What Documents Are Needed to Prequalify for a Mortgage?

Mortgage prequalification is an initial step in the home-buying process. It offers prospective borrowers a preliminary assessment of their financial standing and potential borrowing capacity. This evaluation helps individuals understand an estimated loan amount they might qualify for, providing a realistic budget before seriously searching for a home. Prequalification helps streamline the initial stages of the housing search by giving a general idea of what a lender might offer.

Proof of Income

Lenders require documentation of income to assess a borrower’s ability to consistently make mortgage payments. For employed individuals, recent pay stubs from the last 30 to 60 days are requested to verify current wages. Lenders also ask for W-2 forms from the past two years, which provide a record of annual income. If income includes overtime, bonuses, or commissions, year-end pay stubs from the past two years may be necessary to demonstrate consistency.

Self-employed individuals and independent contractors need to provide personal and business tax returns from the past two years, including all schedules, to show consistent income history. Lenders may also request current profit and loss statements to assess the business’s financial health. Some lenders might ask for business bank statements or authorization to access tax records directly.

Other income sources, such as Social Security, pension, alimony, or child support, also require specific documentation. For Social Security or pension income, borrowers need to provide award letters or statements, along with bank statements showing regular deposits. If child support or alimony is considered, court orders and proof of consistent deposits are required. Lenders require that non-salary income demonstrates a likelihood of continuing for at least three years to be factored into qualifying income.

Proof of Assets

Lenders examine a borrower’s assets to confirm sufficient funds for a down payment, closing costs, and financial reserves. This demonstrates financial stability and the capacity to handle upfront expenses. Common documents requested are bank statements from checking and savings accounts, usually covering the most recent two to three months to show available funds and consistent cash flow.

These statements help verify that funds for the down payment and closing costs are “sourced and seasoned,” meaning their origin is acceptable and they have been in the account for a sufficient period. Large, unexplained deposits might raise questions, and lenders may require documentation to clarify their source. Statements for investment accounts, such as brokerage accounts, 401(k)s, and IRAs, may also be requested if these funds are intended for the down payment or financial reserves. If gift funds are used for a down payment, a gift letter from the donor confirming the money is not a loan may be needed.

Credit and Debt Information

Credit history and existing debts are important factors in the prequalification process, as they help lenders evaluate a borrower’s financial obligations and risk. Lenders typically pull a credit report to review credit history, credit scores, and outstanding debts. This process usually involves a “soft inquiry” for prequalification, which does not negatively impact the credit score. The credit report provides insights into past payment behavior and overall creditworthiness.

Borrowers should be prepared to discuss information about their major debts, including credit card balances, auto loans, student loans, and other significant monthly payments. This information is used to calculate the debt-to-income (DTI) ratio, which compares monthly debt payments to gross monthly income. A lower DTI ratio, ideally below 36%, indicates a greater capacity to manage additional mortgage payments. Lenders use the DTI ratio to determine the maximum loan amount a borrower can afford.

Other Supporting Information

Lenders often require additional documentation for identity verification and to confirm various aspects of a borrower’s background. A government-issued identification, such as a driver’s license or passport, is required to verify identity and prevent fraud. Lenders also use a Social Security number for credit pulls and identity confirmation.

Proof of residency, such as utility bills, may be requested to confirm a borrower’s current address. If a borrower is currently renting, some lenders might ask for basic information on rental payments or landlord contact information to assess payment history. Lenders typically look for a stable employment history, often seeking at least two years of consistent work in the same or a related field. Information about past employers and positions may be needed to establish this two-year history.

Understanding the Prequalification Process

Mortgage prequalification is an informal assessment based on the financial information a borrower provides. It often results in a preliminary estimate of borrowing capacity. This quick review relies on self-reported or lightly verified information to give an early indication of what a borrower might afford. This initial step helps individuals gauge their affordability and establish a realistic budget for their home search.

Prequalification is not a loan commitment or a guarantee of financing. It is a non-binding estimate that does not involve a full credit check or a comprehensive underwriting process. After prequalification, the next step is often pre-approval, which involves a more thorough verification of financial details and a “hard pull” of the credit report.