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Getting a home loan can be an exciting yet complicated process One term you may come across is “conditional approval.” But what exactly does that mean? This guide will explain everything you need to know about conditional approval on a home loan
What is Conditional Approval on a Mortgage?
Conditional approval means the lender has reviewed your loan application and related documents and is prepared to approve your loan, contingent on certain conditions being met.
These conditions usually include
- Verification of income and assets
- Home appraisal coming in at expected value
- Clear title search on the property
- Securing homeowners insurance
Essentially, you’ve made it past the initial underwriting phase but there are still a few loose ends to tie up before the lender can give full, unconditional approval
How Conditional Approval Differs from Preapproval
Preapproval and conditional approval sound similar but are distinct stages in the mortgage process.
With preapproval, the lender makes a preliminary assessment based on the information you provide, before receiving supporting documentation. Preapproval gives an estimate of how much home you may qualify for.
Conditional approval means the lender has actually reviewed your financial records, including pay stubs, tax returns, bank statements, etc. An underwriter has scrutinized your information and given a tentative thumbs up, assuming any outstanding conditions are met.
Why Conditional Approval Matters
For buyers, conditional approval carries more weight than preapproval when making an offer, because the lender has already verified your financials. It shows sellers you are a serious, qualified buyer and less likely to run into issues securing a loan later on.
Additionally, conditional approval can potentially speed up the closing process. Since the bulk of underwriting is complete, the lender may need less time to finalize the loan once the purchase contract is signed.
Builders may require conditional approval before starting construction on new homes, to ensure the buyer’s financing is viable.
How to Get Conditional Approval on a Mortgage
Follow these steps to get conditional approval on a home loan:
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Shop lenders and apply – Compare mortgage rates and products from multiple lenders. Once you select a lender, submit a complete application with all required financial documentation.
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Request conditional approval – Let your loan officer know you want to get conditional approval before making an offer. Most lenders won’t automatically issue a conditional approval notice unless asked.
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Go through underwriting review – The loan underwriter will verify your income, assets, credit, and eligibility. This typically takes anywhere from a few days to a couple weeks.
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Get conditional approval letter – If approved, the lender will issue a conditional approval detailing loan terms and conditions that must be satisfied.
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Fulfill conditions – Work quickly to fulfill any remaining requirements, like scheduling the appraisal or securing homeowners insurance.
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Obtain final approval – Once all conditions are met, the lender will remove contingencies and issue a clear-to-close.
Common Conditions for Final Mortgage Approval
Here are examples of common conditions lenders may list on a conditional approval:
- Home appraisal meeting expected value
- Verification of employment or income
- Receiving homeowners insurance documentation
- No new debts or changes to finances
- Providing any additional requested paperwork
- Clear title search and ownership transfer
Meeting lender conditions in a timely manner is crucial for progressing to final loan approval. Stay in close contact with your loan officer throughout the process.
Can a Conditional Approval Be Denied?
There is still a risk of denial even with conditional approval. Reasons a mortgage may ultimately be denied include:
- You take on new debt before closing
- The appraisal comes back low
- Issues show up on the title search
- Income verification falls through
- Home inspection reveals problems
Essentially, if any conditions spelled out in the contingency letter don’t check out, the lender may deny final approval.
The best way to avoid this outcome is upholding your end of the agreement by satisfying all requirements and keeping your finances steady through closing day. Maintain contact with your loan officer if any issues arise.
Conditional Approval vs Unconditional Approval
What’s the difference between conditional and unconditional (final) approval?
With conditional approval:
- Underwriting is complete but loan is still contingent on meeting certain conditions
- Lender is prepared to approve you if all conditions are satisfied
- Term sheet provides loan details and conditions required
With unconditional (final) approval:
- Lender has 100% verified all your information
- All underwriting conditions have been cleared
- No contingencies remain – you are officially approved!
- Lender gives clear-to-close and closes loan
Unconditional approval provides peace of mind that your financing is locked in. Conditional approval means you’re close to the finish line but not there yet.
Final Thoughts on Conditional Approval
While conditional approval doesn’t guarantee a loan, it means you’ve essentially made it past the toughest hurdle – underwriting review. Fulfilling any remaining conditions promptly can help expedite you to a final loan approval.
Conditional approval also looks good to sellers and builders, giving you a competitive edge as a buyer.
Now that you understand the ins and outs of conditional approval, you can navigate the mortgage process with confidence. Partner with a trusted lender that can guide you smoothly through underwriting to loan closing.
Why is conditional approval important?
When you get conditional approval, it means an underwriter has evaluated everything you’ve submitted and deemed you a good candidate for a mortgage — assuming you meet the stipulated conditions. Even though being conditionally approved indicates a strong likelihood of your loan going through, it’s not a guarantee until all conditions are met.
Conditional approval also often comes into play with home construction loans. If you are building a home or buying land to build a home on, the developer or general contractor might demand the financing be conditionally approved before they commit to the project.
What happens after a conditional approval is received?
Once you’ve received conditional approval for your mortgage, the journey toward final approval begins. The following steps are generally involved:
- First, you address any issues that arise during the underwriting process promptly to advance toward the closing phase. This might involve completing or submitting supplementary paperwork, such as bank statements, tax forms, employment records, a home appraisal report or pay slips, and detailing remaining loan or credit balances.
- Once all the requirements are fulfilled, your loan file is returned to the underwriter for a final check and approval. Hopefully, the lender will grant you a ‘Clear to Close’ status, indicating all the documents have been approved and the lender is ready to move to the closing stage.
- The lender will then compile and send you a closing disclosure, and set up your closing date.
- The final step is the closing itself, when the loan funds are distributed, and you’ll get your first payment statement.
The journey from conditional approval to closing usually takes 1-2 weeks — provided you move promptly. Acting quickly is key to ensuring a smooth closing process.
What Does Conditional Loan Approval Mean?
FAQ
Is a conditional loan approval good?
Can a loan be denied after conditional approval?
How long does underwriting take after conditional approval?
Does conditionally approved mean pre approved?
What is a conditional approval mortgage?
There isn’t a “conditional approval mortgage,” but conditional approval is a level of verification used by a lender to signify that a borrower is likely to get approved for a loan if they meet certain circumstances. A lender has the option to provide a variety of types of approvals, each of which means something slightly different.
What is a conditional approval?
When you receive conditional approval, it means that the **mortgage underwriter** – the person responsible for assessing your eligibility for a loan – is likely to approve your mortgage application **provided
What does it mean if you’re conditionally approved for a home loan?
If you’re conditionally approved for a home loan, it means full loan approval is contingent on meeting specific lender conditions.
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.