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Buying a home is likely one of the biggest financial decisions you’ll ever make. The process can seem overwhelming, especially when you start hearing unfamiliar real estate jargon being thrown around. One term that often pops up early in the home buying process is “conditional approval.” If you’re wondering what exactly conditional approval means and entails when applying for a mortgage you’re not alone. As a first-time homebuyer myself a few years back I’ll admit I found the concept confusing at first too. But conditional approval is an important milestone in the home loan process and worth understanding. In this article, I’ll break down everything you need to know about conditional approval for home loans in simple terms.
What Exactly is Conditional Approval?
Conditional approval is a preliminary approval for a mortgage loan, pending the fulfillment of certain conditions set by the lender. It comes after you’ve submitted your loan application and documents, which the lender reviews in a process called underwriting.
If the underwriter identifies any missing information or potential issues, they will grant a conditional approval contingent on you providing additional documentation or taking steps to satisfy their conditions Think of it as the lender saying, “We’ll likely approve your loan, but we need a few more things from you first”
Conditional approval means you’ve passed the initial underwriting checks, but the lender still needs to verify some details before giving full, unconditional approval. It’s not a guarantee you’ll get the loan, but it’s a strong indication you’re on the right track if you meet the conditions.
When Does Conditional Approval Happen?
Conditional approval generally comes 1-2 weeks after submitting your mortgage application and supporting documents. The timing depends on factors like your lender’s workload and how promptly you provide requested paperwork.
Typically, the underwriting process goes like this:
- You apply and provide financial documents
- Underwriter reviews and requests any missing info
- You receive conditional approval if underwriter just needs clarification on a few things
- You satisfy the conditions and provide requested items
- Underwriter finishes review and grants full approval
So conditional approval happens in between initially applying and getting your final loan approval. It’s a critical middle step that signals things are progressing well.
Common Conditions for Approval
The specific conditions for your conditional approval will depend on your financial situation and the details of your application. But some common conditions include:
- Providing bank statements to verify assets or income
- Getting homeowners insurance quotes
- Explaining large account withdrawals
- Providing gift letter for gift funds being used for down payment
- Supplying additional pay stubs or tax returns
- Documentation related to specific loan programs
The lender may request just one or two straightforward items from you, or they may have a larger list of conditions that require more time and effort to fulfill. Your loan officer can explain what exactly you need to provide for full approval.
Why is Conditional Approval Useful?
There are a few key advantages to getting conditional approval versus just a pre-approval when buying a home:
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Stronger position as a buyer: Conditional approval shows sellers you are serious and have undergone more financial vetting. This can give you an edge if bidding against other offers.
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Speeds up closing: Since the bulk of underwriting is done, the final approval can happen more quickly after conditions are met. This makes for a smoother closing.
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Locks in mortgage rate: Your interest rate is usually locked when conditionally approved. So you are protected from rate increases that occur while fulfilling conditions.
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High likelihood of approval: According to research, 93% of conditionally approved loans eventually get full approval and fund, assuming borrowers satisfy lender conditions.
Can a Conditionally Approved Loan Still be Denied?
Yes, it is still possible for your mortgage to be denied even after a conditional approval. This happens if you fail to meet the lender’s conditions in the required timeframe.
Some other reasons a conditionally approved loan can still fall through:
- You take on new debts before closing
- The appraisal comes in lower than expected
- Unexpected issues show up on a home inspection report
- Your income decreases before closing
- You cannot verify sources of funds
- There are problems with the home’s title
To avoid denial, be sure to stay on top of outstanding conditions and keep your finances steady leading up to closing day. Alert your loan officer ASAP if any snags come up so they can advise you on the best solution.
How Long Does Conditional Approval Last?
There is no set expiration for a conditional approval – the timeframe depends on the individual lender. Some lenders give just 7 days, while others allow 30 days or more to satisfy conditions.
The best practice is to fulfill all requirements and provide documentation as quickly as possible, before the lender’s deadline passes. The sooner you can resolve any outstanding conditions, the faster you will get full approval and can proceed to closing.
If you need more time to meet your conditions due to unavoidable delays or complications, request an extension from your loan officer. Most will grant reasonable extensions as long as you communicate proactively.
What Comes After Conditional Approval?
Once you’ve met all of your lender’s conditions, the underwriter will re-review your full application and documentation and make a final determination. If everything looks good, you’ll receive an unconditional approval (also called “clear to close”). This means the mortgage is officially approved and you can move forward with closing!
Some key things that happen after unconditional approval:
- Final loan documents are prepared
- Interest rate is locked if it wasn’t already
- Closing date is set
- Down payment and closing costs are due
- Final walkthrough of home is completed
- Loan funds and you get the keys!
Conditional approval is an exciting milestone that puts you on the home stretch to mortgage approval. Stay diligent about satisfying lender conditions so you can meet that finish line of closing day!
FAQs about Conditional Approval
How is conditional approval different from pre-approval?
Pre-approval is an unofficial preliminary approval based only on a cursory review of your information. Conditional approval involves in-depth underwriting and verification of your finances and eligibility by the lender.
Can I lock in an interest rate with conditional approval?
Yes, most lenders allow you to lock in your interest rate once conditionally approved. This protects you from rate hikes while you finalize full approval.
Does conditional approval require a home inspection?
No, a home inspection is not required for conditional approval. Inspection happens later in the process once your offer is accepted on a home.
Can I negotiate a lower sales price with conditional approval?
Absolutely. Conditional approval strengthens your position to negotiate with confidence since the seller knows your financing is nearing completion.
How long does it take to close after conditional approval?
Most lenders can process full approval within 7-14 days after conditions are met. Closing is typically scheduled 30-45 days out from full approval.
The Bottom Line
Hopefully this breakdown clarifies what conditional approval means and how it fits into the overall mortgage process. While it may sound ambiguous at first, just remember conditional approval is a positive step signaling you are on track for full home loan approval, assuming you satisfy the lender’s stipulations. Be diligent about providing all requested documents and information to your loan officer so you can get the green light to close ASAP!
Closing on a home after conditional approval
To close on your house, you need to finalize your loan. And that means moving from conditional approval to unconditional or full approval. To get there, you need to meet all of the conditions the lender has laid out.
In many cases, it simply means providing the lender with more information. That might involve reaching out to your employer or tax professional for additional documentation, drafting a gift or explanation letter or talking to an insurer to get the house covered.
Whatever the case may be, you won’t be able to get the mortgage — or close on the house — until you meet all the lender’s conditions. If you’re in a competitive market or the seller wants a quick closing, act fast here.
Checking off your conditions is just one piece of finalizing your home loan. You also need to be ready to pay closing costs. Your lender should explain everything required to get your loan in place.
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.