The Ultimate Checklist: Documents Needed for a Mortgage Pre-Approval
June 5, 2023
5 min read
If you're ready to purchase a home, the initial step is getting pre-approved for a mortgage. While it may feel daunting to start this process, being mortgage-ready can help you be in better standing when finding your dream home.
One of the primary requirements for pre-approval is the documentation you will need to present. Let's look at the essential documents you will need for pre-approval and how to get them in order. Time to get organized and ready to buy your dream home!
Pre-approval: Income and Employment Documentation
When applying for a mortgage, one of the most critical factors that lenders consider is your ability to repay the loan. As such, you must provide documentation of your income and employment to verify that you have a stable source of funds.
Here are the key income and employment documents that you'll typically need to provide:
1. W-2 Forms
W-2 forms are an important document needed for mortgage pre-approval. Employers provide these forms to show your earnings and taxes paid for the year. Lenders usually look at two years' worth of W-2 forms to better understand your income history and stability.
Individuals with multiple jobs or who are self-employed will require extra paperwork like profit and loss statements for further information about their financial background.
2. Pay Stubs
Pay stubs show your gross income, net income, and other deductions. You must provide at least two months' pay stubs to show your current income and employment status. If you have a variable income or work part-time, your lender may require additional documentation to verify your income.
3. Employment Verification
Employment verification is a letter from your employer that confirms your job title, length of employment, and salary or hourly rate. This document helps lenders verify your income and employment stability.
4. Tax Returns
Tax returns provide a comprehensive view of your income, deductions, and any self-employment income. You will typically need to give the last two years of tax returns. Lenders may also use your tax returns to verify your income and expenses, so providing accurate and complete tax returns is important.
5. Other Income Documentation
If you have any additional sources of income, such as rental income, child support, or alimony, you may need to provide additional documentation to support this income. For example, you may need to provide a lease agreement for rental income or court documents for child support or alimony.
Pre-approval: Asset Documentation
If you are applying for a mortgage pre-approval, a lender will likely require documentation of your assets as part of their evaluation. This allows them to assess your financial situation and ability to pay the down payment. Below is an overview of what documents you may need to provide:
1. Bank Statements
Bank statements show your account balances, transactions, and other financial activity. You will typically need to provide at least two months' bank statements for all your accounts. Lenders may use bank statements to verify your income, track your spending, and check for any red flags, such as bounced checks or overdrafts.
2. Investment Statements
You may need to provide statements showing your holdings and account balances if you have investment accounts, such as stocks, bonds, or mutual funds. Lenders may use investment statements to assess your financial stability, diversification, and ability to make a down payment.
3. Retirement Account Statements
If you have retirement accounts, such as a 401(k) or IRA, you may need to provide statements showing your account balances. Lenders may use retirement account statements to assess your overall financial health and stability and your ability to make a down payment.
4. Other Asset Documentation
If you have other assets, such as real estate, vehicles, or valuable personal property, you may need to provide documentation to support their value. For example, you may need to provide a property appraisal for real estate or a vehicle registration for a car.
Pre-approval: Debt Documentation
In addition to income and asset documentation, lenders want to see documentation related to your debts. This information will help them assess your creditworthiness and ability to make monthly mortgage payments. Here are some of the documents you may need to provide:
1. Credit Reports
Your credit report provides insights into your credit history and current financial situation. Lenders will typically request a credit report from one or more of the major credit reporting agencies, such as Experian, Equifax, or TransUnion. Your credit report will show your credit score, any outstanding debts, and your payment history for past and current debts.
2. Credit Card Statements
Credit card statements show your outstanding balance, minimum payment due, and other charges. You must typically provide at least two months' worth of credit card statements. Lenders may use credit card statements to assess your debt-to-income ratio and overall debt load.
3. Loan Statements
Loan statements show your outstanding balance, monthly payment, and other terms of your loans. You will typically need to provide loan statements for all your outstanding loans, such as car, student, and personal loans. Lenders may use loan statements to assess your debt-to-income ratio and overall debt load.
4. Other Debt Documentation
If you have other types of debt, such as medical bills, child support payments, or tax liens, you may need to provide documentation to support this debt. For example, you may need to provide a payment plan agreement for medical bills or court documents for child support payments.
Pre-approval: Additional Documentation
More documentation may be needed besides income, assets, and debt information when applying for a mortgage pre-approval. Here are some documents you may need to provide in addition to those mentioned above:
1. Identification Documents
You will typically need to provide government-issued identification documents, such as a driver's license, passport, or social security card. These documents help lenders verify your identity and prevent fraud.
2. Purchase Contract
If you have already found a home and are seeking pre-approval for a mortgage, you may need to provide a purchase contract or agreement. This document outlines the terms of the home purchase, including the purchase price, closing date, and other details.
Start Preparing for Pre-Approval Now!
Being ready for a mortgage is essential for homeownership and will make home-buying smoother. It is also key in increasing your chances of pre-approval. To prepare, organize and collect crucial documents such as proof of income, employment verification, credit score, mortgage application, and validation of funds.
Be sure to gather these documents, as any delays to this process may significantly postpone the approval of your mortgage. Get everything ready before you apply, and soon you'll be on your way to owning the home of your dreams!
