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Buying a home is likely one of the biggest financial decisions you’ll make in your life. While exciting, it can also feel overwhelming as you navigate the mortgage process. One term that often pops up is “conditional approval” which can leave some buyers confused. What exactly does it mean and what should you do if you get it? Let’s break it down.
What is Conditional Approval?
Conditional approval is a common stage in the mortgage underwriting process. Essentially it means the lender is likely to approve your loan application but needs a bit more information first.
The underwriter reviews your financial paperwork like income, assets, credit score and history. If everything looks good, they’ll fully approve your application. But sometimes they can’t give a firm yes just yet. For example, they may need:
- More bank statements to confirm your income or assets
- Verification of your homeowners insurance
- Home appraisal or inspection reports
- Gift letter if using gift money for the down payment
So they give conditional approval while those loose ends are tied up. It’s not guaranteed, but it’s a good sign things are headed in the right direction.
Why Do Lenders Give Conditional Approval?
There’s a few reasons a lender goes the conditional approval route:
They Need More Info
The underwriter requires extensive documentation to confirm you qualify. If any piece is missing they can’t give a solid green light yet. Conditional approval gives time to provide anything outstanding.
There’s an Issue to Resolve
Perhaps there’s a question around your employment history, a credit report discrepancy, or problem with the home’s title. The lender will outline requirements to resolve it before final approval.
It’s Too Early in the Process
You may get conditional approval before having an accepted purchase agreement on a house. The underwriter can confirm your finances look good but can’t finalize without the specific home’s value and information.
The Benefits of Conditional Approval
Conditional mortgage approval has some nice perks:
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Stronger negotiating position: It shows sellers you’re a serious buyer who’s gone through underwriting. That can give you an edge in competitive bids.
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Speeds up closing: Since underwriting is underway, the final approval process may be quicker after conditional approval.
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Build confidence: It’s reassuring to know you’ve cleared initial underwriting before house hunting.
Conditional approval gives you more leverage and security than just being pre-approved. But it’s even better to get all the way to clear to close!
The Steps After Conditional Approval
Here are typical next steps once you get conditional approval:
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Review conditions: Understand exactly what information the lender needs from you. Ask your loan officer if anything is unclear.
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Collect documents: Round up any additional financial statements, paperwork, inspection reports, etc. to satisfy conditions.
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Send to lender ASAP: Submit everything the underwriter requested right away. This speeds up their review process.
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Get cleared to close: The lender will inform you when all conditions are met and you have final loan approval. Then you can head to closing!
Stay in close contact with your lender throughout this process to make sure you provide any outstanding items quickly and keep things moving.
Can You Still Be Denied After Conditional Approval?
Unfortunately yes, it is possible your mortgage application could still be denied even after getting conditional approval. Some common reasons are:
- You don’t meet loan conditions in the specified timeframe.
- New debts or other changes make you no longer qualify.
- The home appraises for lower than expected.
- Inspection finds undisclosed problems.
- Your income decreases.
- Unable to verify info already provided.
The best way to prevent denial is proactively communicating with your lender about any changes or delays in satisfying conditions. And avoid taking on new debts as you get closer to closing.
But as long as your financial profile remains the same, you provide all requested documents in a timely fashion, and there are no surprises with the home itself, you should be able to move from conditional approval to the coveted final loan approval.
How Long Does Conditional Approval Take?
There is no set timeframe, but the conditional approval period tends to be 1-2 weeks in most cases. However, that can vary based on:
- How quickly you provide outstanding paperwork
- How long it takes for third parties like an appraiser to complete their tasks
- Whether any issues come up that create delays
The best way to speed things up is stay organized, respond promptly to lender requests, and proactively keep them informed if any delays crop up. The faster conditions are cleared, the sooner you’ll get full approval and can close!
Tips for a Smooth Conditional Approval Process
To help the conditional approval period go as smoothly as possible:
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Understand requirements upfront – Make sure you’re crystal clear on what documents you need to provide and any other action items.
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Stay organized – Keep all financial statements, correspondence, and paperwork in one place for easy access when needed.
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Meet deadlines – Prioritize providing conditional approval documents to the lender by any due dates given.
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Maintain your finances – Don’t take on new credit or loans as it could jeopardize approval.
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Communicate changes – Alert your lender right away if anything comes up that affects your application.
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Ask questions – Don’t hesitate to reach out to your loan officer for help if you’re unsure about anything.
With a proactive approach and open communication, conditional approval should simply be a stepping stone on your way to closing on your new home.
Bottom Line
The conditional approval stage is very common in the mortgage process. Essentially, it means you’ve passed initial underwriting but the lender needs a bit more verification or information before formally approving your home loan.
Being proactive about providing outstanding documents and avoiding financial changes during this period will help ensure your conditional approval smoothly transitions to unconditional approval. A knowledgeable loan officer guiding you along the way is invaluable as well.
While it can feel frustratingly close, conditional approval gets you one step away from being able to call that new house your home. Stay the course and soon you’ll have the keys in your hand!
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)
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.