What Documents Do You Need For a Mortgage Pre Approval?

Getting preapproved for a mortgage before you go home shopping isn’t required, but it is a good idea, especially in a seller’s market, where competition among buyers is intense. Unlike a prequalification, a preapproval letter lends weight to your bid on a home, proving to sellers that you have the financial clout to stand behind your offer.

Shopping idly for a home may be pleasant, but serious homebuyers need to start the process in a lender's office, not at an open house. As a potential buyer you benefit in several ways by consulting with a lender and obtaining a pre-approval letter.

First, you have an opportunity to discuss loan options and budgeting with the lender. Second, the lender will check your credit and alert you to any problems. Third, you will learn the maximum amount you can borrow, which will give you an idea of your price range. However, you should be careful to estimate your comfort level with a given house payment rather than immediately aiming for the top of your spending limit. Lastly, most home sellers expect buyers to have a pre-approval letter and will be more willing to negotiate with you if you have proof that you can obtain financing.

Here are the Most Common Documents You Need For a Mortgage Pre Approval:

  • Social security number for anyone who is on the mortgage loan. This information can be verified through a Social Security card, tax documents, or anything else that shows the SSN. The lender needs this to verify your identity, and also to pull your credit.
  • Proof of employment. Your mortgage lender will probably request a list of employers for the last two years (at a minimum). This document will also include each employer's name, mailing address and phone number. They want to verify your employment, because it relates to your ability to repay the loan.
  • Proof of income. These mortgage documents are used to validate your income. It can come in several forms. This will be your two most recent pay stubs, or the electronic equivalent, that shows your year-to-date earnings. It's your average annual income the lender wants to know about. The lender will also use tax records to verify your earnings (see next item).
  • Tax documents. This is a standard document for mortgage pre-approval. So there's a 99% chance you will have to provide tax documentation at some point. Most lenders want to see your W-2 statements and tax returns for the last two years. Among other things, your W-2s show how much money you earned over the previous year(s).
  • Place of Residence. This one is self-explanatory. The lender wants to know where you've lived for the last couple of years, and maybe longer.
  • Bank account information. When you apply for mortgage pre-approval, the lender will want to know how much money you have in the bank. They need to ensure you have sufficient funds for your closing costs, down payment, and cash reserves (if applicable). So they will probably ask you for account statements and balances for any checking, savings, or money market accounts. This is another standard mortgage document for pre-approval. All lenders require this.
  • Credit information. Do you have other outstanding loans that you're currently repaying (car loans, student loans, etc.)? If so, the lender may ask for documents related to those accounts. They need this information to measure your debt-to-income ratio.
  • Purchase agreement. Also referred to as the real estate contract. Once you have a signed contract with the seller, you'll need to give a copy to the lender. You won't have this mortgage document during the pre-approval process (the "pre" parts means you haven't found a house yet). But you'll need to provide it for the final approval, after you've made an offer on a house. This document shows the lender how much you've agreed to pay for the house. Later, they will have the property appraised to make sure it's worth the amount you've agreed to pay.
  • Gift letters. Are your family members going to help you with your down payment? If so, you need to provide a gift letter along with your other mortgage documents. They need to make sure the money is truly a gift, and that your relatives don't expect any form repayment.
  • Monthly expenses. Some mortgage companies will ask for an itemized list of your monthly payments. This list might include your rent, credit cards, student loans, etc.
  • Self-employment documents. Do you run your own business? If so, you might have to provide some additional documents during the mortgage pre-approval process. This might include balance sheets, a profit-and-loss statement, or federal tax statements for the last two years.

 

The document requirements for mortgage preapproval vary by lender and your individual circumstances, but typically, you'll need to provide documents which show your income, your assets and any regular commitments against your income. These will include, but may not be limited to:

  • Thirty days of pay stubs
  • Two years of federal tax returns
  • Sixty days or a quarterly statement of all asset accounts including your checking, savings and any investment accounts
  • Two years of W2s

"If you have any unusual income or circumstances, you'll need to provide other documents," says Peter Boyle, a senior loan originator at Summit Mortgage Corporation in Plymouth, Minnesota. "For instance, if you're divorced, I need to see a decree. If you filed bankruptcy, I need a full copy of the discharge documents. If you have rental income, I need a copy of the lease."

To get preapproved, you’ll need to verify your income, employment, assets and debts, says Bob McLaughlin, senior vice president and director of residential mortgage at Bryn Mawr Trust, in Bryn Mawr, Pennsylvania.

It's likely you already have many of the records you’ll need, or easy access to them. "Gathering the documents shouldn’t take more than a week, depending on the lender’s requests and whether you need records from outside sources, like an attorney or county government," says Andy Kush, director of home loan sales at Patelco Credit Union in Pleasanton, California.

Even for a preapproval, your lender may want more documents, especially if you’re self-employed or your income comes from several sources. Also be prepared to share information such as your Social Security number, which is used to check your credit reports and scores; your employer's name and address; and your hire date.


