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When you get a conditional approval letter, it’s a signs your loan will be approved and has gone past the application stage. If your loan is approved but with conditions, you must be sure to provide the requested paperwork as soon as possible. Be prepared to provide letters of explanation documenting your reasons for any questions or issues. You should include dollar amounts, dates, and names.
Conditions for conditional approval of a loan
The term “conditional approval” refers to a loan that the lender will grant you if you meet certain criteria. These conditions could include your employment status or income. An underwriter will review your financial documents and, if they find anything questionable, they may deny your loan application. If all of your information is correct, however, you may receive conditional approval.
Another reason for conditional approval is self employment. If you’re self-employed, your lender will want more information. For example, if your income has decreased over the last two years, you may find that your application is denied. If this happens, you’ll need to submit your tax returns from the previous two years. You’ll need to show that the income on the tax returns matches the income on your application.
Letters of explanation
A letter of explanation is a document that lenders request from borrowers to explain certain circumstances. For example, if you recently quit your job and haven’t been able to make any payments for a while, you will need to write a letter explaining this. You can also provide supporting documentation such as a gift letter from a family member. While a letter of explanation doesn’t guarantee your loan approval, it is an important step to take.
Letters of explanation should contain the following information: an introductory paragraph, a brief explanation of the problem or issue, and a clear description of what steps you need to take next. The letter should be written in a formal and courteous tone. It should include your full legal name and address as it appeared on your mortgage application.
Income
Income is an important factor to consider when requesting a loan. The lender will look at your base earnings and the consistency of your earnings over a period of time. If your earnings are inconsistent over a period of time, the lender may request clarification from you or your employer.
Debt-to-income ratio
Your debt-to-income ratio (DTI) is an indicator of your ability to pay back a loan. It measures your total monthly debt payments against your income, expressed in percentage. Lenders calculate the ratio by looking at both the front and back-end of your debt. The front-end ratio reflects your debt payments related to housing, while the back-end ratio considers other debt payments, such as taxes and homeowner’s association dues.
If your DTI is too high, you may not qualify for the loan. This is because lenders look at a borrower’s overall financial health. A high DTI may prevent you from getting new credit, which could affect your ability to make the monthly payments. Your credit score is also affected by your DTI, since it accounts for up to 30% of the score.
Changed jobs
Changing jobs doesn’t necessarily mean your loan application won’t be approved. However, it can complicate things for you. For instance, if you are changing jobs, your new employer will likely need to verify your employment and pay rate. Your new income will have to be documented for your lender to consider you as a good risk.
A lender will be hesitant to give you financing if you’ve made a recent job change. Changing jobs can make you a high-risk borrower, so it’s important to avoid making such moves. For example, a move from salaried to commission-based work can be risky for a lender, so a job change shouldn’t be made right before closing.
