Conditional Approval: Is It A Formal Approval?
There are various stages of the mortgage approval process. To get a mortgage approval with me, you first need to complete an online application at www.gustancho.com by clicking on the APPLY NOW icon on the top right. You complete the 4 page 1003. I will then contact you to go over your online mortgage application prior to running credit. Once I run credit, I might contact you to go over your credit report to see if there are any errors and go over any prior derogatories such as late payments, collection accounts, bankruptcy, foreclosure, short sale, etc. I then submit your mortgage application and credit report to our automated underwriting system. If I get an approved eligible, I know I can get your mortgage loan to the finish line and get your mortgage loan close. I have wholesale lenders with no mortgage lender overlays so your automated findings is your final approval as long as you can provide documentation of tax returns, W-2s, bank statements and other proof on information you stated on your mortgage application.
Once you provide me with a real estate purchase contract and the list of documents I need, your mortgage file will get processed and submitted to underwriting and be assigned to a mortgage underwriter. The mortgage loan underwriter underwrites your mortgage file and if everything is in check, you will be issued a conditional approval.
What Is A Conditional Approval?
A conditional approval from a mortgage lender is a letter of commitment that the mortgage lender will issue a formal mortgage approval and fund your mortgage loan application if the conditions are met. It is a preliminary approval, but no guarantees, that your mortgage loan application has been processed and underwritten and you, as a mortgage loan applicant, qualify for an approval as long as the items the mortgage underwriter conditioned can be provided and signed off by the mortgage loan underwriter. Some of the conditions that are common in a conditional approval are the following:
1. Appraisal: A appraisal of the subject property needs to be done and it needs to meet the mortgage lender’s criteria in regards to condition and value. Appraisals normally take less than a week. Once the appraisal is provided to the mortgage loan underwriter, the appraisal review department will need to go through an appraisal review, which normally takes 24 to 48 hours. Appraisals can be rushed for a nominal fee.
2. Homeowners insurance: Once the appraisal review is done, the underwriter will require homeowners insurance coverage to protect their assets. You need to contact an insurance provider and get a bill as well as the declaration page. You do not have to pay for homeowners insurance until at the closing table and your homeowners insurance premium is part of your closing costs.
3. Verification of employment and current paycheck stub: Although you provided your W-2s for the past two years and paycheck stub prior to the conditional approval, one of the conditions in your conditional approval might be a verification of employment . A verification of employment is when a mortgage lender either contacts the human resources department verbally to verify that you are currently working there or it might be a form your HR department may have to complete and email or fax back to the mortgage lender.
4. Asset information verification
You need to show recent bank statements with enough funds to close. Any large or irregular deposits needs to be sourced and explained via a letter of explanation. If example, if there is a one time deposit of $5,000 and that is not part of your paycheck or bonus and it was from a sale of a vehicle, a copy of the bill of sale, copy of the check, copy of the deposit will need to be provided as well as a letter of explanation.
5. Other documents: Clear to close
Other documents such as prior bankruptcy papers, short sale HUD settlement statements, divorce decree, child support paperwork, and letters of explanations concerning charge offs, collections, or late payments will be required. Once all conditions have been submitted, you will be issued a clear to close.
Clear To Close
Once all of the requested conditions have been provided and satisfied, the mortgage loan underwriter will issue a clear to close. A clear to close is a clear to fund. Your conditional approval converts to a formal mortgage loan commitment which is that the mortgage lender is ready to fund the mortgage loan. It is up to the sellers and buyers to schedule a tentative closing date. Once the title company has scheduled a date, the mortgage lender will prepare the HUD and send the mortgage docs and wire to the title company to close on the mortgage loan. If you cannot meet the conditions on the conditional approval, you will not get a clear to close and will not close on your mortgage loan. It is extremely important that what you list on your initial mortgage application can be verified because everything you state will need to be verified and can be part of your conditions on your conditional approval.
Gustan Cho NMLS ID 873293