The process of getting preapproved for a home mortgage loan involves the gathering of documents related to your income, assets, and other financial history information. While many of the documents can be collected and filed electronically, lenders require more information than ever to verify the home loan's risk factors.
Since the national housing issues in the 2000's, mortgage institutions have increased the qualification threshold to ensure home buyers are in a position to repay the loan. The requested documents are ways that lenders can evaluate the risk of you defaulting. Gathering and organizing the documents you need to get preapproved for a mortgage ahead of time will expedite the process and get you into your new home sooner.
The list of documents you will need for a mortgage pre-approval can vary depending on your unique circumstances and the lender’s specific requirements. You must communicate with the lender to determine exactly what will be needed. Start gathering the items you will need before the application process starts so you will be ready with the documents when you need them.
Mortgage Application Information
Much of the information you will need to provide for a mortgage application will be gathered when you request a mortgage pre-approval. Your lender will typically need additional information once you have found a home and agreed on a selling price with the seller. The Uniform Residential Loan Application collects data about all parties involved in the sale, the home being sold, details of your financial status and history, and much more.
Income and Employment
Lenders want to know that you have stable employment with a steady, secure income flow. You will need to prove there is and will be enough money coming in to pay your bills and make monthly mortgage payments. The following documents are used to show your lender you can afford the home you are looking to purchase.
W-2 Tax Forms From Current, Former Employers
Your tax forms break down for lenders your recent income history. Mortgage lending institutions will typically request each applicant’s W-2 forms from the past two years to verify your employment and prove your recent income history. You can obtain prior W-2 tax forms from your employer or by requesting copies from the IRS. You may need to offer a written explanation of any recent gaps in employment.
Lenders will refer to tax returns from the last few years for verification of your income and any claimed deductions. The lender may request that you provide a singed From 4506-T allowing them to directly access your tax documents from the IRS.
While tax returns and documents show your employment history, recent pay stubs will show current earnings. Your employer may need to sign pay stubs from the last month to verify authenticity. Documentation for additional income from overtime, commissions, or bonuses must also be presented to your lender.
More people every year are breaking away from traditional employment paradigms and going into business for themselves instead of working for others. The documents you need and the process for filing them may be different if you are self-employed. You may be required to supply additional documentation for mortgage pre-approval certification, including a profit-and-loss statement, balance sheets, or your federal tax documents from the previous few years.
Assets and Debts
Your debt-to-income ratio is a key indicator for lenders to determine mortgage preapproval status. You must list all outstanding debts such as credit card balances, existing mortgages, and car, and student loans, as well as documentation for assets and investment accounts.
Mortgage pre-approval documents must also include bank statements from the past three months. Your lender will need access to savings balances and the source of the funds for the down payment. Bank statements can be delivered electronically or through the mail. Your lenders will likely request further documentation to verify where any additional large deposits originated.
Retirement, Brokerage or Investment Accounts
Statements from any investment accounts listed on the mortgage application will also be requested, including company 401(K), stock investments, individual retirement accounts, and certificates of deposit.
Some lending institutions allow borrowers to use gifted money applied toward the down payment. If you are using funds gifted to you by a friend or relative, the lender will need signed gift forms verifying the funds provided are a gift and not to be repaid to the buyer. Those gifting the funds may also need to submit financial records showing where the gifted money came from.
Your credit rating is a major factor in the decision-making process for home mortgage lenders and can impact your loan interest rate. Your lender will need to get your permission to check your credit history and access your credit score. You may be asked to explain in writing late payments, collection efforts, and other negative marks in your credit history. The higher your credit rating, the lower the interest rate your lender can offer.
Improving your credit rating takes time and effort, but it can improve your chances of getting preapproved for a home loan with reasonable terms. Paying off debt and generating more income are ways to give your credit score a needed boost.
There may be additional financial documents your lender will need to complete your mortgage pre-approval request, including:
- Rent receipts from the past year.
- Divorce settlement documents detailing alimony or child support payments.
- Prior bankruptcy or foreclosure documents.
- Residency, immigration status for non-citizens.
Get Prepared for Your Mortgage Preapproval Process at SimpleShowing
The actions you take and the decisions you make while preparing to purchase a home can have financial implications for years to come.
At SimpleShowing, a team of experienced realty professionals can properly prepare you for the complicated and confusing process of getting approved for a home loan and connect you with a proven mortgage lender who will make the process easy and fast. For complete information on what to expect and what documents you need for a mortgage preapproval, contact SimpleShowing and get started today.