Your loan was approved with conditions. Here's what that means.

You're looking to buy your own place. And you've decided to get pre-approved for a mortgage — rather than just pre-qualified — so that you know how much you can afford and so that when you make an offer, you're more likely to be considered a “serious” buyer. Good for you. That's a smart move. 

Or maybe you have already found your dream home and put an offer in that has been accepted. You've applied for a mortgage. And it's been submitted to processing and underwriting.

In either scenario, you might be alerted that you have been approved with conditions before you get the final okay.

Wait. What? What does “approved with conditions” mean?

Home financing and conditional approvals

Approved with conditions is merely a fancy-pants way of saying, “we need to ask you some questions but not in a scary way.” In most cases, borrowers might be asked to provide additional documentation to accompany a mortgage application before the processing department feels it's ready to be submitted to underwriting for final approval. 

Once you satisfy these “conditions,” you will be that much closer to being fully pre-approved, or — if you're already under contract, that much closer to closing and getting the keys to your new place.

What's the difference between pre-approval and conditional loan approval?

Once you apply for a mortgage, the lender submits the application to processing, where your financials are reviewed. Pre-approvals are one step better than a pre-qualification letter, where the loan officer just listens to what you tell them your financials are and makes a judgment call on that info alone. At least a pre-approval digs in a little deeper. 

The conditionally approved mortgage means that an underwriter — a professional reviewer of your creditworthiness — has evaluated all the documentation you have provided, including income, employment, credit report, etc. and is giving you a thumbs up…once you satisfy requests for additional information. 

Common approval conditions you may come across

This list of common conditions that borrowers might face when applying for a mortgage isn't complete by any means, but they're the ones that typically can hold up a home loan approval.

• • Bank statements: If there are transactions on your bank statements that raise questions, you may need to explain what they're all about. For example, you might need to explain a recent large sum withdrawal from your bank account or a larger than normal deposit that isnt typical or recurring.
  • Clean title: This is a report that confirms that the property's value and characteristics meet your lender's guidelines.
  • Gift letters: If you're receiving funds as a gift from friends or family, you may need to submit a “gift letter” from the person gifting you the funds stating that the amount is not expected to be repaid.
  • Good-faith money: This is also called earnest money, a deposit made in addition to the down payment. You may be asked to provide a copy of the payment (personal check, certified check or wire transfer) and a deposit receipt. The lender may also want proof in writing that the money legitimately came out of your account and that it isn't coming from another source. Ask your bank to provide that.
  • Home appraisal: Lenders will need a home appraisal (including specifics on the home's general condition and a review of the surrounding area) in order to assess your property's fair market value. Typically, they will order the report themselves, but they may need your signature to authorize the paperwork.
  • Income: Maybe the lender is missing a W-2 form or enough paycheck stubs to verify your employment.
  • Proof of homeowners insurance: Showing documentation of homeowners insurance is a requirement for mortgage approval. This can take the form of a certification from the insurer or a copy of the actual policy. 

Can conditional approvals derail a mortgage application?

The short answer is “yes,” but denying your application isn't in anyone's interest and it certainly isn't good business for the lender. While they don't want to lend a large amount of money to a risky borrower, they also don't want to pass on a good mortgage candidate because of a paperwork hiccup. With their eye on the goal, most lenders will work with you to help you get the info they require. That said, the best way to move forward with a mortgage that is approved with conditions is to respond to all emails and phone calls requesting clarification and to provide all documentation promptly. 

Also, as you prepare to buy a home, know that any changes to income, employer or credit history can affect your mortgage approval. So, making big purchases, applying for new credit or switching jobs raises a red flag. That doesn't mean you shouldn't take a new job that's a step up. But be prepared to explain how it's a good move and in the same stable industry as before. And it'll help if your new employer can write a note vouching for why they hired you and how it makes you an even better candidate for a mortgage. 

What if your home loan approval gets denied?

If your “approved with conditions” mortgage loan is denied, get your lender to detail what's needed to resolve issues before re-applying. If the denial is due to the inability to sufficiently answer specific questions, work on correcting that. If there are mistakes on your credit report that need attention, you'll want to attend to those before you apply for another mortgage.

So, should you spend the time and effort to get pre-approved?

Since a pre-approval is an underwritten estimate of how much home you can afford and how much debt you can take on, you absolutely should get one before looking for a home! Once a lender communicates how much they're willing to loan you, you'll know how much home you can afford (so you don't waste time looking at homes that are out of your range), and you'll be able to show that you're a serious buyer and with the backing to prove it!

Here are more reasons you want to be pre-approved! 

• • Maybe you keep losing out to other buyers who are making similar offers. A loan pre-approval — even with conditions — can be the deciding factor for your bid being accepted over offers from pre-qualified buyer candidates.
  • A quick closing may be important to you (or the seller). Or you might be able to use it as a possible negotiating factor. If so, a conditional loan approval could get you to closing faster because you've already completed most of the loan processing in advance.
  • If you're considering new construction, take note: many builders require that all conditions on a pre-approval are put to rest before breaking ground. 
  • Perhaps you already own a home and purchasing this new one is contingent upon selling your current one. Getting pre-approved early on will make that transition a little smoother, so you don't have to scramble once if you sell the current one quickly.

Let's go!

To learn more about what's needed for your home loan to get approved with no speedbumps, contact a Movement Mortgage Loan Officer in your area. 

Or, if you feel like you're all set, start your application online with the Movement Mortgage Easy App. This tool will help you get pre-approved quickly by letting you upload all required documents right into the app.