What It Means to Be Conditionally Approved
When you apply for something only to be told that your are conditionally approved, you might be confused and left with a big question: What does conditional approval mean? Is it different from regular approval or a sign that you haven't made the cut yet?
Although it may seem unclear at first glance, conditional approval simply means that your application has been approved under specific conditions.
For example, if you tell your child that the video game console can only be turned on after all homework assignments are finished, you’ve given your child conditional approval to play video games.
Some conditions are tangible, like homework and W-2 forms and paystubs, while others are subjective, like trustworthiness. In this article we explore the important details surrounding what conditional approval is.
Get a QuoteWhat Does “Conditionally Approved” Mean?
“Conditionally approved” describes a situation in which your application or request has been granted so long as certain conditions are met. The individuals and organizations issuing conditional approvals might have various reasons for doing so. Often it’s so they won’t lose you to the competition. If approval takes time or is initially unclear, you might take your business elsewhere. But if a company can say yes to you immediately on certain conditions, you’re more likely to stick around.
In addition to the sales aspect, offering conditional approval is another way that companies protect their interests. A conditional “yes” allows for wiggle room. It can become a firm “no” at the drop of a hat.
However, whether you should accept a conditionally approved offer or not depends on the individual circumstances. Weigh the situation carefully. Does it feel like a stalling tactic? Are the conditions unreasonable? You should only decide to proceed with a conditionally approved application after careful consideration.
When you apply for a mortgage or a refinance, conditional approval ideally means that you’re one step closer to your goal. Conditional approval can give borrowers peace of mind and offer assurance that the lender has a good first impression regarding the borrower's application and chances.
Be Ready to Meet the Conditions of Your Approval
Borrowers should fully understand what conditions are necessary to turn a conditional approval into a full approval. Failing to meet even a single condition could jeopardize a borrower’s chances of getting a loan. Representatives of the lending institution should be quite helpful in explaining what they need and when. After all, they want borrowers to succeed.
Everyone’s situation is unique, so make sure you confirm any details with your bank or lender before proceeding in the loan process. There could be more ways than one to meet the conditions. For instance, if a condition of your approval is proof of income, a lender can suggest several ways of satisfying that requirement, from paystubs to income tax returns.
Different Stages of Mortgage Approval
Mortgage prequalification.
Prequalification is merely a first impression of your home loan chances based on self-reported data. For instance, if you enter your annual income as a million dollars, don’t be surprised when a lender instantly says you are prequalified for a mortgage. “Prequalified” means you haven’t ruled yourself out by answering questions unsatisfactorily. That’s why lenders are able to prequalify people in an app or on a website after a few seconds’ consideration.
Mortgage preapproval.
Being preapproved for a mortgage is useful for homebuyers because it provides insight into the maximum loan amount (which you might have the power to change), interest rates, and fees. At the preapproval stage, self-reported information has since been documented. The loan scenario has been analyzed. Abstract concepts like monthly payments, homeowners insurance, and private mortgage insurance now have estimated dollar amounts to go with them.
Additionally, buyers who have a preapproval letter from a lender enjoy a competitive advantage because sellers know they have overcome that hurdle. Some sellers will only conduct an open house for people who are preapproved.
Despite the insight it gives to buyers and the confidence it gives to sellers, preapproval is far from a guaranteed mortgage. The final decision rests with the lender and the overwriters. Still, it’s an important step in the process.
Verified mortgage approval.
A verified mortgage approval is an invaluable asset when it comes to purchasing a home. It allows buyers to reset their expectations for repayment terms and be prepared for potential payment increases as rates fluctuate. Buyers can be secure knowing that they won’t be locked into a mortgage with hidden costs or debt-load surprises down the road.
As for lenders, they can rest assured that the information provided to support the home loan is reliable due to independent third-party verification.
A verified mortgage approval provides a more stable foundation for making significant financial decisions than ever, allowing buyers and lenders alike to know exactly what to expect before moving forward with any purchase or refinance loan application.
Initial Mortgage Approval vs. Conditional Approval
The distinction between initial mortgage approval and conditional approval can be confusing. Essentially, initial mortgage approval comes prior to conditional approval and is based on the lender's assessment of the borrower's financial picture. Initial approvals confirm eligibility, provided you do not make a financial move that lowers your credit score or income drastically.
After further analysis, initial approval may become conditional approval. As you now know, conditional approval will require certain things to happen before the loan application can proceed. These things might include additional paperwork, home appraisals, a title search, a certificate of occupancy, or other information from third parties. It is important to carefully review any requirements specified by the lender for your conditional approval and provide all necessary documents as quickly as possible to move the process along.
Mortgage Underwriting
The mortgage's underwriting process is often very detailed and conducted behind closed doors. Other than providing documents when asked, borrowers do not participate in underwriting. Both the borrower and the lender will be in a waiting period as the underwriters pour over all documentation and run strenuous analyses of the loan.
Rate Simple provides prospective homebuyers with additional resources and guidance to prepare them for property ownership. We’re happy to guide clients through all the key steps along the way, which may increase their ability to purchase real estate confidently and efficiently.
Credit Score Requirements
Understanding the credit score required to secure a loan or other financial aid is more critical than ever, as lenders have instant access to consumer scores and use them in decision making. Getting an early start on ensuring that one’s credit score is up to scratch is essential for building a strong financial foundation and improving one’s ability to access capital.
Anyone with an online presence can take multiple measures to bolster their credit score, yet improvement doesn’t come without time and effort. As such, it is important that anyone with ambitions of achieving greater financial stability consider the power of knowing his or her credit score.
Documentation Requirements
Obtaining a mortgage is complex but certainly possible. Documentation must be provided to prove that you can make your monthly payments and also proof of income so that lenders can assess your fiscal stability. Other documents required for mortgage approval include the application form, liabilities paperwork, and disclosure agreements.
Can You Be Denied After Conditional Approval?
Conditional approval from a lender does not mean that you have been approved for a loan, credit card, or other financial product. A number of factors can contribute to being denied after one initially receives conditional approval. These may include poor timing, inherent risk associated with certain employment types, and applicants who fail to accurately represent themselves and provide all documents needed for the decision-making process.
Additionally, lenders reserve the right to change their requirements under certain unexpected circumstances. It’s important for applicants to carefully consider any contingencies mentioned in their initial agreement and ensure that they understand what processes are necessary to receive final approval from the lender.
What Happens After Conditional Approval?
After you receive your conditional approval, you will need to take steps to satisfy the lender’s conditions and further the application. Examples of the conditions you might have to meet include proof of down payment, qualifying for property insurance per the lender’s requirements, proof of ability to pay closing costs and fees, and documentation to verify your income, expenses, and employment.
It's a good thing to be conditionally approved for a loan. After all, you are one step closer to your goal than if you hadn't applied in the first place. Think of conditional approval as a To Do list and ask for tips and suggestions from your loan rep. The lender wants you to meet the conditions and will help you.