A Guide To Conditional Approvals For Home Buyers

If you’ve just started your home buying journey, you may be surprised to learn that you’ve received conditional approval to buy a house. But what is conditional approval? And what are the next steps you should take?

Knowing the answers to these and other questions you may have about conditional approval can help you feel more confident as you navigate the home-buying process.

What Does Conditionally Approved Mean?

A conditional mortgage approval means your underwriter – the person who works for your mortgage lender and determines whether you qualify for a loan – will likely approve your mortgage application as long as you meet certain conditions.

When going through the underwriting process, an underwriter reviews your financial information to ensure everything looks good. If something pops up that hurts your application, the underwriter may deny your loan. If the underwriter determines your application will likely be finalized but they need additional information, you’ll receive conditional approval.

Does Conditional Approval Mean Your Loan Will Be Approved?

Conditional approval doesn’t guarantee your mortgage will be approved. However, it makes a stronger case for your mortgage application than prequalification, which is usually a quick, informal review of your self-reported financial information.

Common Stipulations Of Conditional Loan Approval

Here are some common approval conditions that borrowers should be aware of:

• Income and bank statements verifying your assets
• Additional paperwork to meet specific loan requirements
• Verification of homeowners insurance
• Gift letters for home buyers using gift funds for their down payment
• A letter of explanation for any recent large withdrawal

This list of common approval conditions isn’t exhaustive. You may need to satisfy other requests and conditions during the underwriting process.

Advantages Of A Conditional Loan Approval

It’s always best to get preapproved for a home loan before house shopping. But conditional underwriting approval will make your bargaining position even stronger. Here are some of the advantages of having a conditional loan approval:

• The ability to stand out among other buyers: Receiving conditional approval will set you apart as a home buyer. If you find yourself in a bidding war, a conditional approval signals to the seller that you’re likely the more serious candidate.
• The opportunity to build a new construction home: If you want to build a home, the builder may require conditional approval before moving ahead with construction. No builder wants to commit to a construction project only to have the purchase fall through during the underwriting stage.
• A faster closing process: While underwriting can be a lengthy process, conditional approval can help speed up closing. Reviewing and finalizing your closing documents may not take as long since you’re already conditionally approved.

Conditional Approval Vs. Other Mortgage Approvals

Now it’s time to look at a few common mortgage approvals and how they differ from conditional approval.

Prequalification

To prequalify to purchase a home, you’ll submit some basic financial information and receive an estimate of how much you can borrow. Prequalification is less reliable than conditional approval because a lender typically doesn’t verify much or any of your financial information.

Preapproval

The mortgage preapproval process is more thorough than prequalification. Before preapproving you for a mortgage, a lender will verify your credit history and credit score. However, preapproval doesn’t typically require a lender taking as deep of a dive into your finances as they will before issuing a conditional approval.

Unconditional Approval

Unconditional approval, also known as formal approval, is the step that comes after conditional approval if conditional approval is even necessary (In some cases, a borrower goes straight from preapproval to formal approval.). When you receive unconditional approval, it means the underwriter has verified all of the key information pertaining to your finances and the house – including but not necessarily limited to the property’s appraisal value, your expected down payment and the property title.

At this point, the loan officer is ready to move forward and finalize the mortgage application.

Verified Approval

A Verified Approval Letter (VAL)¹ from Rocket Mortgage^® means your credit, income and assets have been verified by an underwriter and your financing is highly unlikely to fall through. A VAL lets sellers know your financial situation won’t hinder your ability to make good on a purchase.

When Are Conditional Approvals Denied?

A conditional approval isn’t a guarantee that your home loan will go through. Occasionally, a borrower’s mortgage application will be denied. This usually happens because a loan condition wasn’t satisfied.

Here are some reasons a mortgage application may not be approved:

• You’ve taken on new debt.
• The underwriter can’t verify your financial documents.
• You can’t meet the loan conditions by their deadlines.
• The home has a lien.
• The home appraisal is too low.
• The home inspection reveals unexpected issues.
• You’ve experienced a loss of income.

How Can You Avoid Denial On Your Conditional Approval?

The best way to avoid a denial is by keeping your finances in order up to the day you close on the property. Don’t assume the home purchase is a done deal just because you received conditional approval on the loan. Stay in frequent contact with your loan officer and prioritize submitting all the information the underwriter needs.

What Happens After You Receive A Conditional Mortgage Approval?

After receiving a conditional approval, the remainder of the home buying process is often fairly straightforward – barring any unexpected complications. You can expect the process to play out something like this:

1. Meet the underwriter’s conditions: After your underwriter issues a conditional approval, you won’t want to waste any time satisfying their conditions. This might mean providing bank statements, having the property appraised and/or verifying your employment and salary in short order.
2. Go back into underwriting: Once you’ve met the conditions of your mortgage approval, your loan will go back to the underwriter. If the conditions have been met and no other issues have surfaced, you’ll likely be told you’re “clear to close.”
3. Receive your Closing Disclosure: Finally, you’ll receive a Closing Disclosure from your lender at least 3 business days ahead of your closing date.

How Long Does It Take To Close After Conditional Mortgage Approval?

How long it takes to close on a home after receiving conditional approval will vary. The conditional approval process usually takes 1 – 2 weeks, and closing day is usually scheduled shortly after that. However, this timeline can change depending on how long it takes you to satisfy the conditions of your loan’s approval.

The best way to ensure the closing process goes as quickly and smoothly as possible is to resolve any issues that crop up during underwriting. The faster you can resolve issues, the sooner you can close on your home.

The Bottom Line

Conditional approval means that a mortgage underwriter plans to approve your mortgage application and provide you with the funding needed to buy a home as long as you meet certain conditions. Receiving conditional approval from your mortgage lender is a strong signal that your loan will ultimately get the go-ahead. It’s critical to provide your lender with anything they need as quickly as possible so your loan can be approved and you can be “clear to close” – which means your closing day is right around the corner.

Before you can get conditional approval, you must take the first step and apply. If you’re ready, start your mortgage application with Rocket Mortgage today.

1 Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.