Getting a mortgage pre-approval is the first step a home buyer should take before getting setup for a home search.  While a home buyer can start the conversation with a real estate agent to get a few lender names to talk to, having a home search setup before pre-approval can result in disappointment since they may not be looking in the price range they are ultimately approved for.  In this article home buyers can learn what documents they will need as part of the pre-approval application process so they can save time when applying for one.  Check the link below for a handy PDF checklist you can download and print to help keep track of documents you need for the mortgage application process.

The Application Process

Most pre-approval applications are started online and require the home buyer to enter information such as their name, current address, date of birth, social security number, job information, current rent/mortgage amount and more.  All this information is used by the lender to provide the pre-approval letter and then ultimately allow the buyer to proceed with closing on a home.  A pre-approval letter is not a one hundred percent guarantee that the home buyer will be able to get approved on the loan for a home they made an offer on.  The buyer still must maintain their employment, maintain their credit in the current (or better) state, and the house they want to buy also must meet lender criteria.

The home buyer should strive to fill out the online application to the best of their ability and knowledge.  Fudging numbers or other details will not help!  Upon completion of the mortgage application by the home buyer a credit report will be run to help verify the information provided by the home buyer.  Other information such as employment verification, tax returns, bank account statements and more will need to be assist the lender in verifying the financial outlook of the buyer.

What Docs Are Needed?

Having these documents ready ahead of time will save a lot of time with the overall mortgage process. Most home sellers will not accept an offer on a home without a pre-approval letter attached.  Not only during the pre-approval process but also when it comes time to close on the home purchase.  These documents will be reviewed again, and updated versions will be needed.

Identification Documents

Identification documents such as driver’s license, passport, and social security card will all be needed as part of the application process.  When it comes to closing day the closing agent will be checking everyone’s ID to make sure whoever is required to be signing on the mortgage, purchase and sale documents is who they say they are.

Tax Returns

Last two years tax returns will be required to be provided to show the lender the total income that is being reported to the IRS.  For self-employed individuals not only the tax returns but also all schedules filed with the tax return.

For those self-employed individuals who may have an LLC, S-Corp, Partnership or some other entity through which they file their taxes then the business tax returns will need to be provided.

W2 Forms

If you work for an employer who pays wages (hourly or salary) and issues a W2 the lender will want to see last two months W2 forms.

1099 Forms

Certain independent contractors, investors, landlords, and some partnerships provide a 1099 form when they pay out income, dividends, interest or capital gains.  If the amount is large enough and you want it to be counted towards total income when applying for a mortgage, then the 1099s need to also be submitted to the mortgage lender.  Lenders will typically ask for the 1099 if it is also noted on the 1040 Federal Return form.

Pay Stubs

For the wage earners the last two pay stubs are a requirement for the pre-approval letter and more recent pay stubs will have to be submitted again as one gets closer to the closing process on their new home.  Mortgage lenders want to see how much the home buyer is actually making and what deductions are on their paystubs.  401(k) loans that are paid back via the payroll and other garnishments (and which can be reported on the paystub) can have an impact on the amount a home buyer will pre-approved for.

Bank Statements

Mortgage lenders will want to see all bank statements to see where cash deposits are coming from and what money is going out.  Bank statements confirm that the income being stated is what is coming in to the bank and how much is going out towards debt payments.  Sometimes the credit report may not be that up to date and the bank statements can let lenders know about additional debts to make sure the debt to income ratio is calculated properly.  All of this is done for the benefit of the borrower.  The last thing a borrower should want is to be approved for more than they can afford or to be approved for a lower amount than that want (and can afford).  Living in a house of your own is great, overpaying for a house and having to overpay for it on a monthly basis is a sure way towards financial pain in the future.

Investment Account Statements

Statements for 401(k) accounts and any other retirement and/or investment accounts should be provided to help document assets.

Profit & Loss Statements

Some business owners may generate profit/loss statements and those also will be needed by the lender to determine business income.  Some investment property owners also maintain profit/loss statements as part of their investment paperwork and these may also be requested by the lender.

Rental and/or Mortgage History

For renters the mortgage lender may ask for proof of rental payments in the form of cancelled checks or bank statements that show the rent payments being paid.  For those who own a home while the credit report will verify the mortgage status the lender can ask for documentation regarding the existing mortgage including receipts of mortgage payments, escrow statements (tax and insurance), HOA payments and more.

Debt Statements

Debt statements for student loans, auto loans, personal loans or other debts should also be ready at hand.  If there are any tax liens or other liens on the buyers current home those may be asked for.  The mortgage lender can also ask for credit card statements. If you had a foreclosure in the last seven years the lender will ask for documentation about that.

Final Thoughts

Being ready ahead of time with all the documents will save a lot of time as the mortgage pre-approval and the closing process will not be done without these documents.  Home buyers need to be starting with the mortgage application process first before anything in order to have that pre-approval letter in hand.  Feel free to download the handy checklist that you can print and keep track of your own progress at collecting documents.