Loan conditions are pretty much a given. In all my years in mortgage lending I don’t think I’ve ever had a loan approved without some sort of condition. What’s a condition? A condition essentially means the loan can be fully approved ‘upon the condition’ that other certain issues are addressed. Some of these conditions are relatively minor while others, well, not so much. There are two primary types of conditions, prior to doc and prior to fund. When you get your initial loan approval you can bet there will be some conditions attached. Let’s take a closer look at what these two terms mean.
‘Prior to Doc’ means before loan documents can be prepared and delivered to your settlement agent, certain things must be satisfactorily addressed. When the loan officer contacts the borrower with a prior to doc condition request, it means the loan process stops altogether. The borrowers must provide the requested information as soon as able. Remember, there is a sales contract closing date that must be met. Any delay in producing requested information means delaying the closing date. Unless the buyers and sellers agree to an extension, it’s possible the earnest money will be forfeited. What’s a prior to doc condition?
A prior to doc condition might mean a borrower explaining a drop in income for the previous year. Or the lender wants to see an updated profit and loss statement for a self-employed borrower. Maybe there’s a previous divorce involved, and the lender wants to take a look at the final divorce decree before moving further. The divorce decree will show if there are any support payments required, then they’re required and when/if they will cease.
This obviously affects an ability to repay a mortgage if an undisclosed debt is discovered. Or perhaps there’s a recent credit inquiry showing up on a credit report from another mortgage company and the lender wants to make sure there’s not a new mortgage taken out for another property. Prior to doc conditions stop a loan in its tracks.
The other type of condition isn’t so restrictive but must still be met and satisfactorily addressed. This is the prior-to-fund condition. Most often these conditions simply mean some housekeeping as it relates to the loan file. For instance, mortgage loan applications require all credit documents be less than 30 days old. This step makes sure that during the approval process nothing has significantly changed. If a submitted loan application is say 50 days old, some of the things in the loan file will have to be updated to meet the 30 day credit document requirement. This most often means a new paycheck stubs since the ones in the file are more than 30 days old.
Maybe new bank statements need to be submitted to make sure there are no deposits from unauthorized sources. An authorized source would be an employer. An unauthorized source simply shows up in a bank account and if large enough, might imply the buyers have borrowed the money from someone else in order to help close the transaction.
Loan conditions shouldn’t alarm borrowers because the loan approval probably wouldn’t have gotten as far as it did if something significant shows up during the preapproval process. When your loan officer or loan processor calls and asks for additional information, more than likely it’s a prior to fund and it’s simply a matter of updating the file.
