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Homebuyers are often advised to get pre-approved for a mortgage before house-hunting or making an offer on a new home. But it also pays to get conditional loan approval. Here, we'll review what conditional approval for a home loan entails and explain how to get a conditional approval.
What is conditional approval?
Conditional approval is a statement from a mortgage lender indicating a mortgage will get approved provided specific conditions are met at the time of closing. Conditional loan approval does not guarantee a mortgage will actually be approved. Rather, it means the lender willing to loan a specific amount of money, provided the applicant meets certain criteria.
For example, conditional approval for a home loan might hinge on that home appraising for a certain amount of money. Or, it might depend on a mortgage lender verifying an applicant's employment status prior to that home loan actually closing. If your mortgage is conditionally approved, your lender will generally outline the conditions that will need to be met so there are no surprises.
Why should I apply for conditional loan approval?
If you get conditional approval for a home loan, you show sellers you're a strong candidate. That could come in handy in a bidding war. Conditional loan approval could also speed up the closing process. For a mortgage to close, there's lots of financial information for lenders and underwriters to review and process. A letter of conditional approval shows you've already taken care of that paperwork.
Additionally, you might need conditional loan approval to buy a new construction home (a home built from the ground up). Your builder may require it before starting the construction process. In that situation, you won't close on your mortgage until that new home is complete. That's why your builder might want extra reassurance before starting the build.
Pre-approval vs. conditional approval: What’s the difference?
With conditional loan approval, an underwriter reviews your financial documentation. That's not the case with pre-approval. An underwriter is the one who grants or denies your loan, so conditional loan approval from an underwriter carries more weight than a pre-approval letter.
Pre-approval and conditional approval are similar in that both processes involve reviewing your finances and documentation to determine whether you're a viable mortgage candidate. And both provide you with proof that you are, in fact, able to get a mortgage.
How to apply for conditional loan approval
Here are the steps to applying for conditional loan approval:
- Shop around with the best mortgage lenders to find the best home loan offer.
- Provide the lender you choose with all of the financial information it requests.
- Tell your lender you want a notice of conditional loan approval once your loan reaches that stage.
- Wait for an underwriter to review your information to determine whether you're eligible for conditional approval for a home loan.
- If you're conditionally approved, you'll receive a notice or letter to that effect.
Keep in mind that underwriting could take just a few days, or it could take over a week. Your lender may be able to give you an estimate as to how long the process will take so you know what to expect.
Your lender may ask for quite a bit of documentation before beginning the underwriting process. That documentation could include:
- Bank account statements
- Pay stubs
- Recent tax returns
- A letter of employment verification
If you're self-employed and applying for a mortgage, you may need to provide additional information, including:
- Profit and loss statements from your business, if you own one
- A copy of your business license
- Copies of contracts indicating that your workflow is ongoing
- A letter from an accountant verifying how long you've been in business
Complying with your lender's requests will help make the underwriting process go smoothly. When the process is finished, you can get a letter or notice of conditional loan approval.
The bottom line on conditional mortgage approval
Conditional loan approval on a mortgage makes you a stronger buyer. And it may be a requirement in some situations, like new construction.
Even better, getting conditional approval for a home loan doesn't require much extra work. For any mortgage to close, you'll need to provide the right documentation to your lender and have that loan go through underwriting. Conditional mortgage approval simply involves getting a letter proving this part of the process is complete.
Still have questions?
Here are some other questions we've answered:
Ready for mortgage pre-approval?
Getting pre-approved for a mortgage loan is an important step in the home buying process. Our experts recommend mortgage pre-approval before you begin looking at houses or deciding on a real estate agent.
FAQs
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Conditional loan approval is a letter or notice from a mortgage lender stating that your assets and documentation have been reviewed, and that you're eligible to close on a home loan provided certain specified conditions are met.
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With mortgage pre-approval, an underwriter doesn't review your financial documentation. In contrast, with conditional loan approval, an underwriter does take that step. You'll be issued a letter of conditional approval once that review is complete.
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The underwriting process can take anywhere from a few days to over a week, depending on your lender and underwriter. Providing accurate documentation could help move the process along.
Our Mortgages Expert
Maurie Backman is a personal finance writer who covers topics ranging from Social Security to credit cards to mortgages to REITs. She also has an editing background and appears on live podcasts to talk about financial matters.
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