What does conditionally approved mean? Conditional approval is an important step on your way to verified approval. It’s not the final step, but it shows you have gone through the underwriting process, are in the midst of finalizing things with your loan officer, and have been granted an amount you can borrow to buy your new home. It also puts you in a stronger bargaining position when you make an offer on a house — it sets you apart from buyers who have only gained pre-approval, and shows you only have a few more steps to go to achieve final mortgage approval.
Buying a new house is exciting and life-changing. Unfortunately, the home buying process is also a lengthy affair that entails a lot of paperwork, and getting approved for a mortgage loan is part of that process. There are several stages in the loan approval process. Today, we will look at precisely what it means to get a conditionally approved loan and why it’s essential to obtain this approval.
“Conditionally approved” and the house buying process
You’ve been saving for years for a down payment on a house. You’ve also worked to elevate your credit score and clear up any issues from your misspent youth, like being late on some payments here and there or going a little crazy the first time you were issued a shiny new credit card. So, theoretically, it’s taken you a considerable amount of time to get to the point where you are ready to buy a house. Or maybe you are ready to upgrade from a starter house to your forever home. Either way, the process of buying a property can be stressful and lengthy. The good news is there are ways to mitigate the stress and make the process go as smoothly as possible.
If your finances are in reasonable shape, it’s not too hard to get a real estate agent, talk to a mortgage company, receive mortgage pre-approval for a loan, and begin shopping around for just the right property for you. Looking for a good recommendation for a mortgage lender? SuperMoney’s list of the best mortgage lenders is a good place to start. The tool below can also help.
But the market can often be very competitive, so you need to do the work to set yourself up for success. Receiving conditional approval on a loan before you make an offer can be an invaluable tool to encourage a seller to accept your offer above others who may only be pre-approved.
What does conditionally approved mean?
Why do you need your mortgage to be conditionally approved?
When a loan is conditionally approved, it gives you more leverage when you make an offer on a house. A seller will likely give you priority over another buyer who has only achieved pre-approval loan status, particularly if the seller is hoping to speed up the closing process.
To gain pre-approval only means you have talked to a mortgage consultant and they have completed a quick appraisal of your credit report and financials and come up with a ballpark number they “might” let you borrow. To achieve conditional loan approval means you’ve been sent to the underwriter and they are reasonably satisfied with your mortgage application and will approve it if you meet their pending conditions. It doesn’t guarantee you will get the loan, but it’s a few steps closer.
An underwriter is a financial expert who determines how much money you can borrow from a lender by thoroughly evaluating your credit history, debts, assets, employment status, and current income to determine if you are capable of paying back the loan amount requested.
Therefore, conditional loan approval is an official statement from the lender stating that they are willing to loan X amount of money to the borrower, assuming they meet all of the specified conditions. Those conditions will be stated in the letter, and include items such as tax returns and bank statements, for example.
Comparing mortgage approvals
There are several layers to get through in the loan process to achieve final, or verified, approval, which is what is needed before closing on the property and officially becoming a homeowner. Each involve varying degrees of scrutiny of your income and financial records.
This is the first step in the process to secure financing for your mortgage loan. This gives the buyer a rough estimate of what they might be able to borrow but is pretty much based solely on what the buyer tells the lender about their overall financial situation. Often, the pre-qualification is free and done over the phone or online. Learn how to get prequalified for a mortgage here.
Pre-approval takes things to the next level and involves a more in-depth look at your financial information, including credit report, income, assets, and debts. Borrowers will be asked to fill out an official mortgage loan application and supply the lender with the documentation needed for an extensive financial background and credit check. If all looks well at this point, the lender will issue a letter stating the amount you are allowed to borrow, and you will be able to see what kind of interest rate you qualify for. Congratulations! If you’ve made it this far, you can start looking at houses.
However, keep in mind that while you can start house hunting with only pre-approval, you remain a riskier prospect for the seller. Let’s consider, all things being pretty much equal, you and another buyer submit identical offers on the same property. But, they have a statement of conditional approval and you are only pre-approved. In this case, the seller is more likely to take the offer of the other buyer, because conditional approval shows they are that much closer to final approval than you are, thus bringing them nearer to a firm closing date.
Learn how to get pre-approved for a mortgage here.
Final loan approval, also known as verified, formal, or unconditional approval, comes after you have met all of the specifications (or conditions) of the conditional approval. This is great news. It guarantees that you are cleared to get the money and close on your chosen property.
Conditions for conditional loan approval
Conditions refer to certain criteria the buyer needs to fulfill before formal loan approval. After being granted conditional approval, you will have to submit to the conditional approval process. The underwriter will undergo a strict documentation review and request a number of records that must be provided by the borrower in order to gain final approval.
This is where you really need to stay on top of things by meeting deadlines and being completely transparent about your finances, to increase your chances of securing the loan. Be assured the underwriter will find out about anything you try to conceal, so don’t even try. Here you will be asked to provide formal documentation of your financial picture. The following list includes, but is not limited to, paperwork you may need to supply the underwriter.
Conditional loan approval checklist
- Bank statements and pay stubs for employment verification.
- Gift letters if your parent, for example, has loaned you money for the down payment
- Explanations of any large withdrawals made on your account.
- Tax returns.
