There Are Conditions, And Then There Are Conditions

In all my years in the mortgage industry, and there are a lot of them, I don’t recall a single loan application I submitted to underwriting that didn’t come back with approval ‘conditions.’ What exactly does the term mean? Essentially, it means the loan may be approved based upon certain conditions. All loans have them, perhaps a few skate through but those are extremely rare. But there are two types of conditions, and one is more important than the other, although they all have to be met. Today, loan applications are submitted through an automated underwriting system. Where it used to take an hour or two to physically have an underwriter review and approve a loan application, the system accepts then spits out the result. And if the loan officer and processor has properly documented the file, the results will be presented. Now for the condition part. The easy conditions are the ones that are pretty basic and primarily make sure the loan file is updated. For example, credit documents within a file must be within 30 days old. Paycheck stubs for instance, must fall within this 30 day window. So too are bank statements and others. These are pretty simple and many times these conditions can simply be brought to the settlement table or otherwise provided directly to the lender for review. These are referred to in the industry as ‘prior to funding’ and must be reviewed and approved before the lender will release the funds needed for the loan. The other type of conditions, sometimes referred to as ‘prior to doc’ conditions, must be reviewed prior to the loan going any further into the approval process. This type of condition states that whatever is being asked for is presented and reviewed before loan documents can be produced. Whereas prior to funding conditions can be settled at the closing, prior to doc means you won’t get near that milestone without these. What are some prior to doc conditions? One might be for the borrower to explain a drop in income from one period to the next. Did the applicant get temporarily laid off? Is he/she still employed? Was there an illness in the family that created a temporary employment pause? With these types of conditions, the lender just wants to make sure everything is good to go before going much further. One final word, don’t freak out when the lender comes back with questions. There’s little chance of the loan approval being in jeopardy, it’s mainly to keep the loan file in compliance with approval guidelines.