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Mortgage Approval: What It Means to Be “Approved With Conditions”

You’re on your way to becoming a new homeowner and your mortgage has been approved — with conditions. 

If this is the case, don’t worry. Many people don’t know what having a conditional approval on their mortgage means, but first and foremost, it’s not a bad thing. 

Your loan has made it past the initial application stage and is still moving forward — you just may need to provide additional information to continue its journey.

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Why Do Underwriters Give Conditional Approval?

The underwriter for your loan needs to ensure that you meet the right criteria, which varies depending on what type of loan you’ve applied for. Lenders need to verify all of your information and make sure that nothing is missing or inaccurate in order to protect themselves. If you’ve received a conditional approval, it means that your lender is fairly certain you’ll be an ideal borrower, but they’ll only approve it on certain conditions.

During the loan review and underwriting process, the underwriter may review your documents and find certain gaps or missing information. They’ll likely assign you conditional approval if they need more documents or additional information.

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Common Loan Approval Conditions

The following are the most common explanations for why loans receive conditional approval.

Verification of Income

Perhaps the most common condition your underwriter needs is additional verification of income to prove that you make enough money to meet your loan requirements. If you do make enough monthly income, recent bank statements will help you fulfill this condition for your lender. 

Verification of Mortgage Insurance

Certain loans, such as FHA and USDA loans, require private mortgage insurance. If you applied for one of these loans and did not include proof of private mortgage insurance, then your underwriter may categorize your loan as approved with conditions. 

Gift Letters

Home buyers who are using gift funds to make down payments need to provide proof of where that income is coming from in the form of a gift letter. This statement assures your lender that the money you are categorizing as a gift is not actually just another loan.

Explanation of Large Deposits

If your bank statement includes one or more large deposits, you might be required to provide a letter of explanation. This letter will indicate that the large deposit or deposits aren’t a result of you opening an additional line of credit, taking a cash advance, or receiving an additional loan.

Verification of Employment

Your underwriter might declare your loan to be approved with conditions if they still need dates, income, or proof of probability of continued employment from your current employer.

[Related: In a Hurry? Tips to Close Your Mortgage Quickly]

Is Conditional Approval Bad?

Conditional approval isn’t necessarily a bad thing — it just means you need to provide more information before you’re approved. If you have that information, then you can consider yourself in the clear. Conditional approval can make you stand apart as a home buyer by showing you’re a serious candidate compared to someone in a bidding war who isn’t approved for a loan. 

Being approved with conditions can also speed up the closing process, since it will take less time to review and finalize your closing documents for the purchase of your home. 

Prequalification vs. Approved with Conditions

When someone is prequalified for a loan, it means the estimate for how much the borrower might receive hasn’t gone through the underwriting process yet. Whereas a borrower with conditional approval has already gone through the underwriting process and just needs additional documents for approval. 

[Related: Why Waiting to Save a 20% Down Payment May Not Be the Right Move]

Preapproval vs. Approved With Conditions

A similar comparison can be made for those who are preapproved versus approved with conditions. If you’re preapproved, your lender has verified your credit history, but the underwriters still haven’t reviewed all of the available information, as they would have with conditional approval.

Remember: You’re Still Not Approved

Remember, if you don’t meet the conditions for the loan, your conditional approval will not guarantee the completion of the loan. Your application can still be denied if you don’t come up with the required conditions by the time they are due. 

Prepare all of your documents ahead of time for the smoothest path toward verified approval, and be sure to keep in contact with your loan officers for any questions or updates.

[Related: Seattle’s Current Housing Market]

Contact Seattle Mortgage Planners Today!

If you’re a first-time homebuyer and have more questions about the loan process, Seattle Mortgage Planners can help. We can assist with finding the best rates and the right loans for your unique needs. Contact us today and let’s get started!

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