A Guide To Conditional Approvals For Home Buyers

If you’ve just begun your home buying journey, you may be surprised to learn you’ve received conditional approval to buy a house. But what is conditional approval? And what are the next steps you should take?

A conditional approval means your mortgage underwriter – the person who determines whether you qualify for a loan – will likely approve your mortgage application as long as you meet certain conditions.

When going through the underwriting process, an underwriter reviews your financial documents and makes sure everything looks good. If something comes up that hurts your application, the underwriter may deny your loan. If the underwriter determines your application will likely be finalized, but they need additional information, you’ll receive conditional approval.

Conditional approval doesn’t guarantee your mortgage will be approved. But it makes a stronger case for your mortgage application than prequalification, which is a quick, informal review of your self-reported financial information.

Here are some common approval conditions borrowers should be aware of:

• Income and bank statements verifying your assets
• Additional paperwork to meet specific loan requirements
• Verification of homeowners insurance
• Gift letters for home buyers using gift funds for their down payment
• A letter of explanation for any recent large withdrawal

This list of common approval conditions isn’t exhaustive. You may need to satisfy other requests and conditions during the underwriting process.

You probably know you should get preapproved for a home loan before shopping for houses. But conditional underwriting approval will make your bargaining position even stronger.

For one thing, receiving conditional approval will set you apart as a home buyer. If you find yourself in a bidding war, aconditional approval signals to the seller that you’re likely the more serious candidate.

If you want to build a home, the builder may require conditional approval before moving ahead with construction. No builder wants to commit to a construction project only to have the purchase fall through during the underwriting stage.

And finally, conditional approval can help speed up closing. Underwriting can be a lengthy process. Reviewing and finalizing your closing documents may take less time since you’re already conditionally approved.

Let’s look at a few common mortgage approvals and how they differ from conditional approval.

Prequalification

To prequalify to purchase a home, you’ll submit some basic financial information and receive an estimate of how much you can borrow. But prequalification is less reliable than conditional approval because you haven’t gone through the underwriting process yet.

Preapproval

The mortgage preapproval process is more thorough than prequalification. During preapproval, your lender will verify your credit history and score. However, unlike conditional approval, an underwriter may not have reviewed this information because preapproval is a preliminary step in the mortgage application process.

Unconditional Approval

Unconditional approval, also known as formal approval, is the step that comes after conditional approval. When you receive unconditional approval, it means the underwriter has verified your information, including the property’s appraisal value, down payment, property title and other related documentation.

At this point, the loan officer is ready to move forward and finalize the mortgage application.

Verified Approval

A Verified Approval Letter (VAL)¹ from Rocket Mortgage® means your credit, income and assets have been verified by an underwriter, and your financing is highly unlikely to fall through. A VAL lets sellers know you have the finances to backyour offer.

A conditional approval isn’t a guarantee that your loan will go through. Occasionally, a borrower’s mortgage application can be denied. It usually happens because a loan condition(s) wasn’t satisfied.

Here are some reasons a mortgage application may be denied:

• You’ve taken on new debt.
• The underwriter can’t verify your financial documents.
• You can’t meet the loan conditions by their deadlines.
• The home has a lien.
• The home appraisal is too low.
• The home inspection reveals unexpected issues.
• You’ve experienced a loss of income.

The best way to avoid a denial is by keeping your finances in order up to the day you close on the property. Don’t assume you’re home-free because you received conditional approval on the loan. Keep in frequent contact with your loan officer and prioritize submitting all the information the underwriter needs as soon as possible.

How long it takes to close on a home after receiving conditional approval will vary. The conditional approval process usually takes 1 – 2 weeks, and closing day is usually scheduled shortly after that.

The best way to ensure a fast closing process is to resolve any issues that crop up during underwriting. The faster you can resolve issues, the sooner you can close on your home.

Receiving conditional approval from your mortgage lender is a strong signal that your loan will be approved. It’s critical tofollow up with anything your lender needs from you as quickly as possible so your loan can be approved, and you canhear those three magic words: “clear to close!”

Before you can get conditional approval, you must take the first step and apply. If you’re ready, apply with Rocket Mortgage today.

1 Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, assets and debt. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, including, but not limited to satisfactory insurance, appraisal and title report/search, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close due to a Rocket Mortgage error, you will receive the $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.