Being pre-approved for a mortgage is a recommended first step that helps simplify and streamline the home-buying process. It provides a letter or statement from a lender that shows what type of loan you qualify for, the interest rate, and the amount. This allows you to shop with confidence and provides distinct advantages when making offers on potential homes, as it lets sellers know that you already have a reviewed mortgage application that remains valid for up to 90 days. Among other criteria, the pre-approval process depends on factors such as your credit score, financial profile and history, identity and employment verification.
To go through the mortgage pre-approval process, you will need to gather and present a number of documents to your lender. These documents may include:
1. Personal Identification
Personal identification helps lenders prove your identity to counter fraud. You will need to present ID that is government-issued or state-issued. This may include:
- Driver’s license or ID card
- Social Security card, or individual taxpayer identification number (ITIN)
- Valid passport or U.S. alien registration card
2. Proof of Income
Proof of income helps the lender determine your ability to support the financial obligations associated with paying back the mortgage. You're required to provide documents dating back to about two years, but the specific ones depend on your source of income.
If you’re employed, you’ll need:
- W-2 forms for the last two years
- Pay stubs from the last 30 days and the latest end-of-year pay stub if you have bonuses or overtime.
- The last two bank statements
- Income tax returns for the previous two years
If you’re a freelancer or an independent contractor:
- Business and personal tax returns for the last two years and IRS Form 4506-T
- Copy of valid state or business licenses, where applicable
- A balance sheet and profit-and-loss statement
- Statements of your asset account
- Any extra income, such as disability
If you’re a landlord or investor:
- Documentation showing rent payments from tenants
- Current lease agreement showing the rent amount
3. Proof of Assets
Lenders use these documents to prove that you have enough funds for closing costs and down payment charges. You’ll need:
- The last two statements from investment and retirement accounts
- Bank statements over two months for the asset accounts you intend to use to apply for the loan
4. Credit Verification
Lenders have to check your credit score and credit reports to assess credit-worthiness, as well as help determine the interest rates for which you qualify. You don't have to present these documents physically, but the lender will seek your consent to check them.
Include an explanation letter if you have negative aspects on your credit report, such as late payments.
5. Employment Verification
Besides your pay stubs, lenders may also need to verify your employment status and salary amount. You’ll need to present your current or previous employer’s contact information.
If you’re self-employed, you’ll need to demonstrate your income stability and the business’s financial strength, nature of your business, and location.
6. Debt Statements
Lenders use your debt-to-income ratio (DTI) to assess your ability to take on additional debt. You'll need to list your fixed debts, including:
- Rent, mortgage, home insurance, and Homeowners Association fees (HOAs)
- Car loans, student loans, and personal loans
- Credit cards and tax liens
- Medical bills
Have the lender's name, contact details, outstanding balance, and minimum monthly payments for each debt listed.
7. Other Documents
Lenders may also ask for:
- Rent payment history for the last 12 months, referees, and landlord’s contact details
- Court order or divorce decree to show alimony or child support
- Recently filed foreclosure, bankruptcy, and discharge papers
- A gift letter if you’ll use gift funds.
- For noncitizens, an ID and immigration status
- Signed copy of the purchase and sale agreement, including the purchase price
- Alternative data if you have a thin credit file such as utility payment history
In today's competitive market conditions, getting pre-approved is considered a necessary first step in the process of looking for and qualifying for your dream home. While the rigors of the process and the number of documents required can be daunting, having an experienced, caring Mortgage Advisor can make a huge difference in simplifying the process. Call or visit one of Jersey Mortgage's offices today to schedule a free no-obligation consultation to take the first step.