What is a conditional loan approval? (2024)

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Getting a mortgage involves several steps, including prequalification and preapproval. One part of the process that’s perhaps not as well-known is conditional loan approval. Conditional loan approval is a process that helps move the buying and selling of a home along significantly by indicating to sellers that the buyer is a serious contender who has already passed through initial lending checks with favorable results.

This type of approval comes later in the mortgage process and requires more documentation. It can also give you more leverage in the negotiation phase.

Key insights

A conditional approval means the lender can approve your loan if you meet certain criteria.

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The approval requires you to meet the conditions prior to closing.

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A conditional loan approval doesn’t guarantee a loan, but it can speed up the process toward closing.

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What does conditional approval mean?

“A conditional approval means that a lender has approved a loan application contingent upon retrieval of satisfactory loan conditions such as an updated bank statement or a letter of explanation for credit,” said John Aguirre, owner of John Aguirre Home Loans.

Essentially, a mortgage lender may give you conditional approval when you’ve met most of the borrowing criteria, like if the underwriter has already verified some of the more critical information, like your income and credit history.

However, you’ll likely need to submit additional documentation before your mortgage is officially approved. The underwriter could ask for an updated bank account statement or a written explanation of a substantial cash withdrawal, for example.

» MORE: What credit score is needed to buy a house?

Common approval conditions for a mortgage

Each lender has its own requirements for approval and the documentation needed for a conditional approval. There could be numerous approval conditions for your loan, which might include any or a combination of the following:

  • Employment verification
  • Detailed bank statements
  • A gift letter with detailed information regarding the source of down payment funding
  • Letter of explanation for any large recent bank withdrawals
  • Getting a home appraisal
  • Purchasing homeowners insurance
  • A letter detailing a new debt you’ve taken on

Providing the requested information in a timely manner can make the process move quicker, while still giving you time if the underwriter has additional questions or requests.

» MORE: Homebuying checklist

Conditional approval vs. prequalification vs. preapproval

It’s easy to confuse conditional approval with other types of approvals. Basically, conditional approval is a step beyond prequalification and preapproval and comes just before verified approval.

Prequalification vs. conditional approval

Prequalification is the first step to obtaining a mortgage and doesn’t guarantee that you'll get approved for the loan. To prequalify for a home loan, you give the lender financial information and let its representatives run a quick credit check. The underwriter doesn’t verify information like your income or your bank account balances at this point. Often, you can receive a prequalification decision the same day you apply.

Conditional approval is later in the process and requires more verification on the bank’s part. It takes some time for the bank to investigate the information you provide, but most decisions arrive within one to two weeks.

Preapproval vs. conditional approval

Preapproval is a step beyond prequalification and requires a bit more research on the lender’s part (the underwriter may still need to verify your income and other financial info). Once you’re preapproved, you’ll receive a document, called a preapproval letter, that outlines the maximum loan amount and down payment expectations. Your real estate agent will then attach this letter to the purchase offers you submit.

Conditional approval follows preapproval. Even after the bank has preapproved you for a loan, there may still be more documentation required in order to get conditional approval. When it comes to placing an offer, conditional approvals tend to look even better to sellers than preapprovals.

Verified approval vs. conditional approval

Verified approval, also called formal approval, is a step beyond conditional approval. At this stage, the underwriter has verified all of the information on your application, and the lender officially approves you for the loan.

This loan offer is good for a set time frame — usually no more than 90 days. You might not receive verified approval until after your purchase offer has been accepted and you begin the closing process.

» LEARN MORE: How does a mortgage work?

How to apply for conditional approval

The first step before even applying for mortgage approval is to gather information from various lenders about interest rates, down payment requirements, expected closing costs and customer service.

You won’t be able to obtain an exact quote for your specific loan until you submit an application. However, prequalification can give you some preliminary loan details to use for comparison purposes.

Once you’ve decided on a lender that meets your loan criteria, you can begin the official application process. Most applications today can be easily submitted online. You’ll be asked to provide personal data like your Social Security number (for a credit check) and your income.

From this point, you could receive preapproval in a matter of days and conditional approval about one to two weeks later (once all your documents are submitted).

» MORE: How to apply for a mortgage

Closing on a home after conditional loan approval

Closing on a home after conditional loan approval typically involves several steps to finalize the mortgage and complete the purchase transaction. During this time, it’s essential to stay in close communication with your lender, real estate agent and any other parties involved in the closing process to ensure it’s smooth and successful.

The following is what you can expect after conditional loan approval:

  1. Complete satisfying conditions outlined by the lender
  2. Get a home appraisal
  3. Final loan approval by the lender
  4. Schedule the closing
  5. Final walkthrough of the property
  6. Transfer of ownership
  7. Post-closing steps such as changing your address and utilities
  8. Move into your new home

Many ConsumerAffairs reviewers who received a conditional loan approval were grateful for how quickly it made the homebuying process. Ross from Wisconsin said: “The application process was fast. I just filled out all the information and it took three days to get conditional approval. They pull the credit check. We closed on time.”

» READ MORE: What is a Closing Disclosure?

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    How long does underwriting take after conditional approval?

    It can take one to two weeks to get a verified approval after receiving a conditional approval. This is partially why the closing process can take at least a month — you’ll need to receive the verified approval shortly before the closing date.

    Can you be denied a mortgage after conditional approval?

    Yes, you can be denied a mortgage after conditional approval since it’s not a guarantee. One of the reasons for denial may simply be because the paperwork and documentation wasn’t submitted as requested. Or, it may be the underwriter was unable to verify the information submitted. Once you find out the reason for denial, it’s possible you can resubmit and resolve the issue.

    How long does conditional approval last?

    Conditional approval typically lasts for 30 to 60 days or longer, but the specific time frame may vary depending on your lender and circumstances surrounding the loan application. It's essential to complete the required tasks and provide the necessary documentation as quickly as possible so you can move toward final approval.

    What are the benefits of conditional approval?

    Conditional approval can speed up the homebuying process, but it also offers other benefits. Once you have this approval, you’ve completed the mortgage application and provided all the required documents. Conditional approval looks especially good to sellers because it shows you’re a serious buyer who has done their homework. It also increases the chance the sale will close without any last-minute hiccups.

    Bottom line

    Conditional approval is a normal part of the mortgage application process, and it’s a good sign if your lender extends this type of approval. It’s a step beyond preapproval and can take a week or two before you have a decision from the bank.

    You can use conditional approval to get an idea of a price limit as you search for homes and as leverage in the negotiation process. Just make sure to keep up with further requests from your lender to speed up the official approval.

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