Derek Morgan
Derek Morgan
An empty mortgage application form with house key
Derek Morgan
Derek Morgan

    What is a Free and Clear Mortgage?

    A free and clear mortgage is when the borrower does not have to pay any other outstanding debt or loan on the property. In this case, the borrower doesn't have any mortgage liens on it and is free to use the funds to purchase a new home or invest elsewhere without other payments nagging in the back of their mind.

    Benefits of a Free & Clear Mortgage

    Having a free and clear mortgage has many benefits, mainly allowing the borrower to be more flexible in how they use their funds.  They also bring peace of mind by acknowledging that the borrower is not at risk of foreclosure or having to make additional payments on the property. Additionally, these mortgages can help the borrower build their credit score over time given that they don't have to worry about being late or missing payments. 

    Types of Mortgages

    FHA loans, VA loans, and USDA loans are among the many different types of mortgage loans available. Conventional mortgages generally require a minimum down payment of 20% of the purchase price with long repayment terms. FHA loans require a smaller down payment of at least 3.5% of the purchase price and typically have shorter repayment terms. VA loans are set aside for veterans or active duty military personnel, with the lowest down payment requirements compared to other loans. USDA loans are available to borrowers in rural areas and require no down payment at all.

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    How to Qualify for a Free and Clear Mortgage

    Credit Score

    Credit score is the first thing taken into consideration to qualify for a free and clear mortgage. Your chances of being approved increase significantly if your credit score demonstrates that you are a reliable borrower to the lender. To qualify for a free and clear mortgage, you should aim to have a credit score of at least 620. Not only will your approval chance be better with a higher credit score, but you'll also receive better loan terms and interest rates. 

    When improving your credit score, it’s important to make sure you pay all your bills on time, keep balances low on credit cards, and don’t open too many new accounts. Additionally, you should look into ways to repair any negative items on your credit report, such as late payments, collections, or bankruptcy. Keep track of your credit report to ensure the information is accurate and to dispute any mistakes immediately. You wouldn't want to risk your qualification for a free and clear mortgage just because a small discrepancy was overlooked. 


    A steady income is absolutely necessary to cover the cost of your loan. Generally, lenders look for a debt-to-income ratio of no more than 36 percent so they can confirm that you have the ability to pay back the loan. If your debt-to-income ratio is above 36 percent, it’s important to try to reduce it before applying for a loan, by paying off existing debts or reducing your spending.

    You'll need to show proof of your income, which could be recent pay stubs, tax returns, and other financial documents. You should also make sure you have the necessary funds for a down payment, as well as closing costs. These funds should come from a reliable source, such as savings or investments.

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    Tips for a Successful Free and Clear Mortgage

    Gather Required Documents

    When planning to get a free and clear mortgage, it's important to be extremely organized and have all the necessary documents prepared. Alongside the documents that establish your financial stability, you'll need to provide proof of home ownership and your current mortgage status. Another important document to provide when applying for a free and clear mortgage is a detailed list of your assets and liabilities. This should include everything from your bank account balances to your investments. This will help the lender to get a broad picture of your financial situation.

    Be Prepared for Closing Costs

    The closing costs are typically a percentage of the total loan amount and can add up quickly. Ask your lender for their total in order to factor them into your budget. Other fees could be associated with the loan, e.g. an appraisal fee, an origination fee, or a title search fee. Read the loan agreement thoroughly before signing on that dotted line.

    Be Ready to Make a Down Payment

    The amount of the down payment and the terms associated with it vary from lender to lender. Generally speaking, the larger the down payment, the more favorable the terms you can qualify for. On top of the down payment, they could require a form of collateral to secure the loan. This could include real estate, investments, or other assets. 


    A free and clear mortgage is a loan that has been fully paid off and no longer requires payments to the lender. This is the result of paying off a home loan, either on schedule or ahead of time thanks to a prepayment or extra payments, including biweekly mortgage payments. In contrast, a conventional mortgage is a loan that is still being paid off, usually with monthly payments. Free and clear mortgages are easier to obtain as a result of not needing a credit check or income verification, whereas conventional mortgages do. There are no special requirements for applying for a free and clear mortgage. As long as you meet the lender's requirements, you are good to go.

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