At what stage does a borrower for a home loan receive an unconditional final loan approval. All loans, even after final approval are subject to certain conditions being satisfied before the loan is cleared to close and fund, which normally does not happen until the time of closing. The bigger concern or question is the type and extent of conditions that need to be satisfied along the way. Some are pretty standard, e.g., good title, satisfactory appraisal, everyone signs required closing docs, etc. Others are more specific to the buyer, such as providing verifying documentation, explaining a question the underwriter may have (e.g., a large deposit)
Let’s look at some of the conditions at different stages of the loan process.
Loan Pre-qualification. When a borrower applies for a loan, the mortgage loan originator or loan officer first obtains basic information about the borrower regarding his or her income, employment, assets, liabilities and credit through the loan application. Based on that information, it may appear the borrower is “qualified” and meets the criteria for a particular loan. The ultimate approval is conditioned upon verifying the information through documentation, third-party verifications from employers, banks, landlords or written explanations from the borrower and credit reports from the credit reporting agencies.
Loan Approval from the Loan Officer. When a loan originator/officer issues a “Pre-Approval Letter,” that generally signifies the loan officer received and reviewed all the substantiating documentation and third-party verifications to support the information in the application. At that point, the loan officer will submit the loan package to the underwriting department. The loan is still conditioned on the underwriter’s approval.
Loan Approval from the Underwriter. The underwriter’s job is to review all the information and verify documentation in the loan package to assess the risk of the borrower and determine if the borrower and the property meet all the guidelines of the loan. The underwriter also assesses the loan package to determine if it is a saleable loan to an investor should the lender not intend to keep and service the loan. If the underwriter finds anything is missing or needs further explanation or documentation, he or she may send the loan officer a list of demands and conditions that must be satisfied before loan approval.
“Final loan approval” is given when the underwriter concludes everything is in order and there is sufficient, persuasive evidence the borrower meets all requirements for the loan. This is often referred to as a “Conditional Loan Commitment.” Why conditional? Because even at this stage, certain things must happen before the lender will fund the loan. These include getting good and clear title, receiving the necessary cash from borrower at closing, all parties to the transaction signing required documents, and any conditions that may be specific to a particular transaction.
Loan pre-approval or approvals at any stage in the loan process are never a guarantee. A loan will not be funded - meaning the lender electronically transfers the loan proceeds to the escrow account for dispersal to the seller and/or other parties - until all conditions are met at or before closing. If the borrower and the loan officer are confident the conditions can and will be met, then they can feel assured the borrower will get the loan.