Conditional Approval Mortgage When Buying a House

If you started the process of buying a home, you probably felt overwhelmed by one or all the different phases a buyer can go through. Even the actual buying of the house presents many loan options and other ways to make the purchase. Among them, you’ve probably heard of the conditional approval mortgage. So, what exactly is that and how does it work?

What does conditionally approved mean for your mortgage?

As the phrase implies, you need to meet some conditions before becoming fully approved for the loan. These conditions may be anywhere from showing proof of income to asset statements.

While it’s a positive to get to this stage, being placed as conditionally approved at this time doesn’t guarantee you anything yet.

“Conditional approval is generally given when the borrower has a strong application, but there are still some outstanding issues that need to be resolved,” said Boyd Rudy, an associate broker based in Detroit.

Because your application is only conditionally approved at this stage, you have to meet the lender’s conditions before financing. Nothing is finalized, but there is hope.

Conditional approval vs. pre-approval mortgage

At a glance, the two can appear similar, but your chances of getting a loan for home-owning may vary depending on if you get conditional approval or pre-approval.

Pre-approval assesses your financial situation and what you can afford on the housing market. Unlike conditional approval, which requires the resolution of issues, pre-approval offers a more direct approach. If you take the pre-approval route, you cross over two distinct stages of the process.

The first stage is when you can become pre-qualified. Discuss your situation with your loan officer. Credit may or may not be pulled and looked over, but once your situation (at a glance) is given an all-clear, you’re considered pre-qualified. You will not have received anything of substance at this stage, but you are on track for the next step.

In the second stage, you’ll be looking for a preapproval letter. This is where your credit score, application, income, and other information is weighed. At this stage, your loan officer usually isn’t involved. You need an underwriter to give you your pre-approval because they hold the authority for this step. Your loan officer can give you a range of what they think you may qualify to get as a loan, but they have no actual ability to influence that number. Moreso, your actual loan range may differ from their projections.

Comparatively, while your conditional approval typically remains valid for about three months, your pre-approval can last about four months.

“Both types of approval can give buyers a leg up in the real estate market, but pre-approval is generally considered more valuable,” said Rudy.

Conditional approval vs. clear to close

Usually, when you’re approaching the later stage of financing your new home, you can either get conditional approval, where you need to meet those conditions, or, simply put, clear to close.

“This is what every buyer and real estate agent wants to hear—‘You are cleared to close,’” said Mason Whitehead, a mortgage lender and branch manager in Dallas.

The similarity they share is that they’re both stages you might find along the path of buying a property. The difference seems a lot more prominent in comparison. Once you apply for the loan, you may fall into one of these brackets. You might get conditional approval, which requires you to meet certain conditions to move forward with the process. Or you could get the clear to close. In that case, all conditions have been met and there’s nothing else to fulfill except the rest of the purchase.

Steps after conditional approval of the mortgage

Once you solidify your conditional approval, the finalization process begins. Most buyers and real estate agents follow a series of actions.

These steps after conditional approval are:

• You get a purchase contract from the real estate agent.
• Once both parties sign, the buyer will submit a deposit of usually 10% of the price.
• The agent will schedule a closing date.
• Upon closing, the buyer will finish the needed paperwork.
• The full purchase price is paid to the seller.
• Keys are then handed over to the new owner.

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A conditional approval is a good sign in the homebuying process. Though the mortgage itself typically means you can get a loan as long as you can eventually meet certain needs the lender sets out for you, it also uplifts you as a serious buyer. Once you fulfill those conditions, you’re set to become a new homeowner. After approval, you will still need to complete all the other steps to finalize the purchase, but the biggest hurdle may very well be crossed.

While pre-approval might be a better route because there are fewer conditions and issues to address, there are differences between both that may not be the right fit for everyone. But once you see the clear to close step, you’re on a much smoother path forward and a house could be waiting for you at the end.