Home Buyer's Guide To Conditional Approvals

Mortgage Dove

Home Buyer's Guide To Conditional Approvals

When applying for a home loan, receiving a conditional approval is not unusual. Mortgage lenders agree to finance your purchase if you meet specific requirements, as the term implies. Conditions vary by lender, so it's essential to understand what conditional approval means and what to expect next.


How Does Conditionally Approved Work?


If your mortgage application is conditionally approved, your mortgage underwriter is mostly satisfied with it. As long as you meet the pending conditions, they will approve your mortgage.

You actually have a stronger case for your application when you receive conditional approval for a mortgage. This does not guarantee that you will be approved for a mortgage.

Instead, it means the lender will lend you money if you meet specific requirements. Since the federal government guarantees FHA conditional approval, additional documentation may be required.


Conditions for Common Approval


During the underwriting process, your financial documents will be reviewed by an underwriter. Your loan can be denied if there is something wrong with it. Conditional approval may be granted if your application meets most of the requirements but could use additional information. They may determine that your application is primarily acceptable but needs more information.

Here are a few things to look out for as a borrower:

  • The income and bank statements that verify your monthly income
  • Paperwork required to qualify for a loan
  • The verification of homeowner's insurance
  • Homebuyer gift letters for down payments made with gift funds
  • Explanation letter for recent large withdrawals

Please note that this list is not an all-inclusive list of all approval conditions you may encounter. Underwriting may request additional information along the way.


What is the importance of conditional approval?


The conditional approval process means an underwriter evaluated your application and deemed you a good candidate - provided you meet the guidelines. 

Conditional approval carries more weight with sellers since you're further along in the home loan process, and it can make you stand out from other buyers. A conditional approval could give you the edge you need, especially if your local market is highly competitive.

It is also common for home construction loans to be subject to conditional approval. Before committing to a project, a general contractor or developer might conditionally approve the financing.


Types of mortgage approvals


Among the types of mortgage approvals to be aware of are conditional approvals. The differences between the others are as follows:

  • Prequalified: Prequalified approvals carry less weight than conditional approvals. It means the lender has gathered some basic information from you and provided an estimate of how much you might be able to borrow.
  • Preapproved: Similar to a prequalification, a preapproval means the lender has pulled your credit report and has some information about you. Before you start house hunting, you should get an idea of your home-shopping budget. When you're pre-approved, an underwriter from the mortgage lender still needs to examine your details.
  • Unconditional approval: The unconditional approval process follows the conditional approval process. Underwriting has received and verified your information when you receive unconditional approval. It includes things such as the appraisal value, the title, the down payment, and other documents. This is the point where the loan officer is ready to finalize the loan application.
  • Verified approval: This indicates that your assets, credit profile, and income have also been verified. The approval process is one of the last steps in the application process, and it lets the seller know you're ready to proceed.


Benefits Of Conditional Loan Approval


Before you start looking for houses, you should get pre-approved for a home loan. You will have a stronger bargaining position if you receive conditional underwriting approval.

As a home buyer, you'll stand out when you receive conditional approval. The fact that you have received conditional approval shows the homeowner that you are a serious buyer if you find yourself in a bidding war with another buyer.

When building your own home, you may need to obtain conditional approval from the builder. Builders do not want to invest in a construction project only to have the purchase fall through during underwriting.

The closing process can also be sped up by conditional approval. If you have already been conditionally approved, reviewing and finalizing the closing documents could take less time. Obtain approval to see what you can afford.


Does Conditional Approval Ever Get Denied?


Borrowers' applications are not guaranteed approval, and sometimes, they may be denied. In most cases, this occurs because one of the conditions of your loan was not met.

Your loan application could only be accepted if you unexpectedly take on new debt or if your financial documents cannot be verified. In addition, your loan application may only succeed if you meet the conditions by the due date.

Preparing for the closing process is the best way to avoid this. Getting a conditional approval for a loan does not guarantee you're home free. Ensure that all information required by underwriting is submitted to your loan officer frequently.


How long does the closing process take after conditional approval?


When you receive conditional approval for your home, there is no guarantee of when you'll close. Conditions are usually approved in one to two weeks, and closing takes place shortly thereafter.

Any issues that come up with underwriting should be resolved as soon as possible to ensure a fast closing. Getting these issues resolved as quickly as possible will help you close on your home faster.

Receiving conditional approval on a mortgage makes you a more attractive buyer. After the underwriting process is complete, you will receive a conditional approval before moving forward with home buying. Upon final approval of your mortgage, you will be able to close your home purchase.


Bottom line


How does conditional approval work? To finalize the loan, you must take specific steps (such as meeting the stipulated conditions).

A lender may notify the applicant that they're conditionally approved if they need more time during underwriting. Sometimes, it indicates a few hiccups in an application, requiring additional documentation.

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