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What Does The Term “Conditional Approval” Mean

Conditional Approval

Lenders tend to use conditional approval just so they can provide their customers with a quick answer regarding their loan application. It is important you know that these conditional approvals can apply to personal loans, mortgages, and vehicles. People who sell their homes prefer to work with buyers that have a conditional approval because that means that there will be less financial issues. One important thing that you need to know is that conditional approval is not the same thing as pre approval.

Understanding Pre Approval and Conditional Approach

Many people tend to use the terms interchangeably, but that is not correct because both of them are different concepts. Pre- approvals are only given when the lender has viewed the income, have checked the credit information that you had provided, and has done the credit check. The information has to be verified and it is to be approved by an underwriter before the final decision is taken. Once the financial risk is analyzed, the underwriter gives the conditional approval.  The conditional approval remains in place until and unless you fail to meet the conditions of the lender.

Conditions Related to the Documents

One of the most common conditions that most of the people have to meet is to provide additional documents like:

  • Pay stubs
  • Business income documents
  • Tax documents

In addition to this, people who are applying should have a statement or a document that states the rental history and get it signed by the landlords. A lot of lenders even ask for bank statements, just so they can confirm that the borrower has enough funds for the closing costs and the down payments.

Mortgage Loan Conditions

It is important you know that before you get the conditional mortgage approval, you will have to get an inspection and the appraisal of the property done, so that your loan to value ratio and the price of the house can be determined.  The lender will also need title verification, just so they can confirm the ownership of the property. If you already have a house, you might have to sell it in order to get the approval of the loan.

Denial after Conditional Approval

There is a high possibility that your loan will not get approved if you do not meet any of the requirements or the preset conditions. You will have to face the denial if the data that you give cannot be verified especially if the rental and the employment information are incorrect. Make sure that you don’t take too long in providing the documents and other information because any changes that take place during that time will be taken into account. If you want to avoid denial, get in touch with the loan officer to find out what exact documents are needed.

What is the Conditional Approval Based On

The four Cs that are important to keep in mind are collateral, conditions, credit, and capacity. The conditional approval is based on the following things:

Credit Report

You will have to give an estimate of your credit score if you want the mortgage application process to begin. The lender conditionally approves the loan after viewing the information provided. A lot of undertakers like to view the entire credit report before they officially sign the documents. Remember that your loan may get denied for reasons like bankruptcy and repossession.

Capacity

If your loan size is huge, you will have to provide verification of your income by producing the tax returns or the W-2s. You should know that the conditional approval turns into a full approval, only if you verify your claims with the help of the documents. Your application has higher chances of denial if you have excessive debt or you don’t verify your income.  

Collateral

The property prices are determined when the properties are inspected by home appraisers. The loan is only approved if the homeowners find out that the value of the home is enough to secure the loan.

Conditions

Conditional approval are also based on collateral, credit and income

The above mentioned things need to be kept in mind when applying for a loan so that the loan can be processed within time and without much hassle.

Billy Stravidis
Billy Stravidis
Billy Stravidis is the author of Travel Insurance and a professional real estate investor. Billy Stravidis is also a senior writer for Gustan Cho Asscoiates and is also a senior moderator for www.lendingnetwork.org . Billy is also an expert in all areas of renting out investment properties. Billy recently purchase a condominium in Panama, Florida and has a rather difficult financing due to being a condotel. Most banks do not lend on non-warrantable and condotel loans because they are not able to sell the loans they originate to the secondary market.

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