A mortgage loan’s conditional approval does not guarantee final approval, but it is a stronger indicator that the applicant will be approved than prequalification. When you apply for a mortgage, it goes through several steps before being approved or denied. When you reach the conditional approval mortgage stage of the underwriting process, you have already cleared many of the hurdles. Conditional approval typically imposes additional requirements that must be met before receiving final loan approval. In this post, we will define conditional mortgage approval and also talk about how long it takes to close after a mortgage approval and a loan declined after conditional approval.
Conditional Mortgage Approval Meaning
Your mortgage underwriter is mostly satisfied with your mortgage application if it receives conditional approval. They are willing to approve your mortgage if you meet their pending conditions. When you get conditional approval on a mortgage, it actually strengthens your application more than prequalification alone. It is not, however, a guarantee that your mortgage will be approved.
Instead, it means that the lender is willing to lend you a certain amount of money if you meet certain requirements. Because FHA conditional approval is guaranteed by the federal government, it may necessitate additional documentation.
The Benefits of a Conditional Loan Approval
You’re probably aware that you should get pre-approved for a home loan before going house hunting. However, conditional underwriting approval will strengthen your bargaining position.
For starters, receiving conditional approval will distinguish you as a home buyer. If you are in a bidding war with another buyer, the fact that you have conditional approval shows the homeowner that you are the more serious candidate.
If you want to build your own home, the builder may need conditional approval before proceeding with the process. No builder wants to commit to a project only to have the purchase fall through during the underwriting stage.
Finally, conditional approval can aid in the closing process. Underwriting can be a time-consuming process, so if you’ve already been conditionally approved, reviewing and finalizing the closing documents may take less time.
Mortgage Loan Approval Stages
When a mortgage lender accepts your application for a home mortgage, it is forwarded to underwriters, who examine the various aspects of how you will pay for a mortgage. Many factors are taken into account, including credit score, credit history, income, assets, and credit. As your application passes each of these tests, you will progress through the stages of mortgage loan approval as follows:
This stage of the mortgage application process may not be significant. You are pre-qualified before your application is underwritten, also known as vetting. It is the underwriter’s responsibility to determine the risk of lending you money for a mortgage. Prequalification typically indicates that you are among a group of applicants who appear to be qualified for the loan.
Your credit score and credit history have been verified at this point in the mortgage approval process. This mortgage approval checklist may be helpful if you want to get pre-approved for a mortgage. You are one step closer to approval for the mortgage loan, but the underwriter is still reviewing your application.
When an underwriter grants conditional approval, it means that an underwriter has verified the information on your loan application and has a good idea of whether you will be able to repay the loan. This is the stage at which the lender may impose a set of conditions that you must meet before your loan application can be processed. You may be required to provide bank statements, check stubs, a list of your assets, and a home appraisal. If you can provide this documentation, you will be much closer to receiving mortgage loan approval.
Letter of mortgage approval
If everything goes well during the conditional approval stage, you may be able to obtain a mortgage approval letter. This means that the underwriter reviewed not only your application but also all the documentation you provided, as well as your credit history and credit score. At this point, the chances are that you will be approved for the mortgage. When you receive this letter, you will be a preferred buyer in the eyes of the property’s sellers.
Approval to close
The approval to grant you the mortgage and the ability to close on your loan is the final stage in the mortgage approval process. At this time, you must have a clear title to the property and provide the lender with your down payment. Closing typically occurs a week or two after you have been conditionally approved for the mortgage.
Common Approval Requirements
An underwriter will review your financial documents during the underwriting process to ensure everything is in order. If something goes wrong, the underwriter may reject your loan. If they determine that your application is mostly complete but requires a little more information, they may grant you a conditional approval. They may decide that your application is mostly fine but requires a little more information.
Here are some common approval conditions to look out for as a borrower:
- Income and bank statements proving your monthly earnings
- Additional paperwork required to meet loan requirements
- Insurance verification for homeowners
- Gift letters for home buyers who use gift funds as a down payment
- An explanation letter for a recent large withdrawal
This list is not exhaustive and is only intended to provide an overview of common approval conditions. You may receive additional requests from underwriting along the way.
How Long To Close After Mortgage Approval?
You will be very close to having an accepted loan and closing once you receive your conditional mortgage approval. But you’re not quite there yet. Many people are curious about how long it will take to close after conditional approval.
Unfortunately, every situation is unique, and the time until closing will vary depending on the conditions you must meet, and the timeline established by your lender. Depending on your situation, the time it takes to go from conditional loan approval to final approval can be a matter of days or weeks. However, some factors will influence the time it takes to close after conditional approval.
For starters, you should contact your lender to determine their timeline. Some lenders have in-house underwriters who respond within one day, while others may take up to 72 hours. As long as your insurance agent sends the insurance binder to the lender on time, the insurance portion of the process should be fairly quick. In addition, you must fulfill the terms of your conditional loan. The sooner you can provide the documentation required to meet the conditions, the sooner you can close.
