In this lesson of the the complete beginner's guide to a Home Purchase, you will learn more about the home purchase process step of a conditional approval. What is a conditional approval and should I be worried?
A conditional approval issued by Underwriting means they have reviewed your loan and have made a decision to approve your loan after certain conditions are met. It's at this step we will revisit your loan, see what your conditions are and begin addressing the conditions to resubmit for final approval.
Common Approval Conditions
Congrats! You've reached a major milestone to a success mortgage transaction with your conditional approval.
Understand that a conditional approval is a very common step along your home financing journey. Here's a short non-exclusive list of conditions we see being requested:
- Current bank statement to verify cash to close is available
- Update paystubs
- Gift letter - Documenting funds or verifying wire transfer
- Revisions or corrections to an appraisal
- Revisions or clarity request to your purchase contract
- Revisions of your homeowner's insurance policy
- Credit supplements to verify no new debts from an inquiry
- Documentation required for self-employment income
Many times, there may be no conditions that you need to worry about. Often, we will see conditions that we solve on our end such as a Verification of Employment form correction, an appraisal report correction or similar.
I won't bore you with all the behind-the-scenes activities of your home loan, but just know, we make every attempt to involve the client as little as possible in solving conditions.
Are Conditional Approvals Ever Denied?
Yes. Clients that are unable or unwilling to provide the documentation required to answer conditions may not reach final approval.
Here's a theoretical scenario of a mistake made in the home loan process: Say a client applies for a car loan during the mortgage process and a new credit inquiry appears on their credit report. A condition would be to for us to complete a credit supplement to verify no new debt has occurred as a result of that credit inquiry. During that investigation, it is discovered a new car was actually purchased with a car payment that throws their debt-to-income ratios out of range for approval.
Conditional approvals are not a guarantee you will reach final approval. With me as your loan officer, I will reach out to you within a business day with any requests required to resubmit your loan for final approval.
How Do I Get a Pre-Approval Letter?
For clients that need a pre-approval letter instead of a pre-qualification letter, a conditional approval is what is needed. This letter is for special circumstance clients who need to go through the loan submission and underwriting review process before home shopping begins.
Once your loan has been reviewed by an underwriter with a conditional approval decision and after a review of conditions to ensure there are no obvious issues that may prevent the loan from reaching final approval, a pre-approval letter will then be issued.
For most clients that don't need a special underwriter review, a pre-qualification letter may be issued which still includes a full review of your income, debt and submission through our Automated Underwriting System (AUS). This process is about 1 week faster to receive a letter that can be used to submit with your offers.
How Long Does It Take to Reach Final Approval?
There is no guaranteed timeline for final approval. For efficiency, be on alert to answer any requests that are sent to you. The faster we are able to resolve all conditions on your loan, the faster we can resubmit your loan for final approval.
With fast response, we can usually reach final approval within 1-5 business days if everything goes to plan and all third parties involved respond in a timely fashion. There are instances beyond our control that may delay final approval such as required home repairs, solar panel lien issues, other seller issues or documentation that has delays.
It is for this reason, as your loan officer, I make every effort to remain ahead in your loan process. This way, should things come up beyond our control, we are able to address them and hopefully, close on time without a real estate purchase contract extension.