What Happens When my Home Loan is Approved with Conditions?


When you decide to buy a home, one of the terms you are likely to hear is conditional approval, but you may not be sure of what exactly that means or how it differs from other terms. If your home loan is approved with conditions, you may be unsure of what comes next, and if your loan will be receiving final approval once the conditions are met.

What is Conditional Approval?

If you receive conditional approval, it will occur when your loan application reaches the underwriter. This occurs after you have found a house, made an offer, and had the offer approved by the seller. After your offer has been approved, your loan application is submitted and makes its way to the underwriter.

Conditional approval happens after your initial approval for the loan and it looks more closely at your finances and credit.The underwriter will issue conditional approval because they think your information looks good, but they need a little more information from you before they can fully approve you for your loan.

If you are getting your home refinanced, you will move straight to conditional approval because you do not need to look for a home and have a purchase agreement first.

What Are Some of the Conditions?

Some of the common conditions in a conditional approval include:

  • Bank statements
  • Employment verification
  • Income verification
  • Pay stubs
  • A letter explaining a recent withdrawal from your bank account
  • Housing or rental history
  • A sworn letter foregoing repayment of gift funds
  • Asset statements
  • Tax returns
  • Explain and/or correct inconsistencies in credit report
  • Selling your current home
  • Paying off or down a credit card, auto loan, or other debt

It is important to keep in mind that even if you have already provided the documents being requested in the conditions, that you still provide them again; they usually want to see more recent financial information right before closing. Your lender may want to look at older check stubs or tax information than what you initially provided. They may also want your employer to provide written verification of your employment or additional statements about your assets.

If you are self-employed, own rental property, or have another form of unconventional income, one of the conditions may be to have a licensed Certified Public Accountant provide a profit and loss statement.

If you own the home you are moving out of, and you plan to use the equity in that home as your down payment for your new home, most lenders will not issue your loan until you have proof of sale from that house.

There can also be purchase agreement addendums in your conditional approval, such as:

  • Homeowners insurance
  • An appraisal
  • Title verification
  • An inspection

What do I do When my Mortgage is Conditionally Approved?

If you receive a conditional approval, you need to work to meet the conditions as soon as possible. It is also important to keep in contact with your loan officer as you are working to meet the conditions. Staying proactive during this stage of the mortgage process will help keep everything on track for closing.

If you want to get ahead of these types of conditions, getting pre-approved can help. It will help you identify things that may turn into conditions early on, so you already have the information on hand if it is requested in a condition.

If you do not meet the conditions you are given, you may be denied for the loan.

Reasons for Denial

Aside from not meeting the conditions, there are some other reasons why your conditional approval becomes denial. Some of these reasons include:

  • The home you are trying to buy has an unexpected lien
  • The appraisal or inspection had unexpected issues
  • There is a judgment on your record
  • Your income decreased drastically

If you do provide the requested information, you can still be denied for the loan. This usually occurs if the information you provide does not match what you originally gave the lender when you were initially approved. If you decide to buy a new car while trying to get a home loan, this can interfere with your debt-to-income ratio and lead to you being denied the mortgage loan.

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