14 Nov 2021

Conditional approval

Conditional approval on home loans can be confusing for homebuyers in the market. Conditional approval is also known as pre-approval or approval-in-principle. Every company uses a different term, but they mean essentially the same thing.

Conditional approval is when a lender approves a loan for a specific amount, interest rate, and years of the term. Although this is an approval, some conditions can be met. It is not a guarantee that either party will use the loan or that the loan will not change depending on circumstances.

So why use or apply for conditional approval? When homebuyers apply and are approved for conditional approval, they are more likely to find a home quicker and are seen as “the real deal” by real estate agents and homeowners that are selling their homes. This is because a conditional approval lets the sellers know that a bank has already approved you and looked into your credit to determine that you can pay for the home. 

Not only does this allow home buyers to be taken seriously in the housing market, but it also gives a strict budget for homebuyers to view. If a loan is for $600,000, then home buyers know that the maximum they can bid on a home is $600,000. Although, they do not need to bid the entire amount.

Lenders determining your eligibility for conditional approval may look at credit card debt, credit reports, monthly expenses, income, and the house you are eyeing to buy. With this information, they can create conditional approval for borrowers to use. Borrowers, however, do not have to use conditional approval and can negotiate if they do not like the proposed mortgage interest rates.

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