What does it mean to be conditionally approved?
“Conditionally approved” or “Conditionally approved” are terms used by mortgage lenders to describe the status of their mortgage application. If your mortgage is conditionally approved, it means that the lender is likely to approve the loan, but some conditions must be met. This status will be notified in writing.
Conditional approval is one step in mortgage underwriting, the process by which a lender validates the information provided in the application and issues a loan decision.
Can I refuse a loan after conditional approval?
Conditional approval is not a guarantee that you will receive a mortgage. If you are unable to meet the lender’s requirements, you may still be denied the loan. You may also be denied, such as taking a new car loan, even if your credit or financial situation changes.
General conditions to meet
A conditionally approved mortgage application typically requires one or more of the following before the lender can move it forward:
- Additional documents such as bank statements
- Gift letter explaining the source of talented funds for down payments
- Explanation letter explaining flags such as credit report errors, inconsistent income, or employment gaps.
- Employment verification
- Homeowner’s Insurance Certification for Real Estates Along with Mortgage
- Results from assessments and solutions to any assessment gap
Other requirements may also be present, especially if you have more complicated credit or financial situations.
Why is conditional approval important?
If your mortgage is conditionally approved, it is a positive indication that your funding is on track from approval. This is useful when creating offers with other home buyers and meeting the builder requirements when purchasing a new construction home. This status also helps to encourage closures as it indicates that lenders have already completed most of their underwriting diligence.
Different types of mortgage approvals
Conditional approvals for mortgages are not the same as pre-approval or final approvals. Below is an overview of the different types of approvals:
- Prequalification: Some mortgage lenders can prequalify for the loan. This step is performed prior to the actual loan application. Apart from understanding whether you qualify and how much you can borrow, it doesn’t hold much weight. You may submit some basic information about your credit and finances, but that does not usually involve credit pull.
- Pre-approved: A pre-approval of a mortgage is a formal letter indicating that the lender is likely to grant you a mortgage based on your financial credit pull and documentation. Pre-approval does not guarantee that you will be approved, but you must have it when making an offer at home.
- Clear, unconditional or final approval to close: Once the conditional approval provision is met, the lender will approve a loan for closure, known as “clear to close.” This is the final step on the closing day.
What happens after I receive conditional approval?
Once the mortgage is conditionally approved, you will proceed to the final step of the underwriting process. The journey from conditional approval to closure usually takes a week or two. This is what looks normal:
- Address all conditions. The lender should inform you of the conditions that need to be met, such as providing additional documents. Please respond to these requests in a timely manner. Otherwise, the closure could be delayed or the loan could be denied altogether.
- Your lender will return the loan to the underwriting for a final check. Once the conditions are met, the lender’s underwriting department will review the submitted ones.
- Your lender will clear the loan and close it. If underwriting is met, the lender will formally approve your loan. This means you are ready for closing day.
- Your lender will provide closing disclosure. At least 3 business days before closing, your lender will Close disclosure. This document must be carefully reviewed and signed to show receipts.
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Work with your attorney or settlement agent to close your loan on the closing date. At this point, the closure agent will help you sign the documents, distribute the funds, and get the right keys.ty.