- Statement of assets.
- Verification of debts, such as credit card balances or car loans.
- Information about the property you plan to buy, if you have gotten that far in the buying process, as well as any information needed to satisfy the requirements of less traditional loans such as ones through FHA (Federal Housing Authority) or the VA (Department of Veterans Affairs).
- Documentation of home appraisal.
How long does conditional approval take?
Receiving conditional approval usually takes about a week or two, maybe longer, but much of that depends on you. If you want to speed up the process at all, it’s important to carefully complete all the required paperwork and submit any additional documentation requested as soon as possible. If you stay organized and on deadline, and communicate with your lenders whenever necessary, you can make this part of the process as quick and painless as possible.
When are conditional approvals denied?
Just because a mortgage lender has issued pre-approval status, it doesn’t guarantee conditional loan approval. It may turn out that you simply don’t fulfill the necessary requirements the lender wants. For example, if you own your own business and your income varies wildly from year to year, you could be denied. The lender needs to feel confident that you’re not at significant risk to default on the loan. You might also lose the loan if you take on any new debt (now is not the time to buy a new car) or if you neglect to provide all of the requested paperwork. Be vigilant, smart, and transparent as you navigate the loan processing.
Conditional Approval Letter
- Prospective Applicant(s) / Applicant(s):
- Mortgage Company:
- NMLS ID #:
- Loan Details:
- Loan Amount:
- Interest Rate*:
- Interest Rate Lock Expires (if applicable):
- Maximum Loan-to-Value Ratio:
- Loan Type and Program:
- *Interest rate is subject to change unless it has been locked
- Has a subject property been identified? _____Yes _____No
Mortgage company has:
- Reviewed prospective applicant’s / applicant’s credit report and credit score ____Yes ____Not applicable
- Verified prospective applicant’s / applicant’s income ____Yes ____Not applicable
- Reviewed Verified prospective applicant’s / applicant’s available cash to close ___Yes ____Not applicable
- Verified prospective applicant’s / applicant’s debts and other assets ____Yes ____Not applicable
- Prospective applicant(s) / applicant(s) is approved for the loan provided that creditworthiness and financial position do not materially change prior to closing and provided that:
- The subject property is appraised for an amount not less than $________
- The lender receives an acceptable title commitment
- The lender receives an acceptable survey
- The subject property’s condition meets the lender’s requirements
- The subject property is insured in accordance with the lender’s requirements
- The prospective applicant(s) / applicant(s) executes all the documents lender requires and
- The following additional conditions are complied with (list):
- This conditional approval expires on __________________
- Residential Mortgage Loan Originator Name
- Mailing address
- Phone number
- e-mail address
- NMLS ID #
What happens after a conditional mortgage approval?
This is when the underwriter continues the intensive evaluation of your income and other financial information by requesting the buyer furnish any paperwork needed to further verify the documentation you’ve already provided. Now is when you might send in tax returns, bank statements, and explanations for things such as any large deposits or withdrawals.
How long does underwriting take after conditional approval?
It can happen in as little as a few days or up to a few weeks. Staying in touch with your loan coordinator and promptly turning in any documentation requested, will move your mortgage application that much closer to formal approval.
Is conditionally approved a good thing?
Yes. Once you have received conditional approval, it shows you are moving through the loan process and, thus far, proving you are a pretty safe bet to reach unconditional approval. In addition, when a loan is conditionally approved, it gives you more leverage when you make an offer on a house. A seller will likely give you priority over another buyer who has only achieved pre-approval status, particularly if the seller is hoping to speed up the closing process.
Is conditional approval bad?
No. It’s just one of the necessary steps to receive final approval.
How long does it take to get final approval from conditional approval?
Usually, about a week or two. It all depends on the lender and how quickly you turn in everything requested by your loan officer for verification and approval. After receiving final approval, you are ready for your closing date.
Can I be denied a mortgage loan at closing?
It’s not common, but it could happen. One reason for last-minute denials could be that you recently changed jobs after you’ve already received your approval letter. Many lenders will do a final review of your financial documents just before closing, including employment status, so if they see you’ve just moved to a new job they will need to do another verification of employment and monthly income. If you must change jobs during this delicate time, communicate this to your lenders right away — they might be able to help reduce the damage to your mortgage application.
Another reason loan denial might happen is if you open a new line of credit or run up your credit cards. Both of these scenarios will raise your debt-to-income ratio (DTI) and that’s not what a lender wants to see as you take on a massive home loan. To be on the safe side, refrain from making any of these changes — this is not the time to buy a car or new furniture for the house.
- Remain as transparent as possible about your financial situation throughout the loan process by keeping in close communication with your loan officers.
- While going through loan processing, don’t take out a personal loan or otherwise make changes to your credit situation.
- Having received conditional approval gives you a stronger bargaining position when making an offer on a house.
- This is not a good time to change jobs, but if you must, be sure to communicate with your lenders.
- Home mortgage disclosure act – FFIEC
- Conditional commitment – USDA
- Sample forms – Texas Department of Savings and Mortgage Lending
- Mortgage industry study – SuperMoney
- What is a closed mortgage? – SuperMoney
- What is a mortgage default? – SuperMoney
- What is a graduated-payment mortgage? – SuperMoney