Required Documentation for a Mortgage Preapproval

Getting pre-approved is one of the most critical steps in applying for a mortgage to purchase a property or refinance. However, the lender must examine and validate your credit and financial status information before you can receive preapproval. Preparing the necessary paperwork for a mortgage preapproval will facilitate a quicker and more seamless process. 

This is a list of requirements for obtaining a preapproval letter for a mortgage.

Documents for mortgage preapproval

• Pay stubs from at least the past 30 days

• Tax returns (including W-2s) from the past two years

• Bank statements from the past two months to three months – checking, savings, money market accounts

• Employment information – contact information of employers in the past two years (some employers have an employment verification phone number lenders can call)

• Business records if self-employed

• Other income sources – bonuses, child and/or spousal support, disability or VA benefits, pension, Social Security or other sources

• Account statements from the past two months to three months – 401(k)s and/or IRAs, CDs, mutual funds, or other investment or retirement vehicles

• Down payment gift letter, if applicable

• Information on other real estate if you have multiple properties

• Loan statements from the past 60 days – auto loans, credit cards, personal loans, student loans, etc.

• Credit reports and scores retrieved by the lender with your authorization

• Rental history – contact information for landlords and proof of rent payments, such as canceled checks or paid receipts

• Driver's license, Social Security card, or other form of ID

• Recent residencies and tenure at each

Employment and Income 

Even during the preapproval process, the lender must verify your ability to repay the loan to decide whether you qualify for a mortgage. The lender will check your income and work status to accomplish this. Although it won't automatically disqualify you from a loan, lenders prefer applicants who have been employed with the same business or industry for at least two years and have consistent income. 

Before any borrower can sign the loan, they must provide the following information: 

• Pay stubs from the previous 30 days or more 

• Tax returns from the last two years, including W-2s 

• Bank statements covering checking, savings, and money market accounts from the last two to three months 

• Employment information: contact details of employers from the previous two years (some employers have a phone number that lenders can call for employment verification) 

• Business documents if you work for yourself 

• Additional sources of income: bonuses, spousal and/or child support, pensions, disability or VA benefits, Social Security, and other sources

Assets 

To confirm that you have sufficient money to finish the house purchase and to find out where those funds are coming from, the lender will also ask to see copies of your asset statements. Among the assets a lender may request are the following: 

• Account statements for 401(k)s, IRAs, CDs, mutual funds, and other investment or retirement vehicles from the previous two to three months

• Letter of gift payment down payment, if any

• Details about your other properties, if you own more than one

Debts 

To determine your debt-to-income ratio or DTI, lenders must be aware of your debts. The amount you can borrow and your eligibility for a mortgage are both heavily influenced by this ratio. Your interest rate is determined in part by your DTI. In evaluating your debt, lenders will request: 

• Loan statements covering credit cards, auto loans, personal loans, student loans, and other loans from the previous sixty days

Credit History

Your creditworthiness is established by your credit history, which forms the basis of the mortgage preapproval procedure. Lenders seek proof that you can make your mortgage payments on time and in full. Red flags on your application could include missed payments, bankruptcies, delinquent accounts referred to collection agencies, and late payments.

Lenders also consider the quantity and variety of open credit accounts to assess your risk level. Candidates with a track record of successfully managing various credit types are preferred.

Documents about credit history that may be needed for a home loan include:

• Credit reports and scores that the lender has obtained with your consent 

• Rental history: landlord contact details and documentation of rent payments, such as paid invoices or canceled checks

Identification

You must present identification before a lender will pre-approve you for a mortgage. This could consist of: 

• Identification such as a driver's license or Social Security card 

• Current addresses and length of stay at each 

Additional documents needed for particular circumstances

For a home loan preapproval, borrowers with exceptional circumstances or those looking for a particular loan might need to submit extra paperwork. These circumstances could consist of: 

• Already own a home? The lender will need more information if you already own a home. These comprise the property's monthly costs, value, occupancy status, and intended use. In addition, details regarding your existing mortgage will be required, such as the name and account number of the lender, the type of loan, the amount of the monthly payment, the outstanding balance, and the credit limit.

• Self-employed: Lenders may request a profit and loss statement, a business license, and other evidence of consistent income in addition to bank statements and copies of tax returns.

• Using veterans benefits: Borrowers must present a Certificate of Eligibility (COE) and proof of identity to qualify for VA loans. A Certificate of Eligibility (COE) from the US Department of Veterans Affairs verifies your VA home loan funding eligibility.

FAQs Regarding Mortgage Preapproval

How long does it take to get pre-approved?

Many mortgage lenders can provide you with a preapproval on the same day, or at most in a few days, provided you have all the necessary paperwork and are qualified for the loan.

How long does it take to get pre-approved?

Usually, a mortgage preapproval has a 90-day expiration date. While some lenders have longer windows of up to 120 days, others have shorter ones of 30 or 60 days. This usually corresponds with your rate-lock period if you lock in your mortgage interest rate. As long as your credit and financial situation have stayed the same since you were first pre-approved, you can quickly obtain another preapproval if you have yet to find a house in that time.

How does a preapproval affect my credit?

Due to the mortgage lender's review of your credit report, you may see a slight decrease in your credit score when pre-approved. This decline is only transient. Getting preapproval from multiple lenders within 45 days can help you minimize the effect on your credit score.

What is preapproval vs. prequalification?

Based on your essential information, a mortgage prequalification can help determine how much you can afford to buy a house. It may or may not involve a credit pull. When you offer a home, a prequalification is useless because it doesn't mean the lender is willing to finance you. In contrast, a preapproval indicates that the lender has assessed your financial situation and will grant you a loan up to a specific amount. Preapproval, however, does not imply a binding agreement. The loan will be cleared to close once the home appraises and the lender completes underwriting satisfactorily.

Why do you need a preapproval?

A preapproval letter from a mortgage lender must accompany your offer on a property to demonstrate to the seller that you are a serious buyer with financing. When applying for a loan, having a preapproval formally helps you save time because most of the paperwork has already been completed. For this reason, you should only obtain preapproval from the lender or lenders you wish to work with.

How can borrowers improve their chances of getting pre-approved for a mortgage?

You can increase your chances of receiving preapproval by checking your credit report for any errors that could lower your score, such as incorrect contact information or paid accounts that still need to be updated. If necessary, you can also take action to raise your credit score. While timely bill payment is crucial, consider your credit utilization and the kinds of loans you have. You can also reduce your debt to decrease your debt-to-income ratio. Finally, while waiting to be pre-approved, refrain from making significant purchases or opening new credit lines.