What Is Conditional Approval?
When a buyer applies for a mortgage to buy a Florida home, the bank's underwriter reviews their income, credit score, and bank statements. If the underwriter likes what they see, they will issue a conditional approval.
Conditional approval is excellent news—it means the bank intends to loan the buyer the money. However, it is not a final guarantee. The bank is essentially saying, "You are approved for this $400,000 loan, on the condition that you provide us with a few more pieces of evidence before the closing date."
Common Conditions
When a bank issues a conditional approval, it comes with a strict checklist of items (the "conditions") that the buyer must clear. Common conditions include:
- The Appraisal — The bank approves the buyer's finances, on the condition that the house physically appraises for the full $400,000 purchase price.
- Debt Payoff — The bank approves the loan, on the condition that the buyer uses $5,000 of their savings to completely pay off a specific high-interest credit card to lower their debt-to-income ratio.
- Source of Funds — The bank sees a random $20,000 deposit in the buyer's checking account. They approve the loan on the condition the buyer provides a "gift letter" from their parents proving the $20,000 wasn't an illegal, undisclosed secondary loan.
- Clear Title — The bank approves the loan on the condition that the title company successfully removes an old contractor lien from the property's public record.
The Danger to the Buyer
Under a standard Florida purchase agreement, a buyer must secure final loan approval by their commitment date. If the commitment date arrives and the buyer only has a "conditional approval" because they couldn't satisfy one of the bank's demands, their financing contingency fails. They must either cancel the contract immediately or risk losing their entire earnest money deposit.
Related Terms
- Commitment Date — The deadline by which all conditions must be cleared
- Appraisal — The most common condition placed on a mortgage approval
- Purchase Agreement — The contract that dictates what happens if conditions fail
Barnes Walker Real Estate Closings
Barnes Walker's real estate closing coordinators work tirelessly to clear complex title and financial conditions on behalf of our buyer clients, ensuring conditional mortgage approvals rapidly transition into final 'Clear to Close' status before critical contract deadlines expire. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC