What Documents Are Needed for a Mortgage Preapproval?

What Documents Are Needed for a Mortgage Preapproval?

When you're going through the mortgage preapproval process, the lender will request documentation to substantiate your income, debts, assets and down payment amount. Below is a checklist of documents you'll likely need to provide.

Identification

You'll need a government-issued ID, such as a driver's license or passport, along with your Social Security card.

Proof of Income

The lender will want to see evidence to back up your earnings. It's a good idea to gather the following:

• Your last eight weeks' worth of pay stubs
• Two years of tax returns
• W-2 or 1099 forms

Credit Report

Your mortgage lender will review your credit history and credit score when considering your preapproval application. The stronger your credit, the more likely you'll be to qualify for a competitive interest rate on your home loan. Different types of mortgages also have minimum credit score requirements, and eligibility criteria can vary from one lender to the next.

You won't have to provide an actual copy of your credit report, but you'll need to consent to a credit check. That will result in a hard inquiry on your credit file, which can knock a few points off your credit score. The inquiry will stay on your credit report for up to two years but will only affect your FICO^® Score^☉ for up to 12 months.

It's a good idea to review your credit reports and scores with all three national consumer credit bureaus (Experian, TransUnion and Equifax) before getting preapproved. That way, you can take steps to improve your credit if need be. You can do this at no charge via AnnualCreditReport.com. You can also get your FICO^® Score and credit report for free anytime from Experian.

Learn more: Do Multiple Loan Inquiries Affect Your Credit Score?

Proof of Assets

Your financial accounts are assets the lender will consider when processing your preapproval request. You'll likely be asked to provide account summaries for any:

• Checking and savings accounts
• Regular brokerage accounts
• Retirement accounts like 401(k)s and individual retirement accounts (IRAs)
• Certificate of deposit (CD) accounts

List of Debts

When seeking a mortgage preapproval, the lender will take a close look at your debt-to-income ratio (DTI). This shows how much of your gross monthly income is going toward debt payments. Every lender is different, but most prefer a DTI below 43%. Anything higher than that could create a roadblock that affects your eligibility or loan options.

That said, you'll want to provide your lender with a list of your outstanding debts. That may include:

• Credit cards
• Auto loans
• Student loans
• Personal loans
• Medical debts
• Home equity loans or lines of credit connected to other properties

List of Expenses

Beyond your debts, your current expenses also show the mortgage lender where your money is going each month. What they're ultimately trying to determine is if you can afford a new home loan. Be prepared to disclose financial obligations, such as:

• Your current rent or mortgage payment
• Utilities
• Cellphone bills
• Memberships and subscriptions
• Any other recurring expenses
• Large unsubstantiated expenses on your bank statements

Proof of Rental History

Having a history of on-time rent payments can help demonstrate that you're responsible with your money, which could make it easier to get preapproved for a mortgage. This may be especially true for first-time homebuyers who've never had a home loan before.

On the flip side, previous evictions could spell trouble—especially if any unpaid rent or bills were sent to collections, which will appear on your credit report and negatively impact your credit score.

Most likely, you'll need to verify that you've consistently paid your rent on time over the last 12 months. Your lender may simply look at your bank statements to confirm the transactions. But in some cases, you might need to provide contact information for your previous landlords.

Learn more: Is My Rental History on My Credit Report?

Gift Letters

If any portion of your down payment is being gifted to you, you'll need to submit a mortgage gift letter. You'll use this legal document to verify that this was a gift—not a loan. (If it is a loan, it will count as a new debt that's factored into your DTI.)

You may need to provide a gift letter if the gift amount exceeds 50% of your total household monthly income. You and your donor will also need to sign the letter, which should include:

• The gift amount and when you received it
• Who gifted it to you
• Clarification that the money is a gift, not a loan
• Your relationship to the donor
• The donor's name, contact information and bank account information
• The address of the home you want to purchase

Other Documents Needed for a Mortgage Preapproval

There are a few special circumstances that may require more (or less) documentation for preapproval. Knowing about them beforehand can help streamline the process.

Self-Employment Documents

If you're self-employed, you'll probably have to take a few extra steps to verify your income. Your lender will likely request:

• A year-to-date profit and loss statement
• A list of outstanding invoices for which you expect to be paid
• Business bank statements
• Your business license
• Business insurance documents

Existing Home Ownership

If you already own another home, be prepared to provide the following information to your mortgage lender:

• Address
• Property value and status
• Whether that home is your primary residence, a second home or an investment property
• Monthly property expenses

If you have a mortgage on that property, you'll also need to provide the lender's contact information, your account number, the type of loan you have, your monthly payment amount and the unpaid balance on the loan.

Documents for Non-Qualified Mortgages

These types of unconventional home loans don't adhere to the same consumer protections as traditional mortgages. They typically offer longer loan terms and require less documentation. They may also allow for a higher DTI and have looser credit requirements.

They may be attractive to self-employed homebuyers who are having trouble verifying their income. The same goes for borrowers who've had recent credit issues.

However, non-qualified mortgages generally have higher interest rates and fees. The preapproval process will depend on the lender.

How to Get Preapproved for a Mortgage Faster

You can speed up the preapproval process by having your documents organized ahead of time. Creating a digital folder can make it easier to upload your documents quickly. Just be ready to explain any potential red flags that may come up. That can include everything from inconsistent income to credit issues to large, unexplained withdrawals from your bank account. Anticipating questions from your lender can help prevent delays in the preapproval process.

Frequently Asked Questions

The Bottom Line

Getting preapproved for a mortgage is often the first step to making a successful offer on a home. It can show sellers that you've got your financial ducks in a row and are ready to move forward with financing. Just be aware that you'll still need to submit a formal mortgage application when the time comes.