Key takeaways
- A conditional approval for a mortgage indicates a lender intends to give you a loan, but requires some additional information before doing so. This might include the results of an appraisal, a down payment gift letter or proof of homeowners insurance.
- Conditional approval comes after prequalification or preapproval, but before the final approval.
- Even if your application has been conditionally approved, you could still be denied a loan if you don’t satisfy the lender’s requirements or something changes in your credit or financial picture.
What does conditionally approved mean?
“Conditionally approved” or “approved with conditions” are terms mortgage lenders use to describe the status of your mortgage application. When a mortgage is conditionally approved, it means the lender is likely to approve the loan, but some conditions still need to be met. You’ll be notified of this status in writing.
Conditional approval is one step in mortgage underwriting, the process by which lenders verify the information provided in your application and issue a lending decision.
Can your loan be denied after conditional approval?
A conditional approval is not a guarantee you’ll receive the mortgage. You could still be denied the loan if you can’t meet the lender’s requirements. You might also still be denied if your credit or financial circumstances change — obtaining a new car loan, for example.
Common conditions to meet
A mortgage application that’s conditionally approved usually requires one or more of the following before the lender can move it forward:
- Additional documents such as bank statements
- A gift letter explaining the source of any gifted funds for a down payment
- A letter of explanation explaining flags like a credit report error, inconsistent income or gaps in employment
- Verification of employment
- Proof of homeowners insurance for the property attached to the mortgage
- Results from an appraisal, and a solution for any appraisal gaps
There might be other requirements, as well, especially if you have a more complex credit or financial situation.
Why is conditional approval important?
When a mortgage is conditionally approved, it’s a positive sign that your financing is on track to approval. This can be helpful when competing against other homebuyers making offers, and to meet any builder requirements if buying a new-construction home. This status can also help expedite the closing, since it indicates the lender has already completed most of the diligence in underwriting.
Different types of mortgage approvals
A conditional approval for a mortgage is not the same as a preapproval or final approval. Here’s an overview of the different types of approvals:
- Prequalified: Some mortgage lenders allow you to prequalify for a loan. This step comes prior to the actual loan application. It doesn’t hold much weight other than helping you understand whether you’re eligible and how much you might be able to borrow. You might submit some basic information about your credit and finances, but it usually doesn’t involve a credit pull.
- Preapproved: A mortgage preapproval is a formal letter that indicates a lender is likely to give you a mortgage based on a credit pull and documentation about your finances. The preapproval does not guarantee you’ll be approved, but it’s necessary to have when you make offers on homes.
- Clear to close, unconditional approval or final approval: Once the conditional approval stipulations have been satisfied, the lender will approve your loan for closing, known as “clear to close.” This is the last step ahead of closing day.
Some lenders use different labels to describe various types of approvals, such as “certified homebuyer” or “verified approval.” If you’re not sure what these statuses mean, ask your loan officer for clarification.
What happens after a conditional approval is received?
After your mortgage is conditionally approved, you’ll move on to the final steps in the underwriting process. The journey from conditional approval to closing usually takes one to two weeks. Here’s what it typically looks like:
- You’ll address all conditions. Your loan officer should communicate the conditions that need to be met, such as providing additional paperwork. Make sure to respond to these requests in a timely manner. If you don’t, your closing could be delayed or the loan could be denied entirely.
- Your lender will return the loan to underwriting for a final check. Once the conditions have been met, the lender’s underwriting department will review what was submitted.
- Your lender will clear the loan to close. If underwriting is satisfied, your lender will formally approve your loan. This means you’re ready for closing day.
- Your lender will provide a closing disclosure. At least three business days prior to closing, your lender will provide a closing disclosure. You’ll need to review this document carefully and sign it to indicate receipt.
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You’ll work with your attorney or settlement agent to close the loan on closing day. At this time, your closing agent will help you sign paperwork, distribute funds and obtain the keys to the property.
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