Youre looking to buy your own place. And youve decided to get pre-approved for a mortgage — rather than just pre-qualified — so that you know how much you can afford and so that when you make an offer, youre more likely to be considered a “serious” buyer. Good for you. Thats a smart move.
Or maybe you have already found your dream home and put an offer in that has been accepted. Youve applied for a mortgage. And its been submitted to processing and underwriting.
In either scenario, you might be alerted that you have been approved with conditions before you get the final okay.
If you’ve applied for a mortgage loan, you may have received notification that your loan is “approved with conditions.” This term can be confusing if you’re not familiar with the home loan process. Essentially, it means your loan is on track to be approved, but the lender needs some additional information from you before they can give full approval.
Getting conditional approval is a big step forward but it doesn’t guarantee your loan will go through. Let’s take a closer look at what conditional approval means why lenders require it, and how you can meet any conditions so your home loan gets the green light.
What Exactly Does “Approved With Conditions” Mean?
When your mortgage application is reviewed by an underwriter at the lender, they analyze all your financial information, including income, employment, assets, credit history, and debts. If everything looks good, the underwriter may fully approve your loan application.
But often, they need a bit more information or documentation before feeling comfortable approving the loan. So they will conditionally approve the application, pending the receipt of the additional details they require
Some common conditions include
- Providing bank statement to explain any large deposits or withdrawals
- Submitting more pay stubs if the underwriter needs more proof of your income
- Furnishing a gift letter if you’re receiving gift funds for the down payment
- Showing proof of homeowner’s insurance
- Explaining any red flags or discrepancies in your documents
Think of conditional approval as the lender saying, “Your loan application looks good so far, but we need a few more things from you before we can officially approve it.” Fulfilling the lender’s conditions helps get you to the finish line of full underwriting approval.
Why Do Lenders Require Conditional Approval?
As an individual borrower, you may feel frustrated by the conditional approval process. After all, you just want a definite yes or no on your mortgage application. However, there are a few good reasons why lenders require conditional approval instead of immediately approving or denying loans:
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It speeds up the process. Gathering conditional approval requirements can happen simultaneously with other underwriting tasks. This overlaps portions of the process and gets you to closing faster.
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It prevents denials. Lenders want to say yes to borrowers who are good risks. Conditional approval allows them to clear up any discrepancies before having to deny loans and lose business.
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It reduces risk. By verifying questionable areas and filling gaps, lenders get a complete financial picture of borrowers. This reduces their risk in providing mortgage financing.
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It vets mortgage applicants. Asking for more documentation weeds out borrowers who misrepresented their application or can’t provide proof of their financial situation.
How to Meet Mortgage Conditions
If you receive conditional approval, stay calm. It doesn’t mean you’re being denied for the mortgage loan. Here are some tips for efficiently meeting lender conditions:
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Review the list carefully. Make sure you understand each item the lender needs from you. Ask your loan officer if you need any clarification.
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Act quickly. Put together the additional documentation right away while it’s fresh in your mind. The faster you can meet conditions, the faster your loan can proceed.
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Follow up on outstanding items. Don’t let any requirements fall through the cracks. Double check that you’ve gathered everything on the lender’s list.
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Provide explanations if needed. If the lender needs clarity on something like a recent large bank withdrawal, give them a written explanation along with your proof documents.
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Communicate with your lender. Let your loan officer know when you’ve submitted more documents and ask if they need anything else.
Acting quickly and proactively will show lenders you’re an organized, conscientious borrower and satisfied with the conditional approval.
Things to Avoid After Conditional Approval
While you’re gathering materials to meet lender conditions, be careful not to do anything that could jeopardize your mortgage approval, such as:
- Taking on new debt like car loans or credit cards
- Making major purchases that affect your finances
- Changing jobs or employers
- Depositing unverified cash into accounts
- Missing loan application deadlines from the lender
Keep your finances steady until your loan closes. Don’t give the underwriter any reasons to doubt their conditional approval of your application.
How Conditional Approval Differs from Other Mortgage Approvals
Mortgage applicants can receive a few different types of approval, each with varying reliability:
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Prequalification – Prequalification provides an unofficial estimate of your borrowing amount based on the limited information you provide. It doesn’t verify actual finances.
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Preapproval – Preapproval involves submitting documentation so the lender can assess your financial picture. But the application is not scrutinized to the level of underwriting.
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Conditional approval – Conditional approval means underwriting is underway, and the lender sees potential approval provided you meet certain conditions. This carries more weight than prequalification or preapproval.
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Clear to close – This is the final step after conditional approval where the lender has verified everything, including the home appraisal. You get the green light on the loan.
