So you’re applying for a mortgage, you think you have everything lined up right, you get pre-approved. Great! And then you get… conditional loan approval? What is that? What are the conditions?
What is a conditional approval?
A conditional approval is a step between pre-approval and closing. It means your loan approval is subject to conditions that must be met before the loan can close.
After you fill out a loan application, an underwriter investigates and verifies to make sure there are no mistakes or discrepancies. If you received conditional approval, the underwriter will make sure your conditions have been met in order to offer final approval on your loan.
What can lead to conditional approval?
Here are a few examples of conditions that might be listed on the conditional approval for your mortgage.
Unfinished appraisals. Loan approval depends, in part, on the appraised value of the property, since that affects the loan-to-value ratio. Perhaps your appraisal hasn’t reached the underwriter yet or it needs correction. Maybe additional comparable sales need to be included in your appraisal. These tasks can take time, and your loan approval might depend on their completion.
Debt. If you’re selling one home to buy another, odds are good you may still have some mortgage left to pay on the first house. Until it sells, you’ll still have that debt as a liability, which factors into your debt-to-income ratio and affects your eligibility for the loan. Your conditional approval may require that debt be paid off.
Negative items on your credit report. Sometimes a piece of information on an applicant’s credit report is damaging enough to cause loan application rejection. is the item may be an error, like a judgment that was already satisfied, or something you can quickly resolve, like a collection account you can pay off right away. The conditional approval gives you the chance to follow up with your loan underwriter to show that the item is no longer an issue.
Waiting on a deposit. Sometimes getting a down payment together means moving around money from several banks or cashing in investments. Part of the underwriter’s job is to verify the source of all the funds. In the interim, conditional approval allows you to continue to move forward in the home buying process. Once the funding sources check out, your condition is met.
Employment verification. How fast your employer gets back to your underwriter can be the difference between spending a couple of days in conditional approval and a week or longer. It’s always a good idea to let your employer know when such an important phone, email, or verification request letter might be coming.
What You Should Do About Your Conditional Approval
Even if your loan moves forward in the process, your final approval and closing could be jeopardized by unmet conditions. The keys to passing this phase are good communication with your realtor, the loan officer, and your lender, and, just as importantly, paperwork that is in order. Resolve all issues as quickly as possible, and make sure your loan officer is in the loop at every stage. Keep copies of everything, so that you can show the underwriter, on demand, the evidence that you have met all the conditions.