into the house-buying hunt. Yet there’s an even better position to be in as a borrower when you enter the real estate market, and that’s conditional approval. A conditional loan approval functions similarly to a preapproval on a home mortgage; however, it’s even better for the borrower. An underwriter reviews all mortgage documentation before sending an applicant a conditional loan approval. This carries far more weight, showing that the borrower is farther along in the mortgage approval process. You will receive conditional approval through a written statement from the mortgage lender. It states that the lender is currently satisfied with your application and will approve the mortgage if you meet specific requirements. These could include:
Verifying employmentSupplying more bank statementsSubmitting a gift letterExplaining recent, large withdrawals from your bankGetting a home appraisal
It’s important to understand that receiving conditional loan approval does not mean you’re guaranteed a loan. Instead, it states that you will receive the mortgage if you supply required items and if those items receive the underwriter’s approval—emphasis on the “if.” It’s essential not to have anything significant change in your financial situation during this process, as that could lead to a denial. Obtaining conditional approval puts you in a great place as an interested buyer. It shows that you’ve done your diligence to submit financial documentation, and it gives the seller confidence that you’re a good candidate. Conditional loan approvals also help speed up the closing process; you’re already deep into mortgage approval by the time you are in sales conversations.
Example of Conditional Loan Approval
Any real estate agent will tell you to shop around for a mortgage before you search for a house, and that is a critical first step. You need to know how much you could be approved for to set a realistic homebuying budget and guide your search. The various levels of mortgage approval you will face during the process are:
Prequalification: The buyer provides estimated numbers and is identified as someone who may qualify.Preapproval: The buyer’s credit score and credit history are verified.Conditional approval: The underwriter reviews documentation and deems that you are likely a good fit but needs more information to confirm that.Mortgage approval: The underwriter has verified all details, and the mortgage is ready to be approved.Approval to close: The lender provides the approval for the mortgage and timeline to close.
Once you’ve identified a lender you’d like to move forward with, you should provide as much documentation as possible. The name of the game at this phase is going above and beyond with what you can supply to answer all questions. You also can tell the lender you would like a conditional loan approval, once you’ve arrived at that step. Now comes the hard part: waiting for the underwriter to review your application and see whether you’re conditionally approved. If so, you will receive a statement with conditional approval, which you then can use in conversation with home sellers. At the same time, you should move forward to check all the boxes contributing to your conditional loan approval that you can. Submit details you have on hand or can get quickly, such as income verification or letters from outside parties. Stay in constant contact with your lender and inform them of timelines on things such as home appraisals, which could take longer to gather. A conditional loan approval puts you in a better buying position and doesn’t take additional time or energy. You will have to submit documents and meet the underwriter’s conditions at some point in the mortgage process. Start early and enter as a more confident homebuyer.
