware of.
One of the biggest potential drawbacks is the fact that the terms of the loan may change between the time when the commitment letter is issued and when closing actually takes place. This means that borrowers could end up with a higher interest rate or less favourable loan terms than they were expecting.
Another potential downside is that the mortgage commitment letter is only valid for a set period of time, usually 60 to 90 days. This means that borrowers could find themselves in a situation where they need to get another commitment letter if they are not able to close on their loan within that timeframe.
Finally, it is important to remember that a mortgage commitment letter is not a guarantee that a loan will be approved. There are still many factors that can affect whether or not a borrower will ultimately be approved for their loan. Borrowers should therefore not rely solely on a mortgage commitment letter when making their decision about whether or not to apply for a loan.
What Are The Disadvantages of Clear to Close?
There are a few disadvantages to getting a Clear to Close. The first is that it can take longer to get this type of commitment letter from your lender. If you're in a hurry to close on your home, this might not be the best option for you.
Another disadvantage is that you might have to pay more fees with a Clear to Close. Lenders typically charge a higher interest rate for this type of loan because they're taking on more risk.
The last disadvantage is that you might not be able to negotiate as much with a Clear to Close. This is because the lender has already given you their best offer and they're not willing to budge.
So, Which One Should You Use?
The answer to this question is going to depend on your specific situation. If you're already working with a lender and you trust them, then you may want to go ahead and get the clear to close. This will give you a little more peace of mind, knowing that everything has been finalized.
On the other hand, if you're not working with a lender and you're still shopping around, then you may want to get the mortgage commitment letter. This will give you a few more days to shop around and make sure that you're getting the best deal possible.
Either way, it's important to understand the difference between the two options so that you can make the best choice for your situation.
What Are Some Alternatives to Using a Mortgage Commitment Letter or a Clear to Close?
If you're not interested in either a mortgage commitment letter or a clear to close, there are some other options available to you.
You could consider refinancing your mortgage, which would give you a new loan with different terms.
Or, you could look into getting a home equity line of credit (HELOC). This would allow you to borrow against the equity in your home, and you would only have to make payments on the amount that you borrow.
There are also some government programs that can help you with your mortgage. The Home Affordable Refinance Program (HARP) is one option that could help you refinance your mortgage into a more affordable loan.
The Making Home Affordable program also offers assistance for those who are struggling to make their mortgage payments.
What Are Some Tips For Using a Mortgage Commitment Letter?
There are a few key things to remember when using a mortgage commitment letter. First and foremost, it’s important to make sure that you understand all of the terms and conditions laid out in the letter. Secondly, it’s crucial to ensure that you have the financial ability to actually meet the terms of your mortgage commitment.
And finally, it’s important to be aware of any potential risks involved in taking out a mortgage commitment. While there are plenty of advantages to using a mortgage commitment letter, there are also some potential drawbacks that you should be aware of before making your final decision.
What Are Some Tips For Using a Clear to Close?
When you're ready to move forward with a mortgage, you'll need to get a clear to close. This document is essential to the home-buying process and will help you avoid any potential delays or complications. Here are some tips for using a clear to close:
- Make sure you understand all of the terms and conditions associated with your loan.
- Be sure to compare rates and fees from multiple lenders before choosing one.
- Keep in mind that the clear to close is not a guarantee that your loan will be approved; it simply means that the underwriting process has been completed and you're cleared to move forward.
- Be prepared to provide additional documentation or information if requested by the lender.
By following these tips, you can help ensure a smooth and successful mortgage application process.