Conditional Approval on Mortgage: Complete Guide

There are several terms you’ll come across when looking for a home to buy. Most loan officers will advise you to be pre-approved for a home loan before making offers on homes available for sale. If you’ve been submitting offers and getting turned down, conditional loan approval might be the answer.

Conditional approvals are often more appealing and give buyers an edge over other buyers hitting the market with a pre-approval. This article covers everything you need to know about conditional approval and why it is important.

What is Conditional Approval?

Conditional approval is the stage between waiting for conditional underwriting approval and receiving final approval. Note that the loan officer will first run a thorough evaluation of your assets, income, and credit history before issuing a conditional approval.

After the whole underwriting process, the loan officer may issue a mortgage approval if they’re pleased with your file but still need to address a few issues. However, to start the whole conditional approval process, you’ll need to get pre-approval first, which is when the lender will assess the amount of funds they’re willing to give out.

If the pre-approval is successful, you can then hit the market for your dream house. Once you meet all of the mortgage underwriter’s expectations, you’ll receive a verified approval letter. Although many homebuyers submit pre-approval offers alone, this is not as solid as obtaining a conditionally approved loan.

The mortgage lender often won’t even bother with your financial documents before issuing pre-approval. However, you should note that conditional loan approval is more reliable and carries more weight than a pre-approval.

What Does Conditionally Approved Mean?

Conditionally approved means that your mortgage underwriter likes your loan application, and you’ve moved on to the next stage.

Furthermore, this is also the “maybe” stage as the underwriter still sees something that needs to be resolved. The conditional loan approval means that you’ll get your final approval if you meet the remaining conditions.

A conditional approval mortgage is intended to protect the mortgage lender by ensuring that the loan application is sound and risk-free before it is approved. However, you’ll get “approved with conditions” tagged to your loan application if the lender still needs some additional information to approve your loan.

Furthermore, once you’re done house hunting, you can apply for loan approval and then provide the underwriter with the following documents:

• Tax documents
• Utility bills
• Pay stubs
• Bank statements
• Income verification
• Asset statement
• Debt obligations/credit
• Information about the purchase property

Comparing Mortgage Approvals

Aside from conditional loan approval, there are various other terms you’ll come across when talking about mortgage loans. Here are some examples of common mortgage approvals and how they differ from conditionally approved loans.

• Prequalification

When you become prequalified to buy a property, you’ll get an estimate of how much money you should expect after you’ve been approved for a mortgage loan.

However, note that these estimates come from the applicant, not the underwriter, and it hasn’t undergone any underwriting process. As a result, a prequalification doesn’t carry as much weight as a conditional approval.

• Pre-approval

The key difference between pre-approval vs. conditional approval is that your documents are still under review at the pre-approval stage. The mortgage pre-approval process is more detailed and thorough than prequalification.

This stage is where the lender thoroughly evaluates your credit report and score. However, the underwriter may also have not reviewed your documents at this stage.

• Unconditional Approval

Unconditional approval, also known as formal approval, comes after the conditional approval process. At this stage, it means the underwriter has your information, has verified it, and now trusts you completely. In summary, you have no further conditions to satisfy at this stage.

• Verified Approval

At this stage, your down payment, appraisal value, and other documents have been verified, and the underwriter is ready to hand over your final approval letter.

Unlike the conditional approval stage, you can start house hunting once you get a verified approval letter because you now have the finances to back up your offer.

Conditions for a Conditionally Approved Loan

Underwriters consider various important factors before the final approval of a personal loan. The underwriter often requests specific documents, also known as “conditions.” Some of the common conditions an underwriter identifies include:

• Incomplete documents needed for the final approval
• A copy of your homeowner’s insurance policy
• Employment status
• Reasons for a recent deposit or withdrawal
• Proof of mortgage insurance

Of course, you must understand that each lender’s loan process and conditions are different. Some conditions may not be on this list, but these are the common ones.

Benefits of Getting a Conditional Loan Approval

You can only receive conditional mortgage approval after you’ve found a specific home. However, it would be smart of you not to sit around and wait until after your home offer. There are many reasons why most investors prefer applying for a conditional loan when buying a property.

Some of the benefits of getting a conditional mortgage approval include:

• Receiving conditional approval from lending services will give you an edge over other buyers.
• Since most of the loan paperwork is ready, conditional loan approval makes the closing time a lot faster.
• A conditional loan approval eliminates many uncertainties associated with the home buying process.
• The majority of builders require conditional loan approval before starting any home construction.

