A pre-approval is an evaluation of the borrower’s complete and verified credit file. This entails a review of the credit report and verification of wages, ( 2 years W-2’s, 2 years 1040’s, and 2 recent paystubs) and assets (2 months of bank statements) This process is very necessary in today’s market of short or no loan contingency.
The preapproval process involves four elements: income, debt, credit and assets. Each one of these elements is used to determine your purchasing power.
A Pre-qualified borrower is one that has spoken with a loan officer and based on the information the applicant gives the loan officer, their purchase power is determined. It can be a beginning step which gives you information but in today’s market you need a pre-approval.