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Purchasing a home is likely one of the biggest financial decisions you’ll make in your life Before you start house hunting, it’s important to get pre-approved for a mortgage to confirm you can qualify for a home loan. But did you know there’s another approval step called conditional approval that puts you in an even stronger position as a buyer?
In this comprehensive guide, we’ll explain everything you need to know about conditional approval for a mortgage including
- What is Conditional Loan Approval?
- Why Get Conditional Approval for a Home Loan?
- Conditional vs. Pre-Approval: What’s the Difference?
- How to Get Conditional Approval from Lenders
- Common Conditions for Mortgage Approval
- The Conditional Approval Process Timeline
- Why Conditional Approvals Can Be Denied
- And More…
Whether you’re a first-time homebuyer or you’ve purchased properties before, understanding conditional approval is key to streamlining the home buying process. Let’s get started!
What is Conditional Loan Approval?
Conditional approval is a notice from your mortgage lender stating they will likely approve your home loan application, assuming specific conditions are fulfilled.
It means the lender has reviewed your financial documents and believes you qualify for a mortgage loan amount, provided you meet ongoing requirements throughout the underwriting process.
Conditional approval provides a higher level of certainty than mortgage pre-approval. With pre-approval, you simply submit financial details and receive an estimate of your borrowing potential.
Conditional approval means an underwriter has verified your credit, income, employment, assets, debt, and other details. They have confidence backing your loan, subject to wrapping up loose ends.
Why Get Conditional Approval for a Home Loan?
There are several key reasons to get conditional mortgage approval:
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Increases Competitiveness as a Buyer: Conditional approval signals to sellers you’re a serious, qualified buyer less likely to have issues finalizing the purchase. This can give you an edge in bidding wars.
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Speeds Up the Closing Process: Since underwriting is underway, less work remains to finalize and close the loan once your offer is accepted. The closing date can often be scheduled faster.
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May Be Required for New Construction: If you want to build a home, the builder will likely require conditional approval before breaking ground. They want assurance the purchase won’t fall through before investing time and money.
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Verifies You Can Get a Mortgage: Like pre-approval, conditional approval provides written proof a lender will finance your home purchase up to a specified loan amount.
Conditional vs. Pre-Approval: What’s the Difference?
How does conditional approval differ from pre-approval? Here’s a quick rundown:
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Pre-Approval: Pre-approval only requires submitting basic financial details for a tentative review. An underwriter doesn’t examine your application at this stage. You’ll just receive an estimated loan amount you may qualify for.
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Conditional Approval: Your underwriter fully reviews your credit, income, assets, debt, employment, and all details lenders analyze when approving mortgages. You’ll receive notice you meet requirements thus far, pending specified conditions.
Conditional approval carries more weight since an underwriter has scrutinized your finances. While not guaranteed, there’s greater likelihood your mortgage will ultimately get approved.
How to Get Conditional Approval from Lenders
Follow these steps to get conditional mortgage approval:
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Compare Mortgage Rates and Offers: Shop lenders to find the best loan terms and interest rate for your situation. Locking in the lowest rate can save thousands over your loan.
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Submit Required Financial Documents: Provide tax returns, bank statements, pay stubs, W-2s, and any other items your lender requests to verify your finances.
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Request Conditional Approval: Inform your loan officer you want to receive written conditional approval after underwriting begins reviewing your application.
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Wait for Underwriting Review: The underwriter will examine your credit, income sources, assets, debts, employment, and other factors lenders analyze. This can take anywhere from several days to over a week.
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Get Your Conditional Approval Notice: Once the underwriter completes their assessment, you’ll receive official notice that your mortgage application meets requirements thus far pending specified conditions.
Common Conditions for Mortgage Approval
Some examples of common conditions you may need to satisfy for final mortgage approval include:
- Providing updated bank statements and paystubs verifying your income and assets
- Submitting homeowners insurance information
- Providing a letter explaining any large recent bank withdrawals
- Meeting appraisal requirements for the home’s value
- Supplying gift letters if using gift money for a down payment
- Finalizing divorce or bankruptcy paperwork
Your lender will outline all specific conditional approval requirements you must fulfill leading up to closing. Be sure to promptly supply any additional paperwork requested.
The Conditional Approval Process Timeline
The conditional approval timeline varies, but here’s a general overview of what to expect:
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1-2 Weeks for Conditional Approval: After submitting your initial application and financial documents, expect the underwriting review to take 1-2 weeks. This is when you’ll receive conditional approval.
