Many home buyers whether first time buyer or seasoned homeowner, tend to get confused when the two terms Pre-qualified and Pre-Approved are interchanged. They do not mean the same thing. To pre-qualify you would first meet with your mortgage lender of choice and fill out an application that includes information on your income, debts, assets, etc. The lender will use that information to give you an estimate on how much money you can afford to spend on a home. It's a rather quick process and based solely on the information you provide without verification. Therefore the amount you're provided is not set in stone, it's just the amount you would likely be able to get qualified to borrow. For that reason being pre-qualified does not mean as much to a seller and being pre-approved which means the data has been investigated and verified.
With pre-approval - the lender has thoroughly verified your financial information and your employment which will confirm your ability to qualify for a mortgage loan and the specific amount you can borrow. These approvals are guaranteed for a specific period of time which is normally 90 days.
To get pre-approved, select the lender you want to use, fill out an application which normally will include an application fee. Provide the lender with the required documents that they will ask for. They will process the paperwork and be able to tell you the amount you can buy and the interest rate you will be eligible for. In some cases you can lock in this rate for a specific period of time. If rates go up you are protected - if they go down you still pay the locked in rate.
Self-employed individuals will normally need to provide proof of income for the last 2 years. That can be done with tax returns and/or bank statements. A list of assets which includes bank statements, cash on hand, gift letters, and most of the gift letters will have to be notarized.
Good credit is essential, lenders fluctuate as to their minimum fico score that is acceptable. Lenders will likely call employers to verify your employment status. Self-employed will be required to provide significant additional documentation concerning income history.
Last, proof of identity is also required, which includes picture id.
Be prepared to buy before you being shopping for a home. Not only are sellers hesitant to accept offers from buyers who have not been preapproved, but agents are hesitant to spend time with buyers when they are not certain there is the potential to actually purchase. It also shows everyone involved that you are a serious buyer if you have gone through the steps and are prepared.