Pre-qualification vs. Pre-approval
A mortgage pre-qualification can be useful as an estimate of how much you can afford to spend on your home, but a pre-approval is much more valuable because it means the lender has checked your credit and verified your documentation to approve a specific loan amount (usually for a particular period, such as 90 days). Final loan approval occurs when you have an appraisal done and the loan is applied to a property. 

To obtain a mortgage approval today, you can expect to provide a full set of documentation verifying your financial and personal life. If you know what to expect and your lender is organized, this is less painful than it sounds. 

Loan Application Information Required

The first thing you’ll do when applying for a mortgage is complete a federally required mortgage application. Regardless of whether the application is in the paper format linked here, an online form, or done verbally with your loan officer, this linked document contains the application with the information you’ll need to provide, including:

  • Full name, birth date, Social Security number, and phone number
  • Marital status, number of children and ages
  • Residence history for at least two years. If you’re a renter, your rent payment is needed. If you’re an owner, all mortgage, insurance and tax figures are needed for your primary residence and all other properties owned.
  • Employment history for at least two years, including company name(s), address(es), phone number(s), and your title(s).
  • Income history for at least two years. If you receive commissions, bonuses, or are self-employed, you must provide two years of bonus, commission, or self-employed income received. Most lenders average variable and self-employed income over two years.
  • Asset account balances including all checking, savings, investment, and retirement accounts.
  • Debt payments and balances for credit cards, mortgages, student loans, car loans, alimony, child support, or any other fixed debt obligations.
  • Confirmation whether you’ve had bankruptcies or foreclosures within the past seven years, whether you’re party to any lawsuits, or you co-sign on any loans.
  • Confirmation if any part of your down payment will be borrowed.

Loan Documentation Required

Next comes the step of verifying all of the information provided in the application with documentation. A lender will provide a checklist based on your specific profile, but you can generally expect the following:

  • Written (or sometimes verbal) authorization for your lender to run your credit report.
  • Letters of explanation for credit inquiries, past addresses, and derogatory information on your credit report.
  • If you’ve had a bankruptcy in the past seven years, discharge papers are required.
  • If any tax liens or other derogatory items on your credit report require further explanation, you’ll be required to provide full documentation for each derogatory instance.
  • If you’re a renter with a private landlord, 12 months of canceled rent checks or 12 months of bank statements to show rent checks cleared on time. If you’re a renter with an institutional landlord, your lender can sometimes get them to complete a form confirming on-time rent payments in lieu of cancelled checks or bank statements.
  • If you’re keeping your existing home and renting it out, you’ll need to provide a lease agreement and proof that the first month’s rent has been deposited into your bank account.
  • If you intend to sell your existing home before closing on the new home, you’ll need to provide a listing agreement for the home, and it will need to close before your new home can close.
  • Pay stubs for at least 30 days.
  • W2 forms for all jobs worked in the past two years.
  • All pages of personal federal tax returns for the past two years.
  • If self-employed or greater than 20 percent owner in a company, all pages of business federal tax returns for past two years.
  • If self-employed or greater than 20 percent owner in a company, a year-to-date profit and loss statement for the business.
  • Income from rental properties can typically only count if it’s on your tax returns. If rental income isn’t on your tax returns yet because the rental property is new, lenders may accept the income if your rental property down payment was 30 percent or greater. Ask your lender.
  • If you’re divorced and receiving (or paying) child support or alimony, a divorce decree will be required, and this income typically must be scheduled for at least three more years from the time of loan closing.
  • Most recent two months statements for all checking, savings, investment, and retirement accounts. You must include all pages even if a page says “intentionally left blank” or you think there is no relevant information on certain pages.
  • If you move money among accounts, you must provide all accounts even if you’re only using one account for the down payment, because the lender will review every line item on two months of full account statements and ask you to paper-trail large deposits and withdrawals.
  • If you’re receiving gift funds, your lender will require all donors and receivers to sign a gift letter verifying the gift isn’t a loan. Some lenders want to see the donor’s accounts for verification of the donor’s ability to gift, and some only want to see the funds being received in your account. And for further reference, here are specific rules for using gift funds as down payment.

 

What You Need to Get Pre-Approved

Assemble the information below to be ready for the pre-approval process.

1. Proof of Income

"No verification" or "no documentation" loans are a thing of the past, so you need to be prepared with W-2 statements from the past two years, recent pay stubs that show income as well as year-to-date income, proof of any additional income such as alimony or bonuses and your two most recent years of tax returns.

2. Proof of Assets

You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves. Your down payment, expressed as a percentage of the selling price, varies by loan type. Most loans come with a requirement that you purchase private mortgage insurance (PMI) or pay a mortgage insurance premium (MIP) or a funding fee unless you put 20% (or more) down.

In addition to your down payment, pre-approval is also based on your FICO (credit) score, debt-to-income (DTI) ratio and certain other factors, based on loan type. All except jumbo loans are conforming, meaning they conform to GSE (Fannie Mae and Freddie Mac) guidelines. Some loans, such as Home Ready (Fannie Mae) and Home Possible (Freddie Mac), are designed for low- to moderate-income homebuyers or first-time buyers. VA loans, which require no money down, are for U.S. veterans, service members and not-remarried spouses. If you receive money from a friend or relative to assist with the down payment, you may need a gift letter to prove that the funds are not a loan.

