It isn’t always easy to get approved for a mortgage as lenders often require that you meet specified conditions before final loan approval. In some cases, a lender will go ahead and prepare the loan documents with the understanding that a condition will be satisfied before the bank will issue the loan. Only if the underwriter reviewing your loan application needs no additional information will your mortgage be approved without conditions.
Loan applicants must meet standard requirements to qualify for a mortgage loan. Generally, you must show proof that you can afford to buy the home. A lender will consider your employment history, monthly household income, current assets, debts and creditworthiness when reviewing your loan application. Before approving you for a mortgage, a lender will require a home appraisal to estimate the value of the home you are buying. This is to make sure that the home is worth the price you are paying. Most lenders will also require that you pay a premium for private mortgage insurance if you are making a down payment of less than 20 percent.
Prior-to-Document Conditional Approval
Depending on your particular circumstances, a mortgage lender may require that you meet additional conditions to qualify for a loan. Prior-to-document conditional approval means that the lender needs more information before deciding whether to give you the loan. Your monthly income is a major factor a lender considers when determining if you qualify. The lender may ask for your last two or three pay stubs to confirm your income. Pay stubs show your most recent year-to-date earnings. Other financial documents that a lender may request as proof of your income include your federal tax returns from the last two years or a profit and loss statement reporting self-employment income. The lender prepares the loan documents after you provide the supporting documentation the underwriter requests.
Prior-to-Closing Conditional Approval
Prior-to-closing conditional approval means that you must meet a specified condition before loan closing. If you are using the equity in your existing home as the down payment for the purchase of a new home, the lender will not issue the loan until you show proof of sale of your current home, usually in the form of a real estate sales contract. Lenders often use prior-to-funding conditional approval in cases where you meet all other loan eligibility requirements. Although the loan documents are prepared and forwarded to the closing agent, the lender does not issue the loan until you have the funds available to close. For instance, completion of the sale of your current home will give you the money you need for the down payment on your new home.
Other Conditions for Approval
Lenders frequently require you to pay off some of your other debts before you can be approved for a mortgage loan. In a case where your debt-to-income ratio is too high, the lender may stipulate that you must pay off a credit card balance or auto loan before final loan approval. Your debt-to-income ratio is the amount of your monthly pretax income that you use to pay your bills each month. Some lenders ask to see bank statements to establish that you have enough cash at your disposal to pay the first several mortgage payments. Another common condition for mortgage loan approval is making a higher down payment to lower your monthly mortgage payment and make paying your other monthly expenses more manageable.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.