When it comes to real estate, prospective buyers always want to know that their efforts are bringing them closer to their goals. A conditional approval, for example, is when a lender gives an informal “OK” to a borrower – signaling that their approval process is looking good. By doing this, lenders minimize the unexpected and make their borrowers’ experiences easier.
But what is conditional approval and what does it mean? In this article, we’ll provide the answers and expand on what it means to reach this part of the home-buying process.
What Does Conditional Approval Mean?
Conditional approval is one layer of the mortgage application process. Think of it as an informal acknowledgment extended by the lender to the borrower indicating the underwriting process is looking promising and the mortgage application is moving forward.
However, in this case, the borrower will likely need to provide further financial information to receive formal approval.
Don’t expect the lender to issue a conditional approval before the property is professionally appraised. This is to ensure that the house sells at fair value. If the appraisal is too low, the lender could either reject the application or request that the buyer and seller return to the negotiating table to find a better price.
While chances are good a conditional approval will lead to formal approval, as long as any special conditions are met, it does not mean the lender is quite ready to sign on the dotted line. Until a mortgage application has reached final approval status, the borrower should expect to meet some more prerequisites to satisfy the lender.
If you are wondering how long a conditional approval takes, you can expect it to take up to a couple of weeks from submitting the mortgage application. Once a conditional approval is granted, it is worth the wait because the underwriting process is in the home stretch, carrying even more sway than a pre-approval status.
Total Mortgage has banking experts standing by across the country to assist you with the mortgage application process. Find one in your area today and move one step closer to your goal of home ownership.
Conditional Approval vs. Pre-Approval
A conditional approval should not be confused with pre-approval and vice versa, even though these two statuses are similar.
Pre-approval is a status that the borrower attains relatively early in the mortgage application process. It comes before putting in an offer on a property and is based on a rapid assessment of the potential homebuyer’s credit profile.
A pre-approval gives the seller of the property some confidence that the potential buyer is a serious candidate who has made it through the initial screening. A loan officer generally bases a pre-approval status on an applicant’s credit score and income level to determine if they should be able to afford the mortgage payments without defaulting.
On the other hand, conditional approval is granted further down the line in the mortgage application process.
Conditional approval is only offered once the applicant has submitted an offer on a property and completed the mortgage application process. It is a further vote of confidence by the loan officer in the applicant’s financial standing. However, failure on the applicant’s part to provide any of the conditional documentation requested by the loan officer could result in the denial of the mortgage application.
Something to note is when refinancing, an applicant does not need to receive a preapproval considering they will not be making an offer on a property. However, they can still benefit from conditional approval.
Conditions for a Conditionally Approved Loan
While no two mortgage applications are exactly alike, there are some common conditions that a homebuyer can expect to meet on the way from conditional approval to full approval status.
Some of these conditions might include proof of the following:
- Financial statements from the past few years
- Income for self-employed entrepreneurs
- Employment/income verification, including bank statements, pay stubs, etc.
- Gift letter for the mortgage down payment
- Income tax returns for the past several years
- Explanation of any negative items on a credit report
You may be wondering how long it takes to close on a house after conditional approval.
The truth is it depends on a few factors, not least of which have to do with how quickly you turn around any information the lender needs. Once the conditions have been met, it could take anywhere from a few days to several weeks before the closing date is within your grasp.
Stages of the Mortgage Loan Approval Process
Below is a breakdown of the major steps that a homebuyer will encounter throughout the mortgage loan approval process.
- Prequalify: While requalification is a step in the right direction for home ownership, it is one of many green lights needed in the mortgage loan approval process. The applicant looks good on paper, but the underwriter has yet to begin heavily vetting them.
- Pre-approval: When an applicant receives a preapproval, the lender has verified their credit history.
- Conditional Approval: A conditional approval means the loan officer has checked the information in the application, and everything looks good so far. However, they might still need more financial information on the applicant (pay stubs, bank statements, etc.) before granting final approval.
- Firm Mortgage Commitment Letter: This key document is a major milestone in the mortgage application process. It means the borrower has cleared all the hurdles and the loan officer has every intention of funding the mortgage. A coveted mortgage approval letter places the borrower at the top of the heap among potential buyers interested in the property. A mortgage commitment letter will typically designate a period, say 45 days, for which the terms of the loan are good, including a locked-in interest rate.
- Closing: The lender funds the mortgage loan while the borrower signs any paperwork and pays any remaining closing costs before being handed the keys to their dream home.
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Conditional mortgage approval may not be the final step in the home-buying process, but it is a major one, nonetheless. You’ll find the more prepared you are for the real estate market, the more likely you are to traverse each of these steps with flying colors.
Find a banking expert at Total Mortgage and begin the loan application process today.
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