The chart below lists common loan types and the basic requirements for each one; you'll see how different the requirements can be. In the DTI Ratio column where two figures appear the first refers to housing-only debt and the second refers to all debt. Under PMI/MIP/Fee, two numbers separated by a slash (/) indicate an upfront fee followed by an annual fee (paid monthly). All mortgage loans have additional requirements not listed here.

3. Good Credit

Most lenders require a FICO score of 620 or above to approve a conventional loanand some even require that score for an FHA loan. Lenders typically reserve the lowest interest rates for customers with a credit score of 760 or above. FHA loan guidelines allow approved borrowers with a score of 580 or above to pay as little as 3.5% down. People who have lower scores must make a larger down payment. Lenders will often work with borrowers with a low or moderately low credit score and suggest ways they can improve their score.

The chart below shows your monthly principal and interest (PI) payment on a 30-year fixed interest rate mortgage based on a range of FICO scores for three common loan amounts. Note that on a $250,000 loan an individual with a FICO score in the lowest (620-639) range would pay $1,491 per month, while a homeowner in the highest (760-850) range would pay just $1,247, a difference of $244 per month or almost $3,000 per year.

4. Employment Verification
Your lender will not only want to see your pay stubs, but will likely call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Lenders want to make sure they are lending only to borrowers with stable employment. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income.

5. Other Types of Documentation
Your lender will need to copy your driver's license and will need your Social Security number (SSN) and your signature allowing the lender to pull a credit report. Be prepared at the pre-approval session and later to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be. 

What Documents Do You Need For a Mortgage Pre Approval?

Income and employment

The documents required to verify income depend on how you get paid. This step is easiest for workers with a paycheck from one source, which provides an annual W-2 form, and who have little or no overtime or shift differentials.

Tax returns: Copies of your two most-recent federal and state returns may be required.

Income:

  • W-2 wage earners: Copies of W-2 forms and your two most recent payroll stubs. If income includes overtime, bonuses or differential pay, you may need your most recent end-of-year payroll stub.

  • Self-employed, freelancers and independent contractors: Self-employed borrowers, including sole proprietors, partnerships and S-corporations, need a year-to-date profit and loss statement and two years of records, including the Form 1099s you used to report income and file taxes.

  • Real estate income. Document the rental income, address, lease and current market value of a rental property if you will use this income to qualify for a mortgage.

Assets

Bank statements: Copy 60 days' worth of statements for every account whose assets you’re using to qualify for the mortgage. Include even blank pages of the statements.

Retirement and brokerage accounts: Two months of statements from IRAs, investment accounts (stocks and bonds), and CDs. The last quarterly statement from 401(k)s showing the vested balance. As with bank statements, include every page, even blank pages.

Debts

Monthly debt payments: Lenders examine your payment obligations to calculate your debt-to-income ratio. List all monthly debt payments, including student loans, auto loans, mortgage and credit cards. Include each creditor’s name and address and your account number, loan balance and minimum payment amount. If you have no credit history, utility bills may be used to help you qualify for a mortgage based on nontraditional sources of credit.

Real estate debt: If your current property is mortgaged, have your most recent statement — showing the loan number, monthly payment, loan balance and the lender’s name and address — and the declaration page of the insurance policy.

Other records

Rent: Renters need to show payments for the last 12 months and provide contact information for landlords for the last two years.

Divorce: Have your court divorce decree ready, if applicable, and any court orders for child support and alimony payments.

Bankruptcy and foreclosure: Ask your lender what documents they’ll need and how long you should wait after bankruptcy or foreclosure to re-enter the housing market.

Down payment gift letters: Lenders will want to talk about your down payment. You’ll need to show the sources of the money you plan to use. If your funds include gifts, you’ll need to get letters from your donors showing they don't expect to be paid back. Gift letters aren’t required for preapproval “but we do let borrowers know to be prepared,” Kush says.

Keep those files handy, though. You’ll need these documents again when applying for the loan.

Consulting with a lender before you start the home-buying process can save a lot of heartache later, so gather your paperwork or print some recent statements off your online bank accounts before your pre-approval appointment and before you begin house hunting.

References:

[1] Documents Needed for the Mortgage Pre-approval Process http://www.homebuyinginstitute.com/homebuyingtips/2009/06/documents-needed-for-mortgage-pre.html

[2] Documents Needed for a Mortgage Preapproval: A Checklist https://www.nerdwallet.com/article/documents-needed-for-a-mortgage-preapproval

[3] 5 Things You Need to Be Pre-approved for a Mortgage https://www.investopedia.com/financial-edge/0411/5-things-you-need-to-be-pre-approved-for-a-mortgage.aspx

[4] What documents do I need for mortgage preapproval? https://www.hsh.com/finance/mortgage/documents-mortgage-preapproval.html

[5] What Documents Do You Need To Apply For A Mortgage? https://www.zillow.com/mortgage-learning/mortgage-application-documents/