Obtaining a mortgage pre-approval is one of the most important things you can do before shopping for a home. Without it, how do you know how much house you can afford? Do you like shopping outside of your budget? Probably not, which is why you need to take this step.
We recommend getting quotes and possibly an approval from at least three lenders. This way you have a better idea of what you can afford and at what terms. Below we will discuss the documents you’ll need to provide the lender in order to get the answer you need.
Personal Identifying Information
First, you’ll need to provide your personal identifying information. This means your name, address, birthdate, and social security number. If you have lived at your current address for less than two years, you’ll also need your previous address that covers a span of two years.
The lender will ask you to sign a mortgage application as well as a document that allows them to pull your credit. They need to know your credit score and/or credit history in order to pair you up with the right loan. Without this information, your approval would really just be a guesstimate.
Next, you’ll need income documents. What you need to provide may vary depending on your type of employment. For example, the self-employed borrower will need many more documents than the employee that receives a salary.
If you are a salaried employee, you’ll need:
- Paystubs – You’ll need to cover the last month of your employment. If you get paid monthly, you need one paystub (some lenders may require another). If you are paid bi-weekly, you’ll need two paystubs and weekly, you’ll need four.
- W-2s – You’ll need to dig up the last two years of W-2s from all of your jobs during that time. If it’s the beginning of the year and you have not filed the prior year’s taxes yet, you can provide the most recent W-2s you have.
If you are self-employed, you’ll need:
- 1099 forms – If you are a contractor or received 1099s for any work you did, you’ll need to provide any you received over the last 2 years
- Taxes – You’ll need to provide the last 2 years of tax returns including all schedules. If you filed business taxes, you’ll need to provide them with all of their schedules as well.
- Year-to-date Profit and Loss Statement – The lender needs to see how you are faring so far this year. They will compare the P&L to the income reported on your taxes to see if you are on track to earn the same amount of money this year
- Leases – If your income is real estate focused, you’ll also need to provide the signed and executed leases for any properties you own/rent.
If you’ll be putting money down on the home or paying closing costs, you’ll need to prove you have the assets available. The lender will need:
- Bank statements – Lenders usually need 2 months’ worth of bank statements. This lets them see your pattern of deposits as well as look for any unseasoned funds. Any new large deposits that don’t coincide with your income could require further evaluation to make sure they are not a loan.
- Investment statements – If you’ll use any of your investment money for the down payment or closing costs, you’ll need two months of these statements as well.
If you’ll receive a gift for a portion of the down payment or closing costs, you’ll also need a Gift Letter from the donor. This letter should document the amount of the gift, the reason, and the fact that it is a gift and not a loan.
If you happen to have a purchase contract already, you can supply this to your lender. However, it’s best if you do this process before you shop for a home. This way you have a better chance of winning a bidding war and/or just winning the seller’s trust. If the seller can’t confirm that you qualify for financing, they may not accept your bid on the home. If you are lucky enough to find a willing seller to accept your bid without the pre-approval, you’ll need to supply the contract to the lender.
The lender will go over each of these documents and determine how much they may lend you. Notice, we said may lend. This doesn’t mean it’s any type of guarantee. This letter is usually good for a few months. If you don’t find a home within that time, you’ll have to reapply.
Even if you do find a home within that time, you’ll have to meet the conditions the lender states in the pre-approval letter. You may need to supply updated financial documents if too much time passes and you’ll definitely have to find a property that meets the lender’s requirements.
Overall, though getting pre-approved gives you the advantage when it comes to shopping for a home. You’ll know ahead of time what conditions you’ll need to satisfy and how much money you can afford to borrow. It’s a win-win for everyone even if it takes you a little extra time.