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Getting a loan for a big purchase like a house or car can be an exciting yet stressful process. You likely have a lot of questions throughout the application, especially when your lender mentions something called “conditional approval.” I remember feeling confused when I first heard that term from my mortgage lender. What did it actually mean? Would I for sure get the loan?
Conditional approval is an important part of the lending process, but it can be confusing if you don’t fully understand it. In this comprehensive guide, I’ll explain everything you need to know about conditional approval on a loan application.
What Exactly Is Conditional Approval?
Conditional approval means the lender has reviewed your application and believes you are likely qualified for the loan, pending some final verifications.
With conditional approval, the lender still needs to complete a few more steps before formally approving the loan. These remaining steps allow them to confirm the details provided in your application
Some examples of what still needs to happen:
- Verify income and assets
- Check credit history again
- Appraise the property or asset being financed
- Ensure you still meet eligibility criteria at time of closing
So conditional approval is not a final loan commitment yet. But it’s a strong indication you are on track to get approved once the lender finishes reviewing your application.
How Conditional Approval Differs from Preapproval
Conditional approval is beyond just preapproval.
With preapproval, the lender takes a quick look at your finances and provides an estimate of the loan amount you may qualify for. It’s a preliminary review.
Conditional approval means an underwriter has done a much more comprehensive review of your financial situation already. They have scrutinized your credit, income sources, debts, and assets to confirm you are likely in a solid position to get the loan.
So conditional approval gives you more confidence than just preapproval. With conditional approval, there’s a high probability of getting the loan as long as you continue meeting the requirements.
The Pros of Getting Conditional Approval
There are some nice advantages to getting conditional approval versus just preapproval:
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Shows sellers you’re a serious buyer. With a conditional approval letter, sellers can verify you have undergone significant financial review with the lender already. This gives them confidence you can actually get financing to complete the purchase.
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Speeds up final approval. Since the lender has already done an in-depth review, final approval can happen more quickly once you satisfy any remaining conditions.
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May be required on new construction loans. Builders often want to see conditional approval before they will start construction on a new home.
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Locks in current rates. Conditional approval allows you to lock in an interest rate on the loan. So you don’t risk rates going up later before you get final approval.
How to Get Conditional Approval on a Loan
If you want to get conditional approval, follow this general process:
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Submit loan application and all requested documents. Be thorough and submit everything the lender asks for. This allows them to fully verify your situation.
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Request conditional approval. Specifically ask your loan officer if you can get a conditional approval letter once the initial underwriting review is complete.
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Provide any additional items requested. The lender will let you know if they need anything else to proceed with final approval. Quickly submit any extra documents they request.
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Wait for notice of conditional approval. This usually takes anywhere from a few days to a week after you submit a complete application with all documents.
Common Conditional Approval Requirements
While each lender is different, here are some common conditions you may need to meet before getting final approval:
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Provide updated bank statements to show your current asset balances
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Submit your most recent pay stubs to confirm your income
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Have the property appraised to validate its value
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Get homeowners insurance and show proof of coverage
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Explain any large, recent deposits or withdrawals on your bank statements
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Complete another credit check to verify your score is still similar
Make sure you stay on top of any requirements so that final approval goes smoothly.
Can a Loan Still Be Denied After Conditional Approval?
Yes, there is still a possibility your loan is denied even after getting conditional approval.
Here are some reasons the lender may still decline your application:
- You took on significant new debt after conditional approval
- Your income dropped recently
- The property appraisal comes back lower than expected
- There are title issues found on the property
- Your credit score decreases substantially
- You cannot verify income to the underwriter’s requirements
To avoid denial, be careful not to make any big financial moves after getting conditional approval without checking with your loan officer first. Also stay on top of providing any documents the lender needs to finalize the verification process.
How Long Until Final Approval After Conditional Approval?
The timeline between conditional approval and final approval can vary:
- 1-2 weeks is common if you meet all approval conditions quickly
- 2-4 weeks if there are delays in completing conditions
- 4+ weeks if there are significant issues to resolve or conditions to meet
The best way to expedite final approval is satisfying any requirements the lender has as swiftly as possible. This shows the underwriter you are on top of your finances.
Conditional Approval Gives You Confidence as a Borrower
Overall, conditional approval gives you confidence in your financial position and likelihood of loan approval. Just make sure you continue to meet any requirements the lender has throughout the process. This will ensure you get to hear those final two words every borrower wants to hear – “approved” and “congratulations”!
What is the difference between conditional approval and preapproval?
Initial mortgage approval, often known as preapproval, is an early stage where the lender provides an estimate of what you may qualify for, based on a preliminary review of your income and credit data. This preapproval can give you the confidence to make an offer on a property, demonstrating to sellers that you’re serious about purchasing. However, a final loan decision requires a more in-depth verification of your details.
Conditional approval, on the other hand, comes in after initial approval — and in fact, after you’ve signed a contract to buy a home and formally applied for a mortgage. This stage involves a more comprehensive review of your financial situation by an underwriter, who then sets specific additional criteria that must be met for final approval.
Both stages are significant steps on your journey to owning a home, with conditional approval being a more advanced, promising phase. Mortgage If you’re refinancing, you might bypass initial approval and go straight to conditional approval.
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The Mortgage Loan Process – Step 4 – Conditional Approval
FAQ
Does conditionally approved mean I got the loan?
Does conditionally approved mean approved?
Do loans get denied after conditional approval?
How long after conditional approval is final approval?
What is a conditional approval?
A conditional approval means your mortgage underwriter – the person who determines whether you qualify for a loan – will likely approve your mortgage application as long as you meet certain conditions. When going through the underwriting process, an underwriter reviews your financial documents and makes sure everything looks good.
What is conditional approval mortgage?
– SmartAsset | SmartAsset What Is a Conditional Approval Mortgage? The conditional approval of a mortgage loan does not guarantee final approval, but it’s a stronger signal that the applicant will be approved than prequalification.
What happens if a loan is conditionally approved?
When you’re conditionally approved, there will be a dollar amount you’re approved for. However, this is conditional and is not a guarantee of final approval. The next steps will be to satisfy the lender’s remaining conditions to transition to a firm approval. What types of conditions exist?
What is a conditional loan approval & preapproval?
Conditional loan approval and preapproval are both ways that a lender can give you some amount of assurance that you’ll be able to borrow a given amount when it comes time to finalize your mortgage. These two options are different in the lender’s level of vetting.