You’ve been approved conditionally for a mortgage.
Does that mean that you’re all done?
Not at all. The most challenging parts of getting approved for a mortgage loan are still ahead of you.
Don’t worry; you’ll likely get through the process just fine.
But making any changes in your financial situation at this stage could lead to your loan being denied.
Let’s look at conditional mortgage approval, full approval, and what you can do to make sure your mortgage loan closes.
What is Conditional Approval?
Conditional mortgage approval is when a lender approves your home loan based on certain conditions that must be met for the loan to be fully approved.
Importantly: You are not fully approved for the loan until these conditions are met.
A common condition is that you must provide the lender with updated documentation proving that your income and employment status has not changed since you first applied for the loan.
Conditional approval is different from full approval, which means that the lender has fully approved your loan and all conditions have been met. Full approval means that you are ready to close on your home loan and move forward with buying a home.
A conventional mortgage is the hardest to get formal approval for in terms of buyer requirements, but an FHA/VA loan may be harder to get approval for in terms of house requirements.
Most Common Conditions for Conditional Mortgage Approval
Most people have conditional loan approval until the very last stages of the mortgage process. Here are some of the most common conditions.
- Keep your documentation updated. The most common condition for conditional mortgage approval is updating your documentation regularly. The lender may request bank statements more than once throughout the process.
- Appraisal. Another common condition is to get an appraisal of the home you are looking to purchase. If the appraisal comes in too low, the lender may revise the amount they are willing to offer you.
- Home inspection. A home inspection is often required as a condition of conditional mortgage approval. The home inspector will look for any major repairs that need to be made on the property before it can get financing. Home inspections and appraisals are more rigorous for VA and FHA properties.
- Mortgage insurance. If you are putting less than 20% down on your home, you will likely be required to purchase mortgage insurance. Mortgage insurance is an insurance policy that protects the lender if you default on your loan.
- HOA approval. If you are looking to purchase a home that is part of a homeowners association (HOA), the HOA must approve your loan for it to be fully approved.
- Title search. A title search is frequently a condition of conditional loan approval. This ensures that there are no outstanding liens or judgments against the property you are looking to purchase.
- Flood certification. If the home you are looking to purchase is in a flood zone, a flood certification may be required. This is to ensure that the property has adequate flood insurance in place.
- Homeowners insurance. You will be required to purchase homeowners insurance for your mortgage approval. This policy will protect your home in case of fire, theft, or other damages. Don’t forget about getting this policy in line before closing.
- Selling your current property. If you have not yet sold your current house, this may be a condition of your mortgage approval. The lender wants to make sure that you can pay off your loan, which you may not be able to do if you’re carrying two mortgages.
If you don’t meet all the conditions the lender has set forth, you won’t be able to close.
When Do You Get Full Mortgage Approval?
Also known as clear-to-close, a full mortgage approval doesn’t occur until the very last stages of your purchase.
You’ll likely have a conditional loan approval early on, but full approval doesn’t usually come until after the underwriter has reviewed your supporting documentation, such as bank statements, tax returns, and employment verification. The underwriter will also confirm that the property you’re interested in purchasing meets all guidelines set forth by the lender.
If everything looks good, the underwriter will give the final OK, and you’ll receive full mortgage approval. But don’t be surprised if you don’t get your mortgage approval until a few days before closing.
What Can Cause Your Mortgage to Not Be Approved?
What can cause a mortgage to fall through between conditional approval and full approval? There are a lot of things. But as your underwriter works through your mortgage, they will update you on anything that could cause problems.
Here are some of the most common issues that buyers run into before achieving unconditional approval:
- Your credit score has dropped, taking you below the required credit score.
- A change in your employment status.
- Your debt-to-income ratio is too high due to new expenses.
- You have applied for new credit accounts.
- You have made large deposits that you can’t explain in your bank account.
- The home you are interested in purchasing has decreased in value.
- The home inspection reveals major repairs.
- Your homeowners’ insurance policy is not up to the lender’s standards.
- You have not yet sold your current home.
- You have not yet met other requirements, such as flood or earthquake insurance.
A mortgage is a big commitment, and there are many moving parts. Your real estate agent will help you where they can.
What Can You Do to Make Approval Easier?
If you’re worried about your mortgage approval, you can do a few things to make the process easier on everyone.
- Get pre-approved for a mortgage before you start shopping for a home. This will give you an idea of how much money you’ll be able to borrow, and it will also show sellers that you’re serious about buying a home. If there are any significant issues with your credit, you’ll find out before even looking.
- Be honest on your loan application. If there are things you don’t know, find them out before you put in your loan application. Don’t try to hide anything from your loan officer. They may not find it on the conditional approval mortgage application, but they will find it later.
- Make sure your credit score is as high as possible. The higher your credit score, the better your chances of getting approved for a mortgage. Correct any errors on your credit score and make sure you aren’t late with payments.
- Pay down your debt and keep your debt-to-income ratio low. Lenders like to see borrowers with low debt levels and high incomes.
- Save up for a larger down payment. A down payment of 20% or more will help you get approved for a mortgage and lower your interest rate.
- Be prepared to explain any large deposits into your bank account. Lenders will want to know where the money came from and why you have it.
- Choose a home that is within your budget and doesn’t need any significant repairs. Lenders will be more likely to approve a loan for a home that is in good condition.
- Be responsive to your lender’s requests for documentation. The faster you can provide the documentation, the faster your loan will be approved. In general, always respond within 24 hours and provide all the documentation requested.
- Read over your loan documents carefully before you sign anything. Make sure you understand all of the terms and conditions of the loan. Don’t be afraid to shop around for the right lender.
- Keep in touch with your lender throughout the process. If anything changes, be sure to let your lender know right away. A lender can work through most issues (even sometimes changing a job last minute), but they need to be aware as soon as possible.
And, of course, you could also find that your lender just isn’t the right one for you. It is possible to change lenders late in the game, but not advised.
Getting a mortgage is a lengthy and complicated process, but it doesn’t need to be stressful. The more you communicate with your lender, the better. If you find that you cannot get approval, your lender may be able to switch mortgage loan products to a product that would be easier for you to get.
Does conditional approval mean approved?
No, conditional approval is not the same as a full approval. Conditional approval means that you have met all of the requirements for approval except for one or two. Full approval means that you have met all of the requirements for approval and your loan is ready to close.
Can I be denied after conditional approval?
Yes, you can be denied after conditional approval. Don’t assume that your mortgage will be approved unless you’ve met all of your underwriter’s requests. If you don’t meet the conditions of your approval, your loan will be denied.
How long after conditional approval is final approval?
It all depends on how quickly you can provide the documentation that your underwriter has requested. It can take anywhere from a few days to a few weeks to get final approval on your mortgage. Today, underwriters frequently do a last-minute check on credit and employment.
What happens after getting conditional approval?
Once you have conditional approval, you will need to provide the documentation that your underwriter has requested. Once your underwriter has all the documentation, they will issue final approval.