What Is a Conditional Loan Approval?


Pre-approval vs. conditional approval: What’s the difference?

With conditional loan approval, an underwriter reviews your financial documentation. That’s not the case with pre-approval. An underwriter is the one who grants or denies your loan, so conditional loan approval from an underwriter carries more weight than a pre-approval letter.

Pre-approval and conditional approval are similar in that both processes involve reviewing your finances and documentation to determine whether you’re a viable mortgage candidate. And both provide you with proof that you are, in fact, able to get a mortgage.

How to apply for conditional loan approval

Here are the steps to applying for conditional loan approval:

  • Shop around with the best mortgage lenders to find the best home loan offer.
  • Provide the lender you choose with all of the financial information it requests.
  • Tell your lender you want a notice of conditional loan approval once your loan reaches that stage.
  • Wait for an underwriter to review your information to determine whether you’re eligible for conditional approval for a home loan.
  • If you’re conditionally approved, you’ll receive a notice or letter to that effect.

Keep in mind that underwriting could take just a few days, or it could take over a week. Your lender may be able to give you an estimate as to how long the process will take so you know what to expect.

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Your lender may ask for quite a bit of documentation before beginning the underwriting process. That documentation could include:

  • Bank account statements
  • Pay stubs
  • Recent tax returns
  • A letter of employment verification

If you’re self-employed and applying for a mortgage, you may need to provide additional information, including:

  • Profit and loss statements from your business, if you own one
  • A copy of your business license
  • Copies of contracts indicating that your workflow is ongoing
  • A letter from an accountant verifying how long you’ve been in business

Complying with your lender’s requests will help make the underwriting process go smoothly. When the process is finished, you can get a letter or notice of conditional loan approval.

The bottom line on conditional mortgage approval

Conditional loan approval on a mortgage makes you a stronger buyer. And it may be a requirement in some situations, like new construction.

Even better, getting conditional approval for a home loan doesn’t require much extra work. For any mortgage to close, you’ll need to provide the right documentation to your lender and have that loan go through underwriting. Conditional mortgage approval simply involves getting a letter proving this part of the process is complete.

View more information: https://www.fool.com/the-ascent/mortgages/what-conditional-loan-approval/

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