When you first apply to finance your first investment property, it’s very likely you’ve yet to identify the real estate you’re going to purchase. Instead, you provide your financials and your loan applicationTarget Inflation Rate to the bank for a preapproval. When a bank issues a preapproval it’s saying the information you provided on your loan application has been verified based upon sufficient income and assets as well as reviewing your credit history. And once you do find a property and complete the application process, you will encounter additional approvals.

As an underwriter completes the approval process it’s likely there will be some conditions attached to the approval. For example, the lender can issue your approval on the condition you provide bank statements from one of the accounts you listed on your application. Conditional approvals fall into two categories- prior to documents and prior to funding. When a loan is conditionally approved with prior to document conditions, it means your loan papers won’t be delivered to the settlement agent until that condition is met. A common such condition might be a year-to-date profit and loss statement. When provided, the underwriter will compare the P&L with your business bank statements to make sure they coincide. Once the condition is approved, loan documents are printed and you’re on your way to the closing.

The second form of a conditional approval is less critical as the lender will deliver closing documents for you to sign but won’t actually fund the new loan until the prior to funding condition is met. This type of condition is usually issued to make sure all the credit documents in the file are up to date at no more than 30 days old. For example, you may have provided pay check stubs but as the loan application progressed one of the pay stubs expired and replaced with a recent one. Once the update pay stub is reviewed, funds are released.

When buyers first go through the process of financing an investment property they might be a bit surprised and perhaps a little frustrated at having to piecemeal paperwork instead of asking for it all upfront. But as a loan moves through the approval process, it’s possible something was discovered during the evaluation or simply it’s time to update the file.