Can a Conditionally Approved Loan Still Be Denied?
There is still a chance your mortgage application can be denied even after getting conditional approval. This sometimes happens:
- You don’t satisfy all of the lender’s conditions in the required timeframe.
- New information surfaces that changes the underwriter’s decision, like a job loss.
- The appraisal comes back lower than expected.
- Unexpected issues arise on the home inspection report.
- You no longer qualify for the loan program applied for.
To avoid denial, promptly comply with the lender’s conditional approval requirements. And maintain your good financial standing until you close on the home.
How Long After Conditional Approval Until Closing?
How quickly you can close on the home after receiving conditional loan approval will vary. Here’s a general timeline:
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1-2 weeks – To gather and submit all conditional approval documents.
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1-2 weeks – For the lender to review your new documentation and give final approval.
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2-4 weeks – To complete the appraisal, title search, and other closing tasks.
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2-6 weeks – Between conditional approval and finalizing closing on the home.
So within about 2 to 6 weeks after getting conditional approval, you could be completing closing on your mortgage loan and home purchase.
Achieving Mortgage Approval with Conditions
Conditional approval is a big milestone in the home loan process. It means you’re on the brink of getting approved if you can satisfy a few remaining requirements.
By acting quickly to meet lender conditions and keeping your finances steady, you can turn that conditional approval into an official green light. Then you’ll finally get the keys to your new home!
Common approval conditions you may come across
This list of common conditions that borrowers might face when applying for a mortgage isnt complete by any means, but theyre the ones that typically can hold up a home loan approval.
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- Bank statements: If there are transactions on your bank statements that raise questions, you may need to explain what theyre all about. For example, you might need to explain a recent large sum withdrawal from your bank account or a larger than normal deposit that isnt typical or recurring.
- Clean title: This is a report that confirms that the propertys value and characteristics meet your lenders guidelines.
- Gift letters: If youre receiving funds as a gift from friends or family, you may need to submit a “gift letter” from the person gifting you the funds stating that the amount is not expected to be repaid.
- Good-faith money: This is also called earnest money, a deposit made in addition to the down payment. You may be asked to provide a copy of the payment (personal check, certified check or wire transfer) and a deposit receipt. The lender may also want proof in writing that the money legitimately came out of your account and that it isnt coming from another source. Ask your bank to provide that.
- Home appraisal: Lenders will need a home appraisal (including specifics on the homes general condition and a review of the surrounding area) in order to assess your propertys fair market value. Typically, they will order the report themselves, but they may need your signature to authorize the paperwork.
- Income: Maybe the lender is missing a W-2 form or enough paycheck stubs to verify your employment.
- Proof of homeowners insurance: Showing documentation of homeowners insurance is a requirement for mortgage approval. This can take the form of a certification from the insurer or a copy of the actual policy.
What’s the difference between pre-approval and conditional loan approval?
Once you apply for a mortgage, the lender submits the application to processing, where your financials are reviewed. Pre-approvals are one step better than a pre-qualification letter, where the loan officer just listens to what you tell them your financials are and makes a judgment call on that info alone. At least a pre-approval digs in a little deeper.
The conditionally approved mortgage means that an underwriter — a professional reviewer of your creditworthiness — has evaluated all the documentation you have provided, including income, employment, credit report, etc. and is giving you a thumbs up…once you satisfy requests for additional information.
The Mortgage Loan Process – Step 4 – Conditional Approval
FAQ
What does it mean when a mortgage loan is approved with conditions?
What does approve with conditions mean?
How long does underwriting take after conditional approval?
What does conditionally approved mean in everyday loans?
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.
Does conditional approval guarantee final mortgage approval?
Being conditionally approved doesn’t guarantee final mortgage approval, only that the lender will finance your home once you meet their pending conditions. Conditional approval occurs near the end of the mortgage application process.
When does a conditional approval mortgage close?
Closing usually takes place a week or two after you are conditionally approved for the mortgage. During the conditional approval mortgage time period, you will have to meet certain conditions and provide documentation to the mortgage lender. Examples of conditions are:
Can a conditional approval mortgage be denied?
When you receive conditional approval, you are usually given some conditions you must meet before you can get final approval. A conditional approval mortgage can be denied if information becomes known during the underwriting process that affects the buyer’s ability to pay in the underwriter’s opinion.
Do you need conditional approval for a home loan?
Homebuyers are often advised to get pre-approved for a mortgage before house-hunting or making an offer on a new home. But it also pays to get conditional loan approval. Here, we’ll review what conditional approval for a home loan entails and explain how to get a conditional approval. What is conditional approval?
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?