Question: What is the difference between pre-approval and pre-qualification when purchasing a property?

Answer: The pre-approval process is much more complete than pre-qualification. For pre-qualification, the loan officer asks you a few basic questions and obtains a single credit report. For a pre-approval, the loan officer takes a full credit application (which can be obtained by phone) and obtains a 3 bureau merged credit report.  That information is then input into the automated approval system called DU/DO or LP and it provides a conditional approval.  Pre-approval includes all the processes of a full approval, except for the appraisal and title search. Pre-approval can put you in a significantly better negotiating position when trying to purchase a property.

Question: What type of documentation is needed when I apply?

Answer: It depends on what the automated approval system requires.  For the most creditworthy of borrowers who are purchasing a home with 20% or more cash equity, the DU/DO system might only ask for a telephone verification of employment.

The following is a list of items that might be requested by the automated approval system:

Past two (2) years of W-2 statements.
Pay stubs covering the last (30) thirty days.
Most recent two months' bank statements.
Most recent transaction summary of 401K or IRA accounts.
Statements of mutual funds, stocks, or bank accounts.
Borrowers part two years history of Present and Past addresses and Present and Past Employers.
Copy of the Purchase and/or Sale Agreement .
If you are currently renting: either 12 months' cancelled rent checks or the name and address of your current landlord.
If divorced: a fully executed divorce decree.
If bankruptcy in the past five years, then copies of bankruptcy filing and discharge.
A letter of explanation for any known credit problems.
If own rental property, copies of past two years of tax returns or copy of most recent lease agreement.
For self-employed borrowers, employed in sales or paid by commission: Two (2) Years, signed personal tax returns including all schedules.
If self-employed through a corporation and with 25% or greater ownership: last two (2) years, corporate returns as well as a year-to-date profit and loss statement and balance sheet.

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