A conditionally approved mortgage means the mortgage lender will likely approve your loan application, assuming you meet certain criteria. Conditional approval of a mortgage loan does not guarantee final approval, but it’s one step beyond prequalification that signals a strong chance of approval.
By reaching the conditional approval stage in mortgage underwriting, you've likely already supplied significant information and met many conditions. Read on to understand conditionally approved mortgages and approval conditions you might need to meet.
Understanding Conditionally Approved Mortgage
When you apply for a mortgage, the lender will start the underwriting process to certify your provided information, including your credit score, income and debt information.
Conditionally approved means the underwriting process is complete, and your mortgage should be approved as long as you meet certain conditions. Preapproval is an initial approval or estimate of available loan amounts and doesn't indicate that the underwriting process is complete. Conditional approval indicates that the underwriting process is complete, and you just need to meet additional conditions.
Even if you're conditionally approved, it doesn’t mean your mortgage is secured or has received final approval. If you fail to complete the lender’s conditions or have other issues arise, your home loan could still be denied.
Common Approval Conditions
When you get a conditional mortgage approval, the lender will usually specify additional conditions that must be met. Read on for common approval conditions and what you'll need to do to meet approval conditions.
Financial Documents
Sometimes lenders will require additional verification of financial records, even if you already supplied financial verification. For example, your lender might request additional financial documents like investment account information, bank statements, tax returns or other paperwork verifying your income.
Additional Paperwork
Your lender may ask for more paperwork to meet loan criteria or requirements, from verification of financial documents to gift letters or letters of explanation.
Letter of Explanation
During the underwriting process, the underwriters check every banking transaction. If you've made a large withdrawal or received a large monetary gift for the down payment, you may need to provide the lender with a letter of explanation. This letter should detail what the withdrawal was for, or in the case of a gift, a gift letter.
Homeowners Insurance
If you haven't yet secured or provided verification of homeowner's insurance, your lender may request documentation that you have purchased a homeowners insurance policy for the property.
Gift Letters
Lenders will require a gift letter for any monetary gift for the mortgage. The letter is a written statement confirming that funds received for a down payment are a gift rather than a loan.
The letter must explain where the gifter's funds are coming from and the relationship between the gifter and the recipient
Home Conditions
If there are home-related stipulations, like getting a home inspection or appraisal, the lender may require documentation that you've met all home condition verification criteria. This can include the appraisal and homeowners insurance.
Other Types of Mortgage Approval
When applying for a mortgage, you may see a few types of approval before the final close. Here are other stages of mortgage approval you might see.
Prequalification
A mortgage prequalification is a form of initial or estimated approval that isn't as close to approval as a conditional approval. A mortgage prequalification means the lender has some basic information about you and has provided an estimate of the loan amount you could qualify for.
Preapproval
A mortgage preapproval is one step beyond prequalification and means you’ve submitted some information to the lender. At this stage, the lender most likely has pulled your credit score. Mortgage prequalification gives you a better idea of how much you can afford when house hunting, but an underwriter still hasn't verified the loan's financial details.
Formal Approval
Formal approval means you've been approved to close on the property. The underwriter has verified your credit history, bank accounts and income information. You may receive a formal approval letter to show to the seller's real estate agent and schedule the closing.
Approval to Close
Approval to close is the final stage of mortgage approval. After you've set a date to close on the home and received the formal approval of the mortgage from the lender, you'll get the approval to close. This normally is issued at closing when the paperwork for the title transfer is ready to be signed.
How Long Does It Take to Get a Final Approval After a Conditional Approval?
The time frame from conditional approval to final approval varies depending on factors unique to each applicant. For example, the complexity of your case and how quickly you can satisfy the conditions can affect closing speed. It usually takes a few days to a few weeks.
What Happens if You Don’t Meet the Conditions for Final Approval?
Your mortgage will usually be denied if you don't meet the final approval conditions. In addition, you could be denied for a variety of reasons, such as:
- You've taken on new debt
- Unverified financial documents
- You couldn't meet the loan conditions by their deadlines
- The home has a lien
- The home appraisal was too low
- The home inspection turns up unexpected issues
- Your income or debts changed
Even if the conditional approval falls through, you can keep in contact with your loan officer, who may be able to suggest a resolution to meet loan conditions. If you don’t meet the conditions for final approval, you can always reapply with the existing or find a new lender.
Securing Your Mortgage Approval
If you've been conditionally approved for a mortgage, you're close to buying your dream home. Follow up with any conditions and stay in close contact with your mortgage lender to avoid any delays. Ready to get started? Find some of the best mortgage lenders here.
Frequently Asked Questions
Can I start looking for houses once I receive conditional approval?
You can start looking for houses once you receive conditional approval. You can even start looking for houses with prequalification or mortgage preapproval.
Can the conditions for a conditionally approved mortgage change during the process?
Yes, in some cases, the conditions for the conditional approval can change. For example, conditions could change if the condition involved the need for an appraisal, and the appraisal value came back too low.
Can I apply for other loans while my mortgage is conditionally approved?
You could apply for other loans while your mortgage is conditionally approved, but it’s not a good idea. Taking on new debt before finalizing the mortgage approval could lead to your approval falling through.
About Alison Plaut
Alison Plaut is a personal finance and investing writer with a sustainable MBA, passionate about helping people learn more about wealth building and responsible debt for financial freedom. She has more than 17 years of writing experience, focused on real estate and mortgages, business, personal finance, and investing. Her work has been published in The Motley Fool, MoneyLion, and she regularly contributes to Benzinga.