Demystifying Conditional Loan Approval from the Underwriter

Getting a home loan can be an intimidating process As a homebuyer, you submit your application and financial documents, then anxiously await the lender’s decision One step in this process is conditional approval from the underwriter. But what does this mean, and what should you expect? In this article, I’ll walk through conditional underwriter approval to help demystify this key stage.

What is Conditional Approval?

Conditional approval means the underwriter has reviewed your loan application and sees you are likely qualified. However, they need additional verifications or documents before giving final approval.

Conditional approval is beyond prequalification or preapproval. With prequalification, you only provide basic financial information. Preapproval involves a soft credit check, but no underwriter review.

Conditional approval means the underwriter has dug into your full application. They have analyzed your credit income assets, and debts, and done initial verifications. Provided any outstanding items check out, you are likely to get the loan.

Why Do Underwriters Give Conditional Approval?

Underwriters give conditional, rather than final, approval because some verifications or documents are still needed. Common reasons include:

• Income verification: The underwriter may need to see more pay stubs, tax returns, or get employment verification.

• Asset verification: They may need more bank statements to confirm your funds and reserves.

• Appraisal: The property hasn’t been appraised yet to confirm its value.

• Homeowners insurance: Proof of insurance is required before closing.

• Title work: The title search isn’t complete, which is needed to check for liens.

• Down payment: Extra documentation is needed if gifts or other sources are used.

The underwriter lists all conditions that must be satisfied in the approval letter. Work diligently to provide outstanding documents quickly to avoid delays.

What Does Conditional Approval Allow Me to Do?

Conditional approval puts you in a strong position as a buyer. Key benefits include:

• Make stronger offers: Conditional approval signals to sellers you can obtain financing. This gives you an edge, especially in competitive markets.

• New construction: Builders often require conditional approval before starting work.

• Speeds closing: Much of the documentation work is done upfront.

• Lock your rate: You can lock in an interest rate with conditional approval.

So while not guaranteed, you can proceed confidently knowing the bulk of underwriting is complete. But don’t let up − keep your finances steady until closing day!

How Do I Get Conditional Approval?

Follow these steps to obtain conditional approval:

1. Find a lender: Shop mortgage rates and choose a lender – online lenders like Rocket Mortgage make this easy.

2. Submit your application: Provide financial details including income, assets, debts, employment, and property information.

3. Send documentation: Supply requested records like bank statements, tax returns, pay stubs, and more.

4. Underwriter review: The underwriter analyzes your application against loan requirements.

5. Get conditional approval: The lender issues a letter detailing underwriting requirements to finalize approval.

Streamline this process by using an online lender that allows uploading documents electronically. Respond swiftly to any underwriter requests.

What Information Does the Underwriter Need?

As the underwriter reviews your application, expect to provide:

• Income verification documents: W-2s, recent paystubs, tax returns, proof of bonuses, etc. Provide two years of returns if self-employed.

• Asset statements: Two months of bank statements showing funds to close and reserves. Document sources of large deposits.

• Credit history and scores: Credit reports from all three bureaus. Explain any issues.

• Property information: Purchase contract, home inspection report, appraisal, title work.

• Liabilities: Documentation on all debts like credit cards, auto, student loans, child support, alimony, etc.

• Explanations: Letters explaining employment gaps, credit issues, inquiries, etc.

• Other: Gift letters, divorce decrees, citizenship verification, HOA info, homeowners insurance quote, etc.

Proactively gather these documents or explain any potential issues to your loan officer early on. Being organized and responsive prevents delays.

What Are Some Common Conditions from Underwriters?

When you receive conditional approval, expect to see requirements like:

• Employment verification: The underwriter confirms your employment status and income.

• Source of funds: You may need to document where large deposits came from.

• Appraisal: The property must appraise at or above the purchase price.

• Homeowners insurance: The underwriter verifies you have adequate coverage for the lender’s requirements.

• Title clearance: Any liens or other issues that show up on the title report must be resolved.

• Credit report updates: Accounts need to remain in good standing with no new inquiries.

• Down payment documentation: Provide gift letters or other records for your down payment sources.

• Loan program conditions: FHA, VA, and other program loans have guidelines like minimum credit scores that must be upheld.

Work quickly to satisfy these conditions so your approval remains on track.

How Long Does Conditional Approval Last?

Conditional approval typically lasts 30-60 days. During this time you must meet any requirements to obtain final underwriting approval.

If new issues arise or conditions aren’t quickly met, the underwriter could revoke conditional approval. So stay vigilant until your loan closes.

If your loan doesn’t close within the conditional approval period, you may need to extend it or go back through underwriting. Closing delays could also cause you to lose your rate lock.

By proactively providing outstanding documents, you can avoid situations that lead to re-underwriting. Work closely with your loan officer to finalize conditional approval ASAP.

Can Conditional Approval Be Denied?

Yes, it is possible for your mortgage to be denied even with conditional approval. Reasons this can happen include:

• You missed underwriting conditions or deadlines.
• New debts or credit issues emerged.
• The appraisal came back low.
• Your job or income changed.
• The title search uncovered problems.
• You can no longer afford closing costs.

Essentially if anything surfaces that no longer makes you eligible under the lender’s underwriting guidelines, your loan can be denied.

That’s why maintaining your finances and fulfilling all conditions is critical until your mortgage closes. Stay in contact with your loan officer so you aren’t blindsided if any issues do arise.

What Comes After Conditional Approval?

Once all underwriter conditions are satisfied, you are issued a clear to close. This means final underwriting is complete, and you have the green light to close on your mortgage.

Next comes the closing disclosure outlining your final loan costs. Three days later you can sign your closing documents and get the keys to your new home!

Just don’t let up even once you are cleared to close. Until you sign the dotted line at your closing, it’s essential to avoid changing anything that could impact your approval.

Key Takeaways on Conditional Underwriter Approval

Conditional approval brings you steps closer to mortgage approval by completing key underwriting upfront. While not guaranteed, it indicates you’re on track provided all requirements are met. Use this checklist to make the most of conditional approval:

• Gather and quickly submit any documents the underwriter needs.

• Avoid taking on new debts before closing.

• Don’t change jobs or make major purchases.

• Let your loan officer know ASAP if any hiccups arise.

• Ask your lender if re-underwriting is needed if closing is delayed.

• Maintain your finances in a steady state until your mortgage closes.

With diligence and organization, conditional approval can smoothly lead to the keys of your new home. Now you have an inside look at what this underwriting milestone means and how to navigate it. You’ve got this!