When you return the terms to the underwriter, they will review them for final approval. You will receive final approval and clearance to close as long as you have met all the conditions.
Loan Declined After Conditional Approval
One of the most common reasons for a loan refusal after an underwriter grants conditional loan approval is that the borrower uses credit to purchase expensive items. Because buying a home can be an exciting experience, many homebuyers use their credit to purchase new furniture.
However, you should not seek credit while you are in the process of obtaining a mortgage. Do not withdraw funds from your bank account that are designated as confirmed assets for your down payment and closing costs on a home.
You may be eligible for zero interest and no payments for the first year if you purchase furniture from a furniture or appliance store. This is not a good thing to think about when it comes to the mortgage process.
The mortgage underwriter will pull credit throughout the mortgage process. Furthermore, just before granting a clear to close, the mortgage underwriter will perform a light credit pull. As a result, any credit inquiries will appear on your credit report.
The mortgage underwriter will be interested in the credit check, the outcome of the credit investigation, the amount of debt you have accumulated, and your monthly payment.
Here’s what you should do:
Suppose your mortgage application is denied after closing and recording. According to the Federal Trade Commission, the lender must either explain why or inform you that you have the right to inquire why.
The explanation must be specific as well. For example, the bank may claim that you haven’t worked long enough. The bank is required to explain why you were given unfavorable terms, such as a high-interest rate.
Only after you understand why the mortgage was denied can you respond appropriately. If you know your loan was denied because you changed jobs, for example, begin the application process again. You can also apply with a different lender. Each has its own set of financing requirements, and just because one lender declined you doesn’t mean another will.
Can a Loan Be Denied After Conditional Approval?
Yes, after receiving conditional approval, a loan can be denied. This usually occurs when the borrower fails to provide the necessary documents. Furthermore, the loan may be denied if the borrower does not meet the underwriting requirements. For example, if their small business does not generate consistent income year after year, despite a recent successful year, their loan may be denied.
When Can Conditional Approvals Be Rejected?
Conditional approval is not a guarantee that your loan will be approved, and a borrower’s application may be denied on occasion. This usually occurs because one of your loan’s conditions has not been met.
For example, if you incur unexpected new debt or the underwriter is unable to verify your financial documents, your loan application may be denied. Alternatively, if you are unable to meet the loan conditions by the due date, your loan application may be denied.
Preparing for the closing process is the best way to avoid this. Don’t assume you’re out of the market because you received conditional loan approval. Maintain regular contact with your loan officer and ensure that all required information is submitted.
Steps to Take After Conditional Mortgage Approval
#1. Determine which documents your lender requires.
In essence, obtaining a mortgage with conditional approval means that you will be required to provide additional documentation before your mortgage can be approved. Pay attention to what the lender requests so that you can provide them with whatever they require for final loan approval, also known as unconditional approval.
#2. Gather the necessary documents
The underwriter’s documentation requirements can be almost anything. For example, you may be required to provide tax returns, proof of income, and proof of savings. Documentation is also required for collateralized loans. For example, if you’re using your first home as collateral for a second home, you’ll need to show proof that your first home is free and clear of liens.
#3. Return the documents.
You will submit the documents to your loan officer once you have gathered them. It’s best to act quickly because most banks will close your application if you don’t provide the necessary information within 90 days. If you don’t submit the documents on time, you’ll have to apply for a new loan, which could cause even more delays.
#4. Contact your loan officer
Any information you submit should usually be processed within 48 hours. At that point, you may contact your loan officer to inquire about the status of your loan. Your loan should be approved if the information answers all of the underwriter’s questions.
Receiving conditional approval from your mortgage lender is a good indication that your loan will be approved. It is critical that you follow up on what your lender requires as soon as possible so that your loan can be approved and you can hear those three magic words: “clear to close.” The first step before receiving a conditional offer is to submit your application.
Frequently Asked Questions
What does it mean when mortgage is conditionally approved?
Your mortgage underwriter is mostly satisfied with your mortgage application if it receives conditional approval. They are willing to approve your mortgage as long as you meet their current requirements.
What's next after conditional approval?
Steps to Take Following Conditional Approval
The loan coordinator will first contact you to discuss the conditional approval and the conditions you must meet. Then, in order to meet the conditions, you must submit the information. Once the loan coordinator receives those conditions, the file will be returned to the underwriter for final review.
Is conditional approval better than pre-approval?
A conditionally approved loan is not the same as being fully approved for a loan, but it is close. Conditional approval means that the mortgage underwriter is mostly satisfied with your loan application, but there is one issue that needs to be addressed.
Is approved with conditions good?
Don’t be concerned if your loan is approved “with conditions”; the good news is that the loan has passed the initial application stage and is moving through the system. At this point, it is critical that you provide all requested documentation as soon as possible in order to keep the loan moving.
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