Buying your first house is an exciting, albeit challenging, journey, and the mortgage process is a key step throughout this process. You’ll likely come across the term “conditional approval” along the way. Although this sounds like another layer of complexity, especially if you’re new to home buying, it simplifies your path to getting a mortgage.
What Is Conditional Approval?
This is a stage in the mortgage approval process where lenders review your initial application, find it promising, but still require more information before fully approving your loan. You have the green light, but there are still a few boxes left to check off.
With conditional approval, you’re closer to being approved for the mortgage compared to the earlier “pre-approval stage”. That’s the stage where lenders give you an idea of how much you can borrow based on factors such as:
- Income.
- Debts.
- Credit score.
Conditional approval goes further since it involves a more detailed review of your financials. This usually means meeting a list of conditions for the loan to be fully approved.
Why Is Conditional Approval Important?
The main goal here is to have a stronger position when you’re buying a home. Conditional approval lets the seller know you’re both serious and financially prepared to follow through with your offer. This is the same principle as pre-approval, but conditional approval is even more reliable because there’s been a deeper level of scrutiny by the lender.
You can feel confident knowing your loan will be improved if you meet all the conditions at this stage. Think of it as a safety net where you can sort out last-minute details and ensure everything looks right for the final approval.
Sellers prefer offers from buyers with conditional approval as there’s a very low chance the financing will fall through if you’ve got to this stage.
What Are the Common Conditions for Conditional Approval?
Each lender will have specific criteria for conditional approval, although the following conditions are usually universal:
Proof of Income
You’ll be asked for tax returns or recent bank statements to verify your income.
Employment Verification
They might contact your employer to confirm your job status and income.
Down Payment Verification
The lender probably wants proof you have the funds available if you’re putting money down on the home.
Debt Documentation
You need to provide supporting documents to confirm any debts you’ve disclosed – student loans, credit card balances, etc.
Property Appraisal
Lenders usually need a professional appraisal to confirm your new property is worth the amount they’re loaning you.
Insurance Documentation
You may need to provide proof of coverage, as homeowner’s insurance is typically required for final approval.
Your loan officer should be able to clarify what’s needed if you’re unsure about what to send them. However, these conditions can vary based on:
- Your financial situation.
- The lender’s specific requirements.
- The location of the property.
Steps to Achieving Final Mortgage Approval
You can start fulfilling the lender’s conditions immediately after receiving conditional approval, so here’s what typically follows afterwards:
1. Review the Conditions Carefully
Some of the conditions are straightforward – providing recent bank statements, for example – but others require more work. This could involve arranging an appraisal, which can take time to sort out. This makes it crucial to understand each requirement fully – you don’t want any delays throughout this process.
2. Gather Your Documentation
Now you’ve got to collect all necessary documents to meet the conditions. Approval is conditional upon these specific items, meaning it’s essential they’re up-to-date and accurate.
Some of the requested documents aren’t going to be readily available, so start gathering them as soon as possible – delays only slow down your approval process.
3. Complete the Property Appraisal
This part is where you ensure the home’s value aligns with the loan amount, and it can speed up the final approval if it’s successful. You’ll need to negotiate with the seller if the appraisal comes back lower than the agreed-upon purchase price. You could also just make adjustments to the loan or down payment.
4. Submit All Requested Documents
Send all these documents to your lender once you’ve got them. Chances are they’ll ask you more questions or provide further information at this stage, so prepare for this.
They might even ask for additional documentation if they need to clear up minor details. This mainly only happens if something unexpected shows up during the appraisal or verification process, however.
5. Await Final Approval
When you’ve finally submitted all documents and the lender has reviewed them, they’ll either grant final approval or ask for even more information. If everything checks out, it’s time to close! This is the stage where the lender sends you the final loan documents to review and sign.
How Long Does Conditional Approval Take?
The time it takes to move from conditional approval to final approval varies from how fast the lender processes it to how quickly you submit the required documents. Generally, this is a process that can last between one or two weeks, but this can change based on:
- The complexity of your application.
- Whether additional information is required.
- If any errors are found.
You can’t help certain steps being slow. The appraisal, for instance, is one that naturally takes longer based on the speed of the market or the location of the property. However, you can speed up this timeline if you’re quick to submit your documents.
What Happens If I Don’t Meet the Conditions?
There’s a strong chance your mortgage will be denied (or the lender adjusts the terms of your loan) if you can’t meet the conditions for conditional approval.
For example, they’ll probably reduce your loan amount if your income verification doesn’t match what was initially reported. They can just outright deny your mortgage, but oftentimes, they’ll work with you to find a solution. This could be increasing your down payment or even finding a co-signer.
Make sure you’re upfront and transparent with your lender about any issues that could arise during this stage. Chances are they’ll have options available to help you.
Conditional Approval vs. Pre-Approval: What’s the Difference?
Both pre-approval and conditional approval proves that lenders are willing to work with you, but they’re completely different stages in the mortgage process. Pre-approval is an early indication that’s based on a brief review of your financial situation. This usually involves:
- A soft credit check.
- Estimates of your income and debt.
Conditional approval is far more extensive and provides a much more detailed review. This stage often includes:
- A hard credit check.
- Income verification.
- A list of conditions that need to be met before the loan is fully approved.
Pre-approval is important, but conditional approval is closer to the final approval and carries more weight when you are making offers on a property.
Conclusion
Remember to provide all requested documents as soon as possible throughout the mortgage process. Furthermore, if you keep in touch with your lender, you’ll be well on your way to securing final approval.
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