Being conditionally approved for a mortgage means the lender is interested in doing business with you. That's good news, as all you'll typically need to do to get approved is to provide the lender with additional paperwork and answer any questions they have.
Conditional Approval Examples
Can A Loan Be Denied After Conditional Approval?
Common Reasons To Receive Conditional Approval Letter
Mortgage Conditional Approval vs. Pre-Approval
Steps To Take After Conditional Mortgage Approval
Conditional Approval Mortgage Bottom Line
- Conditionally Approved Due to Self Employment
- Conditionally Approved Due to Down Payment Assistance
- Conditionally Approved Pending Asset Verification
- Conditionally Approval Pending Title Verification
- Conditionally Approval Pending Appraisal
1. Conditionally Approved Due to Self Employment
The most common reason for conditional approval is self employment. For example, let's say Jack and Jill are applying for a $250,000 loan. Jill is a part-time nurse, and Jack is self-employed. Because Jack is self-employed, the bank asks for more information. As long as he can supply his tax returns for the past two years, and as long as that matches the income on their application, they will qualify for their loan.
2. Conditionally Approved Due to Down Payment Assistance
Jack and Jill meet the income and credit requirements to afford the monthly mortgage payment. However, they’re depending on a $10,000 check from Jill’s mother to pay part of the down payment. The underwriter will want this check to be deposited before the mortgage can be closed.
3. Conditionally Approved Pending Asset Verification
Jack and Jill meet all the requirements for the loan. However, Jack stated that he has $240,000 in a 401K account. The underwriter may need to see proof of this information before approving the loan.
4. Conditional Approval Pending Title Verification
Another major consideration is a process called title verification. During this process, the underwriter must ensure that no third party holds a lien on the property. There’s nothing Jack and Jill can do but wait this part out.
5. Conditional Approval Pending Appraisal
In addition, most underwriters are going to want the house to be appraised. Getting a home appraisal will ensure that the selling price is not wildly inflated. In other words, the bank wants to make sure that the mortgage loan isn't for more than the house is worth.
In short, yes, a loan can be denied after receiving conditional approval. This usually happens when the borrower doesn’t provide the documents that are required. In addition, the loan may be denied if the borrower doesn’t meet the underwriting requirements. For example, if their small business does not bring in consistent income on a year-over-year basis, their loan may be denied despite a recent successful year.
You can receive conditional loan approval for any number of reasons, but the most common is that you need to submit more financial information. Other reasons and requests can be to submit employment verification and explanations of derogatory marks on your credit history.
The first thing that often confuses homebuyers is the difference between mortgage pre-approval and conditional approval. Pre-approval is the approval you’re given before you even put in an offer on the home. It’s based on a quick look at your income and credit score, so the loan officer is just getting a snapshot of your financial situation.
The good news about a pre-approval is that it gives you leverage when you’re making offers on homes. The seller knows you’re approved for the mortgage so that they can accept your offer with more confidence. A pre-approval also makes real estate agents more likely to work for you, since they know you’re a serious buyer.
The bad news about pre-approval is that it doesn’t necessarily mean you’re going to get the loan. You still need to file a complete application for a specific loan amount for a particular property. At this point, the loan will need to be underwritten. This means an underwriter goes through your finances and determines whether or not the lender is going to approve that specific loan.
Conditional loan approval comes after you’ve put in an offer and filed an official loan application. At this time, a mortgage underwriter examines your finances and may ask for additional information. This can include pay stubs, tax returns, bank statements, and details on your credit report information such as late payments and defaults. If you’re not able to provide this information, the lender may not be willing to move forward with a mortgage.
- Find Out What Documents Your Lender Needs
- Gather the Required Paperwork
- Submit the Documents
- Follow Up With Your Loan Officer
1. Find Out What Documents Your Lender Needs
The first thing you need to do after getting conditionally approved is to reach out to your lender and confirm what they need from you. In most cases, you'll simply need to submit additional information and paperwork before your mortgage can be approved. Listen to what the lender is asking for so that you can supply them with whatever they need so that you can get a final loan approval, also known as unconditional approval.
Your loan is not going to go through unless you provide this information, so be sure you understand exactly what you need to provide. The faster you work with your loan officer, the quicker you can get approved and move into your new home.
2. Gather the Required Paperwork
The type of documentation required by the underwriter can be just about anything. For instance, you may need to supply tax returns, proof of income, and proof of savings. Documentation is also required for loans that include collateral. For example, if you’re using a first home as collateral on a second home, you’ll need to provide proof that there are no liens on your first home.
Another common type of documentation is homeowner’s insurance. Homeowner’s insurance is going to be required before you close on your home. Since insurance is an ongoing cost, most lenders want to know how much you’re paying so they can factor that into your expenses.
3. Submit the Documents
Once you gather the documents you'll submit them to your loan officer. It's a good idea to act quickly as most banks will close your application if you don’t supply the required information within 90 days. If you don't submit the documents quickly enough, you’ll need to apply for a new loan, which can lead to even more delays.
4. Follow Up With Your Loan Officer
Usually, any information you submit should be processed within 48 hours. At that point, feel free to call your loan officer to check on the status. Provided the information answers all the underwriter’s questions, your loan should be approved.
That said, there are some specific scenarios in which the underwriter may need even more information. This often happens when family members help with various expenses like a down payment. For instance, if the underwriter asks for savings account information and sees a recent deposit of $5,000, they’re going to want to know where that money came from.
Being conditionally approved for a mortgage is one of the final steps towards securing your loan. You'll need to stay in touch with your loan officer and provide any paperwork they ask for, but as long as you do that, your mortgage will be approved. So don't worry, being conditionally approved is a good thing, and it won't be long before you can close on your mortgage.