Conditional Approval, defined.
Conditionally approved, also known as conditional approval, means that your mortgage application has gone through underwriting, and the lending institution will approve your mortgage if you meet the conditions or stipulations (stips) that are listed on the conditional approval. These stipulations can include extra documentation, such as more bank statements, business tax records, proof of down payment funds, proof of employment, paycheck stubs and even paying off certain items that appeared on your credit report. Conditional approval is a step past pre-approval. It typically occurs following pre-approval but before you get a mortgage approval letter.
Conditional approval is not a loan commitment. The loan commitment comes after the conditional approval. The loan commitment is what you really need to be sure that your loan will get funded, and even with a commitment, the bank could pull out at the last minute if they found any changes in your financial situation, such as the opening of a new credit card or auto loan or a loss of a job. Do not open any new lines of credit when trying to get a mortgage.
Common Approval Stipulations or conditions
Most underwriters ask for similar items, but here are a list of the most common:
- Additional bank statements, tax returns, paycheck stubs: Even though you may have already provided some bank statements, W2 documents and prior year tax returns, a lender may ask for additional bank statements from other accounts you have such as brokerage accounts and retirement accounts. If you own a business you will be asked to provide business tax returns, P&L statements and balance sheets.
- Homeowners insurance: Most lenders will require proof that you paid for homeowners insurance on the property at or prior to the closing. You may be asked for the declaration page for that insurance.
- Proof of transactions: Underwriters check your bank statements for large deposits and withdrawals and may ask where those funds came from or where they went. If you’ve recently had a significant withdrawal from your bank account, you may have to provide proof of where that money went. They may also ask for a copy of any large checks you wrote or received, so be sure to make copies of any large deposit checks (front and back). If you have received any gift money you may be asked for proof from the person who gifted the money that it is not in fact a loan.
- Conditions for property: Your approval may include items or repairs to the property you are buying. For instance, if you are doing a FHA loan and there are missing handrails, the lender may ask that the seller fix those items prior to funding.
If you are new to getting a mortgage loan, your lender and accountant may be able to offer advice. Your Simon Gray Realty real estate agent will walk you through the process.
Types of loan approvals
A conditionally approved mortgage is just one form of approval required before purchasing a house.
Pre-qualification
Pre-qualification is when you supply the basic information about your financial and credit details to determine if you can get a loan from a particular lender and, if yes, what amount the lender is willing to lend you. This is different from the pre-approval process, which is more complex. The pre-qualification process is determined by your numbers and estimates and can include the possibility of a gentle inquiry of your credit file.
Pre-approval
A pre-approval will determine your loan amount based on your credit history and bank details. Your lender will investigate your credit score, which may affect your credit score, and will also review other financial documents to determine how well your credit is.
Conditional approval
It’s when you’re accepted for a mortgage on your home with specific conditions. While it’s usually an excellent sign to be approved, there may be certain situations, such as failing to provide additional evidence to the lender or getting the property appraised, in which you could be refused.
Approval or Clear to Close
It is the same as official approval or one with no restrictions. It is when the underwriter handling the loan has verified your credit score, bank accounts, and income details. It may also be accompanied by a formal letter of approval should you wish to present the letter to home sellers.
Closing
If you’ve reached an agreement for sale with the seller’s mortgage, a lender will permit you to close on the house. It usually happens at the time of closing when you have the documentation for the title transfer completed.
What happens if a Conditional Approval is Denied?
The conditional approval you received won’t be converted into a complete approval. You must satisfy the lender’s requirements to accept the loan application. Also, if the evidence you submit needs to be validated- a recent bank statement containing new debts, your lender may reject your loan application. If one lender or bank denies your application, you may be able to change the loan type to FHA or go to another lender with different standards. You may also be able to get Hard Money to close quickly, and then refi to a conventional lender after the purchase.
Expected Closing Date Following the Conditional Approval
The time between the conditional approval stage and closing can differ for each individual. It could be as short as a couple of weeks or longer than several months. It’s contingent on the conditions that the decision was made. For example, if you cannot provide a few bank statements, you may be able to submit them within a few days. If you require an appraisal or homeowners insurance, the process could take several weeks to get your house on the market.
