How to Get Pre-approved For a Mortgage
If you are in the market for a new home, one of the first things you need to do is get pre-approved for a mortgage. In almost all cases this means tons of paperwork, most mortgage lenders require extensive documentation before they will fund your loan.
Before you start the process, it is helpful to understand exactly what type of documentation you will be required to submit in order to get pre-approved for a mortgage. While you can shop for houses without a pre-approval you will be at a disadvantage. A pre-approval letter shows potential sellers that you are qualified to purchase their home which will improve your odds in a bidding war situation.
Following is a list of documents you will have to provide in order to get a mortgage pre-approval:
- Tax returns: The majority of lenders will require at least two years’ worth of tax returns. You will have to submit the last two years returns and if you haven’t filed a tax return for the most recent calendar year the lender may require you to do so before applying for a mortgage.
Lenders look at your tax returns to get an idea of your debt to income ratio which is usually one of the main qualifiers for a home loan. Your tax returns allow them to get an idea of your total household income.
- W-2s or 1099s: Lenders need to know that you can repay the loan so they will require you to submit your two most recent W2 forms. if you are self-employed you will need to submit your most recent 1099s. There is always the possibility they will require more documentation of your income and documentation requirements tend to be higher for self-employed individuals.
- Pay stubs: In order to further document your income most lenders will require you to submit your most recent payroll stubs. If your income has changed dramatically since you last filed a tax return Your pay stubs can be used to document your new income.
- Other income documentation: If you currently have other income from sources other than your employer you should be prepared to show documentation that verifies this income.
- Bank statements: Your lender will most likely require two months worth of bank statements for any savings or checking accounts that you have. If there are any unusual deposits, or nonstandard withdrawals you may be required to write a brief explanation of each.
- Gifts: When it comes to mortgage lenders there are very specific rules about where you can get the money for your down payment and closing costs. The majority of lenders will allow you to receive gifts of money for your down payment or closing costs, but you cannot borrow money from a friend or relative. If you are using gift money for either your down payment or closing costs you will need a letter signed from the person giving you the gift that it is truly a gift and you will not be expected to repay the money.
- Investment accounts: If you have any money in an investment or brokerage account you will be required to produce two months’ worth of statements. This includes any retirement accounts you have as well.
- Other Major Assets: If you have any other assets that you are using to help qualify for a mortgage be prepared to provide documentation about them and their current market value. As an example if you own a rental property you would need to provide a recent appraisal as well as proof of ownership.
- Current mortgage statement: If you currently own a home and have a mortgage balance on it you will need to submit your most recent mortgage statement which shows the balance that you still owe on the home. This will be particularly true if you hope to close on a new home before you sell your current one.
- Landlord Info: If you are currently renting a home or an apartment you will most likely have to provide the contact information for your landlord as well as document your rental payments.
- Social Security Card: Your lender will run a credit check on you so they can review your credit report and credit score. in order to do this, they will need your Social Security number and most lenders will require a copy of your actual Social Security card.
- Driver’s license or other ID: in almost all cases your lender will require a copy of your driver’s license or another photo ID such as a passport in order to process your mortgage application.
Once You Have Found a Home
Once you have found a home your lender will require additional documentation regarding both the home and your finances. Here’s a quick overview of what you need to provide:
Home Details: While the purchase contract should include most of the details your lender needs, they may require you to provide additional information. in most cases your realtor or the seller’s realtor should be able to help you track down any information your lender needs.
Homeowners Insurance: Before you can close on your home your lender will require proof of homeowners insurance. The lender wants to protect the investment they have in your home so it is absolutely required that you have homeowners insurance with the proper coverage levels. In many cases you may need to pay one year of premiums into an escrow account.
Depending on where your home is located you may also be required to carry flood or earthquake insurance. If you live in a high-risk area for floods or earthquakes your lender will require the proper insurance to protect their investment.
Appraisal: Most lenders will take care of the appraisal themselves, but they will absolutely have an appraisal done in order to confirm that the home is worth the price you agreed to pay.
Additional Documents May Be Required
While we tried to be as thorough as possible in this article every mortgage lender is different and there may be required documents that we failed to mention. In addition, as the process proceeds your lender may require additional documentation on your employment particularly if you have changed jobs recently.
Anytime you purchase a home there will be a lot of required documentation, getting your documents in order before you apply for a loan will help make the process go smoothly.