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1-2 Weeks to Fulfill Conditions: You’ll have 1-2 weeks to satisfy any requirements outlined in your conditional approval notice. This may require providing updated bank statements, gift letters, etc.
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Closing Scheduled 1-2 Weeks Later: Once all conditions are cleared, your mortgage can proceed to closing which will typically be scheduled about 1-2 weeks later.
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30-45 Days Total: From initial application through closing will take approximately 30-45 days in many cases. Supplying documents quickly at each step will help speed things along.
Why Conditional Approvals Can Be Denied
While conditional approval is a positive sign, your mortgage could still be denied later in the process if you fail to satisfy the underwriter’s requirements.
Some reasons conditional approval could be revoked include:
- Taking on additional new debt before closing
- Being unable to verify income or asset documents
- Failing to meet loan conditions by specified timelines
- Having a home appraisal come in too low
- Experiencing a change in employment or income
- Encountering issues on the home inspection report
To avoid a denial, maintain your existing financial status, fulfill all conditions promptly, and keep your loan officer updated on any changes leading up to your closing date.
Is Conditional Approval Right for You?
Conditional approval puts you in a strong position to have your mortgage application approved. It also indicates to sellers you have the financing to finalize the purchase.
If you’re ready to buy a home, meet with lenders and request conditional approval once underwriting begins. This simple extra step can provide peace of mind and potentially save time as you navigate the home buying process.
The Bottom Line
Conditional approval means your mortgage lender has verified your finances meet requirements thus far, subject to completing final specified conditions. It offers a greater degree of assurance than pre-approval alone.
Take the time to get conditional approval and review all requirements thoroughly. This will help ensure there are no surprises blocking your path to homeownership.
Why is conditional approval important?
When you get conditional approval, it means an underwriter has evaluated everything you’ve submitted and deemed you a good candidate for a mortgage — assuming you meet the stipulated conditions. Even though being conditionally approved indicates a strong likelihood of your loan going through, it’s not a guarantee until all conditions are met.
Conditional approval also often comes into play with home construction loans. If you are building a home or buying land to build a home on, the developer or general contractor might demand the financing be conditionally approved before they commit to the project.
Different types of mortgage approval
Conditional approvals are just one type of mortgage approval to be aware of. Here’s an overview of the others and how they differ:
- Prequalified: This status doesn’t hold much weight in terms of actual approval. Prequalified simply means the lender has gathered basic information from you and provided an estimate of how much you can potentially borrow for a home loan.
- Preapproved: Like a prequalification, a preapproval means you’ve submitted some information to the lender and they’ve likely pulled your credit score. Stating a maximium amount you can borrow, it gives you a good idea of your home-shopping budget, one of the biggest questions you should get answered before you start house-hunting. But with preapproval, an underwriter hasn’t yet fully dug into your credit history details.
- Unconditional approval: Once you’ve satisfied all the lender’s criteria or conditions to get a home loan, you receive unconditional approval. It indicates the underwriter has signed off on your file and you’re one step closer to closing on the home loan.
- Verified approval: A verified approval indicates your assets, credit profile and income have also been substantiated and confirmed. It’s one of the last steps in the application process and provides assurance to the seller that you’re ready to move forward with the purchase.
The Mortgage Loan Process – Step 4 – Conditional Approval
FAQ
What does it mean when your mortgage is conditionally approved?
Can a loan be denied after conditional approval?
How long after conditional approval is final approval?
Does conditionally approved mean I got the loan?
What happens if you get conditional approval for a home loan?
If you get conditional approval for a home loan, you show sellers you’re a strong candidate. That could come in handy in a bidding war. Conditional loan approval could also speed up the closing process. For a mortgage to close, there’s lots of financial information for lenders and underwriters to review and process.
What is a conditionally approved mortgage?
It’s important to note that conditional approval is **distinct from preapproval**.While preapproval is an initial assessment of your eligibility, conditional approval occurs after preapproval but before
What is a conditional loan approval & preapproval?
Conditional loan approval and preapproval are both ways that a lender can give you some amount of assurance that you’ll be able to borrow a given amount when it comes time to finalize your mortgage. These two options are different in the lender’s level of vetting.
When is a loan conditionally approved?
This kind of approval may occur after you’ve made an offer on a home. Once you’ve submitted your application, an underwriter conducts a strict documentation review before your loan is conditionally approved. At this point, they may contact you to request additional information or documentation.