How Long Does It Take to Close After Conditional Approval?

You’re quite close to the closing process once you get past the conditional approval stage. Getting past this stage doesn’t mean you are there yet, it simply means you’re ready for the final mortgage process.

Unfortunately, the time it takes to close depends on the lender’s timeline and the specific conditions you must meet. Furthermore, the time it takes to receive final approval can take a few days, and most times a week or two. However, a few factors influence the time it takes for you to close following conditional approval.

The first factor influencing the closing time is the lender’s timeline. First, contact your lender and ask about their timeline. Some lenders’ underwriting stage takes 72 hours, while others have a one-day turnaround time.

Furthermore, the time it takes to submit the requested conditions matters. The quicker you can provide the necessary documents, the faster you can get to closing.

Once your documents have passed through strict documentation review and you’ve met all of the conditions, you’ll be fully approved for your home loan and receive authorization to close. Here are tips on how to keep your closing time down:

• Respond to your lender as quickly as possible.
• Do your part to stay on top of the deadline and submit all the information required to meet the conditions.
• Always ask questions.
• Contact your insurance agent and ensure your information gets to the lender on time.
• Be transparent about your financial situation. For example, employment status, monthly income and bank statements, etcetera.

Why Does a Lender Decline a Conditional Loan Request?

Conditional approval isn’t a guarantee that you’ll receive the finances you need at the end of the day. The lender may decline your loan request if you fail to meet one or two conditions or fail to submit any missing documents on time.

Furthermore, this usually happens when you do something new during the process, such as opening a new line of credit after submitting your documents. Additionally, taking on new debt, as well as the underwriter’s inability to verify your documents, are all factors that can make the lender decline your application.

The best way to get a mortgage lender’s approval is to be reachable and prepare all your necessary documents on time. Don’t feel relaxed or assume you’re safe just because you received conditional approval from the lender. Keep the lines of communication open, be online, and always contact your loan officer if you have any questions.

Lastly, make sure you keep every closing document, and any other information you may need during the underwriting process, nearby.

What Comes Next After Receiving Conditional Approval From the Underwriter

Your lender will ask for your signature once all conditions have been met. The final approval means you can put your signature on the loan document, but that doesn’t mean that the lender can’t change their mind. As long as you haven’t gotten your keys yet, making any silly moves with your finances will make the lender revoke the final approval.

Don’t get a new car, buy any expensive gadgets, or sign up for a new credit card account. Note that you are in business with your lender, and no one wants to be on the losing side. After the underwriter puts his signature on the loan document, they’ll still take the time to double-check your documents and your financial records.

If they notice that you made any drastic moves with your finances, the final approval may not happen. Furthermore, on the closing day, you’ll need to sign a few closing documents, provide photo identification, and a personal or approved bank check to settle the closing fees and down payment.

Additionally, with everything in order, the last thing you have to do at the end of the closing day is to wait for the mortgage funds to be dispersed to the seller. You’ll also receive your first payment statement, which you’ll use to make your first and maybe second loan payment.

Lastly, the final servicer will walk you through making future payments and setting up auto pay. If you’ve made it this far, congratulations! You’ve done all the hard work and can now relax and enjoy your new home.

Conclusion

Conditional loan approval is far more appealing to sellers than pre-approval. Conditional approval is the waiting stage between the underwriting process and final approval. Note that the entire mortgage application process requires the lender to verify all your documents, including your financial information.

Once you get your mortgage loan approved, you’ll have a bidding edge against other buyers for desirable properties and a quicker closing time.

However, note that the closing time depends on certain criteria, such as the lender’s timeline, and the closing time can take from a few days to a few weeks.

All in all, buying a home requires lots of paperwork. Knowing the common types of mortgage approvals will greatly help your mortgage journey. If you have been losing desirable houses to more eligible home buyers, it’s time to consider including a conditionally approved loan.

Luckily, we at Ardor Homes Massachusetts have a knowledgeable team ready to assist you throughout your home search. You can contact us today to learn more about getting your desired home.

Steph Wilkinson

In her 25-year career, Steph Wilkinson has been involved in the acquisition, marketing and sales of over $3 Billion dollars of residential real estate. A number of years ago, Steph transitioned into Brokerage Leadership for National real estate brands and tech start-ups. She has served as a Business Strategist for real estate agents and brokerages alike and is also a real estate coach and trainer. In her new role with the Iconic Team, Steph will be responsible for the growth of the team and will be working with all of our agents to increase their productivity and bottom line.