Conditional Loan Approval
If you are an international student who plans to study abroad, chances are likely that you are (or plan on) applying for student loans. Applying for loans can be an intimidating and confusing process, and it is easy to get over overwhelmed, particularly if you are unfamiliar with the process. Say you receive a notification from the bank that your loan application has been “conditionally approved.” What exactly does that mean?
When your loan application has been conditionally approved, this means that you have moved beyond the first application phase. An employee of the bank who makes decisions regarding loan applications, or underwriter, has reviewed your application and found nothing that would cause the lender to turn you down. He has decided that your credit report, income, and level of debt are satisfactory to the bank. This is great! However, you are not out of the woods yet. A conditionally approved loan is not a firm commitment; it is more of a “maybe” than a “yes.” Conditional loan approval generally happens early in the lending process, before your bank has had enough time or information to make an informed final decision.
So how do you know when your loan has been approved vs. conditionally approved? Most likely, you will first learn about the approval of your loan from a phone call or email from your loan officer. Following this contact, you will receive a formal letter from your bank labeled either “Conditional Approval Letter,” or simply “Approval Letter.” If you receive a letter labeled “Approval Letter,” you can determine whether or not the approval is conditional by searching the letter for a list of items or conditions that must be met. If you letter contains phrases such as “Your loan has been approved pending the following items,” or “approved providing the following conditions are met,” then it is a conditional approval.
In order to change your conditionally approved bank loan into a fully approved loan, there are several types of conditions that may have to be met. These include verifications, collateral requirements, and conditions that bar changes in your circumstances:
Verification means that you may be asked to present further verification of your income or assets, such as tax returns, employment verification, W-2s, or bank statements.
Collateral requirements are tied to the home or car that you may be putting up as security on your loan. These are generally based on an appraisal of the property in order to ensure its value to the bank.
Conditional approval letters also generally include the stipulation that you must not experience any major changes in your financial situation. These might include job loss or major credit problems.
Things to Consider
The bank will not approve your loan if you do not meet the conditions of the conditional approval. The lender can also close out your application due to incompleteness if you fail to meet the conditions in a sufficiently timely manner. For this reason, it is best for you to provide the bank with whatever it has asked of you, in order to keep your application active.
You will have to consider whether or not you wish to move forward with the loan. A conditional offer or conditional approval is not a binding contract - for the bank or for you. Look over the terms of the bank offer and decide whether or not they are the best terms for you. If you decide they are not in your best interests, you can choose not to provide the bank with the necessary items for approval, and then contact you loan representative to tell him or her that you wish to withdraw your application.