If you’ve been given conditional approval for a loan, you’re probably wondering how it differs from a pre-approval.
This article explains what a conditional approval is, how it differs from a pre-approval, and when a condition approval is a good idea.
What is a Conditional Approval?
Conditional approval means you have been approved for a loan once certain conditions are met. These conditions may be that you sell your current home, provide more documentation, pay off an account, or settle an outstanding balance.
Here is an example of conditional approval.
You’re a homeowner with a mortgage loan, and you want to purchase a new home and sell your current home.
Because your debt-to-income ratio will not allow you to be responsible for your current mortgage and new payment, a lender will issue a conditional approval. The condition is that you must sell your current home before you can close on a new loan.
Conditional Approval vs. Pre-Approval
A mortgage pre-approval, or unconditional approval, means that you are pre-approved for a mortgage without any conditions. Usually, this is a stage in which the loan is ready for processing, and all required documentation has been submitted to the lender.
Common Loan Approval Conditions
One of the more common reasons for conditional approval is the need for additional documentation. There are several pieces of information your lender requires to process your loan application.
W2’s, tax returns, pay-stubs, and bank statements are required before processing your application. Your loan officer will be able to list all documents that you need.
Sell Your Home First
If you currently have a mortgage and need to sell your home to afford the new mortgage payment, you’ll be issued a conditional approval. The condition is that you must sell your current home before you are approved for the new home.
Denial After Conditional Approval
If you fail to satisfy the condition laid forth in your conditional approval, your loan will be denied. As with any mortgage, there are unforeseen issues that could arise, causing your loan to be denied even if you meet your lender’s conditions.
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