Conditional approval is a step in the home buying process that might occur before you get your final mortgage approval. If your lender tells you that youâre âconditionally approved,â you might be wondering how it differs from initial mortgage approval to buy or refinance a home.
Letâs take a look at the different types of mortgage approval and how they are applied during your homeownership journey.
Getting approved for a mortgage can be a long and complex process. As a homebuyer, you have to provide a significant amount of financial and personal information to your lender. They will then thoroughly analyze this information during the underwriting process to determine if you qualify for a loan.
Many homebuyers are confused when they receive a “conditional approval” from their lender instead of a firm approval, What exactly does this mean and what should you do if you get a conditional approval for your mortgage?
What Is Conditional Approval?
Conditional approval means that your mortgage application has passed the initial underwriting review but the lender still needs some additional verification or paperwork before they can give a firm approval
Some common reasons for receiving conditional approval include:
- Missing paperwork or financial documents requested by the underwriter
- Pending home appraisal or inspection reports
- Outstanding request for homeowners insurance information
- Additional explanation needed for large bank account withdrawals or deposits
- Waiting period for receipt of gift funds for downpayment
Essentially, the lender has reviewed your initial application and feels confident you will likely qualify. However, they cannot give a firm approval until all underwriting conditions are cleared.
Conditional approval comes after pre-approval but before final loan approval. It means you are very close to the finish line but there are still a couple more hoops to jump through before closing.
How Conditional Approval Differs from Pre-Approval
Pre-approval and conditional approval sound similar but are very different.
With pre-approval, the lender makes an initial assessment of your finances without verifying all of your documentation. Pre-approval is like a rough estimate of what you may qualify for.
Conditional approval comes after the lender has already reviewed your income, assets, credit, and other financial documentation during underwriting. At this point, they have done their due diligence but still need a few loose ends tied up before giving a firm approval.
So pre-approval puts you at the starting line whereas conditional approval means you are rounds away from the finish line.
What Happens If You Don’t Meet the Conditions?
It’s important to carefully review and understand the specific conditions outlined in a conditional approval letter. These conditions must be met within the lender’s specified timeframe for the approval to move forward.
If the underwriting conditions are not satisfied on time, it could lead to denial of your mortgage application. Reasons for denial after conditional approval may include:
- You failed to submit all requested documents on time.
- The appraisal came back lower than expected.
- Your credit score dropped after conditional approval.
- You made a major purchase without lender approval.
To avoid hiccups, stay in close communication with your loan officer so you fully understand what needs to be done to meet the conditions. Be proactive about submitting documents quickly and don’t make any big financial moves before closing.
How Long Does It Take to Close After Conditional Approval?
The timeline between conditional approval and closing really depends on the specifics of your situation. It could be anywhere from 2-8 weeks in most cases.
For simple conditions, like providing an additional bank statement, you may be able to close within 2-3 weeks. More complex conditions like completing a home appraisal can take 4-6 weeks to finalize.
The best thing you can do is stay on top of your conditional approval conditions and complete them promptly. Communicate regularly with your loan officer so you know what to expect for your timeline.
Tips for Getting to Loan Closing Faster
Here are some tips to help expedite the process between conditional approval and closing:
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Submit requested documents ASAP – Priority #1 is getting all required paperwork back to your lender quickly. Missing documents are one of the biggest holds up.
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Avoid new credit inquiries – Don’t apply for any new credit or make major purchases during the underwriting period. This could raise red flags.
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Get inspections done early – Schedule home inspections and appraisals quickly so they don’t delay approval.
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Lock your rate early – Locking your interest rate soon after conditional approval provides flexibility if closing gets delayed.
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Stay on top of your loan officer – Frequent and clear communication avoids surprises and keeps things moving.
With diligence and organization, you can help streamline the conditional approval process. This gets you to the closing table faster so you can pick up the keys to your new home.
What to Do If Your Conditional Approval Gets Denied
In some unfortunate cases, a conditional approval doesn’t work out and ends up being denied. This can happen for various reasons such as failure to meet stipulations or new credit issues arising.
