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Getting a home loan can be an exciting yet stressful process. One term you may come across is “conditional approval.” But what exactly does that mean?
A conditional approval is an interim step in the mortgage process where the lender states they are likely to approve your loan, pending some final verifications. It provides more certainty than a preapproval letter, but doesn’t guarantee the loan like a final loan approval does.
In this comprehensive guide, we’ll explain everything you need to know about conditional approvals on home loans.
What is a Conditional Approval?
A conditional approval means the mortgage lender has reviewed your credit income, assets and other documentation and is prepared to finalize the loan provided certain conditions are met.
These conditions usually include:
- Verifying employment
- Ensuring sufficient funds for down payment
- Receiving a satisfactory home appraisal
- Validation of homeowners insurance
- Final underwriting approval
The lender stipulates these conditions upfront so you know what to expect moving forward. Fulfilling the requirements in a timely manner helps ensure your conditional approval transitions to a final loan approval.
The Conditional Approval Process
Here are the typical steps to get a conditional approval on a mortgage:
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Submit loan application and documentation. Provide pay stubs, tax returns, bank statements, and a loan application.
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Underwriter reviews file. The underwriter confirms you meet the lender’s criteria based on your credit, income, assets, and debts.
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You receive conditional approval. The lender states you’re likely approved assuming you satisfy specific conditions.
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Fulfill conditions. Take any steps needed to meet the lender’s requirements before closing.
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Obtain final loan approval. The underwriter gives the official green light after validating you met all conditions.
The conditional approval process usually takes 1-2 weeks. Closing can happen shortly after you receive final approval.
Conditional Approval vs. Preapproval
Preapproval and conditional approval sound similar but have some key differences:
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Preapproval – A lender confirms you meet basic requirements but doesn’t verify documentation.
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Conditional approval – The underwriter reviews your file and validates you’ll likely qualify pending specific conditions.
The conditional approval gives more assurance the loan will go through. The underwriter has already approved you on a preliminary basis.
Pros of a Conditional Approval
There are several advantages to getting a conditional approval on a mortgage:
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Stronger buyer position – Sellers know you can get financing, which is key in competitive markets.
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Speeds closing – Since the underwriter already reviewed your file, the closing process may be faster.
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Satisfies lenders – Builders often require conditional approval before starting construction on a new home.
Overall, the conditional approval provides more confidence in your ability to finalize the loan.
When Conditional Approvals are Denied
There’s still a chance your mortgage gets denied even after a conditional approval. Some common reasons for a denial include:
- You took on new debt
- The underwriter can’t verify your documents
- You don’t meet the lender’s conditions in time
- The appraisal comes back low
- Issues arise during the home inspection
- Your income changes
To avoid denial, maintain your current finances, satisfy conditions ASAP, and keep your loan officer updated on any changes.
How Long Until Closing?
The timeline between conditional approval and closing varies, but expect 1-3 weeks if all goes smoothly.
You can help speed things up by promptly providing any additional documentation and meeting all the stipulated conditions. The quicker you satisfy lender requests, the faster you’ll get the clear to close.
Getting Conditional Approval on a Home Loan
If you want to get pre-approved for a mortgage, make sure to also ask for conditional approval from your lender.
Here are some tips for getting a conditional approval on your home loan:
- Shop lenders and compare loan estimates
- Provide all required documentation upfront
- Clearly state you want conditional approval
- Fulfill conditions ASAP
- Maintain open communication with your loan officer
Taking these steps shows sellers you can confidently close and gets you closer to owning your dream home.
The Bottom Line
A conditional approval means you’ve passed preliminary underwriting but still have a few steps left before closing. It brings you one step closer to mortgage approval.
Now that you understand conditional approvals, you can navigate the home buying process with confidence. With strong finances and a trusted lender, you’ll get the keys to your new home in no time.
Common causes of conditional approval
You could receive a conditional approval if you have neglected these criteria:
- Getting a signed gift letter if someone is giving you money to help with the home purchase
- Providing enough detailed financials (e.g., bank statements, pay stubs, details on other debt like a car loan)
- Getting homeowners insurance
- Addressing a home appraisal that’s significantly below the purchase price/amount you’re borrowing
- Receiving confirmation from your employer that you’re on their payroll or receive wages from them
- Getting a letter from you explaining an issue that concerns the lender (e.g., a recent large withdrawal or fresh debt)
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What Does Conditional Loan Approval Mean?
FAQ
Does conditional approval mean approved?
How long after conditional approval is closing?
Can a loan be denied after conditional approval?
Is a conditional approval a loan commitment?
What does conditional loan approval mean?
Conditional loan approval means that your mortgage application has been vetted by an underwriter, and the lender is now largely satisfied with your ability to repay the loan. At this stage there may be some conditions or contingencies that the lender stipulates must be satisfied before they’ll approve the loan.
What is a conditionally approved mortgage?
However, you may be unfamiliar with the term “conditionally approved.” Conditionally approved means your mortgage application has gone through underwriting and the lender is expected to approve you for a home loan—as long as you meet certain conditions first. Conditional approval is not the same as a preapproval.
Does conditional approval guarantee your mortgage will be approved?
Conditional approval doesn’t guarantee your mortgage will be approved. But it makes a stronger case for your mortgage application than prequalification, which is a quick, informal review of your self-reported financial information. Here are some common approval conditions borrowers should be aware of:
What happens if you get conditional approval for a home loan?
If you get conditional approval for a home loan, you show sellers you’re a strong candidate. That could come in handy in a bidding war. Conditional loan approval could also speed up the closing process. For a mortgage to close, there’s lots of financial information for lenders and underwriters to review and process.