As eager home buyers navigate the mortgage loan process in Illinois, a common question that emerges is – Can my home loan get full formal approval from the lender before the appraisal is even completed? Is receiving the final loan commitment possible prior to the valuation?
Can a mortgage loan be approved before appraisal?
Yes, it’s possible for Illinois lenders to give initial loan commitments or even full approvals before an appraisal in certain scenarios, such as a pre-approval, approval with appraisal condition or using a limited appraisal waiver. However, in most cases, having the completed appraisal will be a precondition to obtaining final loan approval.
1. Pre-Approval Stage
The pre-approval that many buyers obtain from lenders early in their home search is essentially a form of preliminary loan approval (aka loan commitment), often provided before the buyer makes an offer on a specific property. Lenders may pre-approve buyers weeks or months in advance of a purchase without even identifying a property, let alone requiring an appraisal.
2. Limited Appraisal Waivers
Certain lenders, like large banks or credit unions, have the capability to offer limited appraisal waivers on eligible transactions, typically for pre-approved buyers in very strong financial standing. This allows them to approve loans without the condition of an appraisal.
However, final approval without the need for an appraisal is still unusual in a typical Illinois real estate purchase.
Why do lenders strongly prefer having an appraisal upfront?
Here are some reasons most lenders strongly prefer having the appraisal upfront before issuing final loan commitment paperwork:
- The appraisal provides validation of the specific property meeting eligibility standards required for financing approval.
- The appraisal confirms that the market value of the home supports the requested loan amount and that the appraised value is within the loan product’s allowable loan-to-value ratio.
- Underwriters heavily rely on details contained in the appraisal report as part of the underwriting approval decision.
- Most mortgage programs and products require an appraisal to be completed.
- From a risk perspective, lenders want to see the appraisal results prior to legally committing to lend.
So while pre-approvals and limited appraisal waivers enable some earlier approvals, expect that most lenders will still require the appraisal to be done in order to issue final loan documents and legally commit to lending on a specific property. There are too many risk and eligibility factors tied to the valuation itself.
Clear Communication with Loan Officer on Appraisal Uncertainties
However, buyers uncertain if their loan can still proceed to commitment without an appraisal in hand should communicate clearly with their loan officer. There may be some unique situations where preliminary approval or approval with conditions can be granted. Communicating with your loan officer is key!