If you get denied at the conditional approval stage, here are some options:
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Ask for reconsideration – Find out exactly why you were denied and see if the lender will reconsider if the issue is resolved.
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Dispute any inaccuracies – If your credit report contains errors causing the denial, work quickly to dispute and correct them.
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Provide more context – For denials related to your financial history, offer explanations or additional documentation to clarify.
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Find another lender – You may have better luck qualifying with a different lender who uses slightly different underwriting criteria.
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Improve your financial profile – In some cases, you may need to take steps to improve your credit or save more for a down payment before reapplying.
Don’t get too discouraged if your conditional approval falls through. With patience and persistence, you can overcome obstacles in the mortgage process.
Common Questions About Conditional Approval
If you’ve just received conditional approval for a mortgage, you probably still have plenty of questions about what it means and what comes next. Here are answers to some frequently asked questions:
How is conditional approval different from a mortgage pre-approval?
Pre-approval is based solely on the initial documentation you provide, while conditional approval means the lender has already verified your financial information but still needs a few loose ends tied up before final approval.
What are some standard conditions lenders may require?
Typical conditions include submitting missing documents, getting home appraisals, providing homeowners insurance info, explaining large bank withdrawals, or waiting for gift funds to clear.
Can I still be denied a mortgage after conditional approval?
Yes, you can still be denied even after conditional approval if you fail to meet the outlined conditions in time or if new credit issues pop up.
How long does it usually take to close after conditional approval?
Most homeowners close within 2-8 weeks after conditional approval, depending on the specific conditions that need to be met. Simple conditions may be cleared quickly while others like appraisals take more time.
What should I do if my conditional approval is denied?
If denied, ask for reconsideration, correct any credit report errors, offer more context on finances, apply with other lenders, or take steps to improve your credit profile before reapplying.
The Bottom Line
Receiving a conditional approval letter from your lender can feel like getting stuck at an almost-finished traffic light. Although you aren’t quite at the green light yet, you’re very close if you can satisfy the remaining conditions and paperwork requirements outlined by your lender.
Stay in close contact with your loan officer, act quickly to provide outstanding documents, and avoid major financial changes during this final stretch of underwriting. With diligence, your conditional approval will transition smoothly to the coveted final mortgage approval so you can move forward to closing on your new home.
Meeting The Conditions Of Your Conditional Loan Approval
There are a few common conditions attached to a conditional home loan approval.
Additional documentation, such as pay stubs or paperwork for business income and tax documentation is often required for final approval. Even though some of this documentation has been reviewed upfront, your lender may ask for more based on the loanâs requirements.
As an example, letâs say that a young couple is buying their first home, and a family member wants to give them $5,000 for the down payment. Because a check in that amount is typically considered a large deposit, the underwriter wants the source of the money verified before they can close. In this case, the relative and the couple would have to provide a gift letter and some documentation on the funds transfer. Once this is done, they will be cleared to close the loan.
Depending on your loanâs guidelines, an underwriter may request written verification of employment from your employer or additional asset statements.
Conditional approval can also require purchase agreement addendums. These can include the following:
LTV is the reverse of your down payment when youâre purchasing a home and the inverse of your equity amount for a refinance.
The conditional approval process can also include confirmation that there are no unexpected liens or judgments on the home.
Can You Be Denied After A Conditional Approval?
Clients with conditional approval of a home loan are at risk of denial if they fail to meet any of the conditions laid out by the lender.
Here are a few reasons why a client might be denied:
- The underwriter canât verify the data provided by the client.
- The home the client is trying to purchase has an unexpected lien.
- The client has a bankruptcy judgment on their record that wasnât priorly disclosed.
- The home inspection or home appraisal came in with unexpected issues.
- The client experienced a decrease in income.
- The client had negative entries on their credit report.
Your loan may also be denied if any additional information you submit doesnât match what the lender received at the time of the initial mortgage approval.
There are several circumstances you could experience and actions you could take as a buyer that might affect your ability to get approved for a loan. For example, if you experience a loss of income or buy a new car while applying for a mortgage, this could throw off your DTI. The lender may deny your loan because you no longer make enough to cover your debts, or your total debt payments are too high.