What Documents Are Needed For Mortgage Preapproval? A Complete Checklist
Sidney Richardson5 minute-read
January 11, 2022
When you buy a home, it’s a good idea to get preapproved because it can make your offer stronger and will pay off in the long run, especially in a competitive market. Preapproval is the process of finding out exactly how much money you can borrow from a lender to purchase a home.
To approve you, your lender will need to look at your income, assets, credit score and other documents. Preapproval is extremely valuable because it proves to the seller that you have the finances to back up your offer on a house.
If you’re ready to start the process of mortgage preapproval, you’re probably wondering exactly what documents you’ll need to have on hand. Let’s go through a quick checklist to make sure you have everything you’ll need ahead of time.
5 Types Of Documents Needed For Mortgage Preapproval
To begin the process of preapproval, your lender will want to see a few standard documents from you. They may require other information or records as well depending on what type of loan you’re applying for and the type of residence you intend to purchase, but there are a few general things you can prepare regardless of what you’re applying for. Here are a few.
1. Personal Identification
The first thing you should make sure to have on hand is a valid form of government-issued ID. This can be a driver’s license, Social Security card, passport or any other state or federally issued ID card. This is needed to verify your identity so your lender can be sure they are lending to the right person.
2. Proof Of Income And Employment
The next thing you will want to have prepared is proof of your income and employment. This includes all the common forms of income identification, like W-2 forms, pay stubs from the past few months, recent bank statements, tax returns, etc.
Pay stubs, either physical or electronic, will help confirm to your lender that you have a stable job and income. Bank statements and other documents help your lender get a good idea of your financial history and habits. You can request bank account statements and even electronic pay stubs from your bank and copies of your tax returns from the IRS.
If you are self-employed, providing proof of income may look slightly different for you. While you may not have regular pay stubs to show your lender, you can still provide bank statements, copies of your tax returns and even profit and loss statements if you’re a business owner who maintains them.
3. Credit Verification
One of the most important things your lender will need to look at to approve you for a loan is your credit score and credit history. Unlike the other documents in this list, your lender will obtain your credit report themselves. Your credit report and score will be a determining factor in your interest rate and the amount you can borrow.
If you have a great score (typically 720+) and a long history of paying your debts on time, you can expect a lower rate and more favorable loan terms. A lower score or red flags such as missed payments, large amounts of credit card debt, foreclosure, etc. could mean you will end up with a much higher interest rate – or worse, you could not qualify for the loan.
It’s a good idea to look at your credit report and credit history yourself before applying for a loan to make sure you’re in good shape for the credit check. If your credit isn’t looking as good as you’d like, you may want to take some time to pay down your debts and address your financial situation before applying for a loan.
4. Assets And Debts
Beyond your bank statements, you will need to provide additional documentation regarding your assets and debts to your lender. This may include record of any loan payments, mortgage statements and any other documents that show proof of payment toward debts.
For your assets, you should provide recent statements from any retirement accounts and/or investment accounts. If you intend to use money gifted to you for your down payment, you should also have a gift letter prepared to show your lender.
Debt information is important to share with your lender because they need to know how much you can afford to realistically pay toward a mortgage each month, given your debt-to-income ratio (DTI) and factoring in the upfront costs of a down payment and closing costs.
5. Rental History
The final thing you may need to provide for preapproval, especially if you are a first-time home buyer, is your rental history. This includes things like your former addresses and record of any missed rent payments or evictions. You may have to provide your former landlord with a verification of rent form that they will sign and return to you to give to your lender.
It’s important for your lender to have an idea of your renting history when you file a loan application because your history of making rent payments on time likely isn’t on your credit report. Knowing whether you were a reliable tenant or not may influence a lender’s decision when they are determining how much of a risk it will be to lend you money for a house.
Common Preapproval FAQs
Are prequalification and preapproval the same thing?
Every lender is different, and some may use the terms prequalified and preapproved interchangeably. In most cases, prequalification and preapproval are not the same thing.
In general, when you get prequalified, you give a lender some information about yourself and your finances and they estimate how much money you will be able to borrow for a mortgage. Information used for prequalification may be self-provided. You’ll usually get a ‘prequalification letter’ that you can use if you’re working with a lender.
Preapproval, on the other hand, is a more serious step toward getting approved for a loan. When you get approved rather than prequalified, your lender will take a more in-depth look at your finances and will also check your credit history. A preapproval means that the lender has confirmed you can borrow a certain amount of money and handle the payments. You’ll usually receive a letter of preapproval that you can present to sellers to prove you can get a mortgage to finance the home.
Do my documents need to be physical copies?
Different lenders may require different things, but in general electronic pay stubs and similar documents should be fine – though it’s always good to keep paper copies as well for your records, if nothing else. There are some exceptions, however – if you are paid via physical check rather than direct deposit, for example, you will need paper copies of your pay stubs to send to your lender to verify your income.
What do I do if I don’t get preapproved?
If your application is denied in preapproval, don’t despair – it doesn’t mean you can’t get approved for a loan at all. You may just need to strengthen your application and then come back. You can ask your lender why you were denied to help pinpoint the issues in your application so you can fix things from there.
You may need to improve your credit, fix errors in your credit report or pay down debt before applying again. For more information about your options if you are not preapproved, check out our guide to what to do if your loan application is denied in underwriting.
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