Applying for a loan can be a complex process filled with many legal disclosures and financial jargon. While the bank's main goal is to provide its borrowers with the best customer service in order to retain their business, the processes they must follow to comply with federal regulations and internal procedures sometimes leave customers wondering what is actually going on with their loans. Receiving a Conditional Approval letter from your bank regarding your application can lead to questions and confusion.
Receiving notification that your bank loan has been conditionally approved indicates that you have moved beyond the initial application phase. An underwriter--a bank employee who makes decisions regarding loan applications--has reviewed your application and has found no factors that would cause the lender to turn you down. This means that your credit report, income and level of debt are satisfactory to the bank. However, a conditionally approved loan is not a firm commitment to lend to you. Financial website Mortgage Cicerone Family Adviser accurately compares loan commitments to handshakes; they can either be firm or soft. In this analogy, a conditional approval is a soft handshake from the bank letting you know that it is likely you will be approved.
You may initially be notified of the conditional approval of your loan via a phone call or e-mail from your loan officer. However, this contact will likely be followed with a letter from your bank that may be labelled "Conditional Approval Letter" or possibly "Approval Letter." If you receive an approval letter, you will be able to identify that the approval is conditional based on whether or not the letter contains a list of items or conditions that must be satisfied. Verbiage such as "Your loan has been approved pending the following items," or "approved providing the following conditions are met," may also appear on this letter.
There are several types of conditions that may be required in order to move your conditionally approved bank loan into a fully approved status. These are verifications, collateral requirements and conditions that bar changes in your circumstances. The bank may wish to see further verification of your income or assets, which could mean a request for tax returns, employment verification, W-2s or bank statements. Collateral requirements are tied to the home or car that you may be putting up as security on your loan, and are usually based on an appraisal of the property in order to ensure its value to the bank. Your conditional approval letter is also likely to contain a condition that you not experience any material changes in your financial situation, such as job loss or major credit problems.
A conditional approval of your loan most often occurs early in the lending process, before your bank has enough information to make a final decision. The most common reason for issuing a conditional approval is to provide home buyers with an approval letter that they can present to the seller of a home they are interested in, showing that they will be able to secure financing for the deal. For this reason, the bank will get this letter to you as soon as possible after your application is turned in.
If you do not meet the conditions of the approval, the bank will not approve your loan. In fact, if you do not meet the conditions in a timely manner, your lender can close out your application because of incompleteness. Therefore, it is best to provide the bank with whatever you are asked for in order to keep your application active.
Consider whether or not you want to move forward with the loan. A conditional offer or conditional approval does not mean that you are tied into the deal. Review the terms of the offer and decide whether or not it is in your best interests. If you decide that it is not, do not provide the items necessary for approval and contact your loan representative to tell them that you would like to withdraw your application.