Have you recently applied for a mortgage loan to finally make your dream of owning a home come true? It may be surprising for you when you get to know you have been conditionally approved to buy a house, apartment, or condo. But what is conditional approval, and what steps should you take after this?
What Does Conditional Approval Mean?
Getting conditionally approved for a mortgage loan means that your application has gone through the underwriter. The lender is happy with your loan application and is willing to give you money as long as you meet their remaining requirements.
You may be wondering if conditional approval is a good thing. Yes, it is because your case is ahead of the prequalification stage and is now stronger than before. But do keep in mind that it doesn’t guarantee that you will get approved for the mortgage loan.
It simply means that things look good for you, and you may be getting the loan after fulfilling the additional conditions.
Common Approval Conditions
When your mortgage loan application is with the underwriter, they will thoroughly review it and make sure everything’s fine. However, they can deny your loan application if they suspect anything wrong. But if everything else goes smoothly and they just need additional paperwork, you will get conditional approval.
Here are some of the common documents that could make your application conditionally approved:
- Tax returns, bank statements, or investment account data to verify your monthly income
- Extra paperwork to meet specific loan criteria
- A letter explaining the latest large withdrawal from your account
- A document verifying you’ve purchased homeowners insurance
- Letters confirming gifted funds for homebuyers for their down payment
Remember that these are just a few approval conditions from many that you may need to submit at the underwriter’s request.
5 Benefits Of Getting Conditionally Approved For Home Loan
- Confident House-Hunting: With conditional approval, you now have a clearer picture of your budget, so you can search for your dream home with confidence and focus.
- Competitive Edge in Real Estate: With a conditionally approved application, you have an edge over the other buyers, and homeowners will see you as a more serious candidate.
- Gain Builders Trust: If instead of purchasing, you want to build your own home, the builder will look forward to conditional approval before beginning the work. No one wants to get stuck in the middle of the construction project.
- Faster Closing Process: Since most of the work has already been done by the underwriter’s side, now it will take less time to review the docs and finalize the deal.
- Avoidance of Surprises: Addressing potential issues early in the process reduces the likelihood of unexpected challenges arising later in the home-buying journey.
4 Other Types of Mortgage Approval
Here are four other types of mortgage approvals, their reliability, and how they are different from conditional approval.
Prequalification: Strength < Conditional Approval
When you get prequalified for a mortgage loan, you’ll know how much money you’ll get to purchase your home. But note that this estimate is provided from the side of the borrower and hasn’t been scrutinized by the underwriter. Therefore, prequalification is of lesser value than conditional approval.
Pre-Approval: Strength < Conditional Approval
The pre-approval step in mortgage lending is more detailed than prequalification. At this stage, your credit history and score are evaluated by the lender. However, the application has still not been reviewed by the underwriter, unlike conditional approval.
Unconditional Approval: Strength > Conditional Approval
Unconditional approval is an important step that comes after conditional approval. It’s also called formal approval, and means that your information has been verified by the loan underwriter. At this stage, the loan officer is ready to loan you the amount for the house purchase.
Clear to Close: Strength >> Conditional Approval
You’re standing at this stage; it means everything you provided has been verified, and you are clear to close the deal on your home.
Can You Be Declined After Conditional Approval?
Conditional approval does not guarantee that you’ll get the final approval for your home loan. This means there is still a chance that your loan application can be denied. This usually occurs because one of the conditions wasn’t fulfilled. For example, if the underwriter is unable to verify your income documents or you recently took on a new debt, your loan application may not go through
How To Avoid Denial After Getting Conditionally Approved?
- Steer clear of large purchases or new debts
- Avoid actions impacting your credit profile
- Immediately provide any information requested
- Work closely with your loan officer for guidance
- Fully understand and review mortgage terms
- Maintain financial stability (i.e., avoid switching jobs)
- Ensure the home passes appraisal and inspection
- Thoroughly review closing documents for accuracy
How Long To Close After Conditional Approval
Since your mortgage loan application has been conditionally approved, your lender will take around 1-2 weeks to finalize the application and head towards the closing date.
Wrapping Up
Securing conditional approval from your mortgage provider is good news since it shows your loan is close to getting approved. Make sure to provide everything your lender needs so you can close the deal and fulfill your homeownership dream.
FAQs
Should I start packing after receiving conditional approval on a home loan?
We advise you to wait until you have full approval of your mortgage and a confirmed closing date before packing to avoid complications.
How long does conditional approval take?
Conditional approval can take from a few days to a few weeks, depending on your financial situation and the lender’s processes.
How often do loans get denied after conditional approval?
While not common, home loans can be denied even after conditional approval if the borrower doesn’t meet the outlined conditions or if there are significant changes in their financial situation.
Does conditionally approved mean pre-approved?
Conditional approval is a more advanced stage than pre-approval. It signifies that your application has undergone a thorough review, but final approval is pending.
