What to Bring for Mortgage Pre-Approval?

Mortgage pre-approval represents a conditional commitment from a lender, indicating how much money they are tentatively willing to lend for a home purchase. Obtaining pre-approval is a step in the home-buying journey, as it provides a clear understanding of one’s borrowing capacity. It also signals to real estate agents and home sellers that a buyer is serious and financially capable of making an offer.

Documentation of Income and Employment

Lenders require comprehensive documentation of income and employment to confirm a borrower’s ability to consistently make mortgage payments. Consistent income demonstrates a borrower’s capacity to meet ongoing financial obligations related to a home loan.

For individuals who receive a regular paycheck, recent pay stubs are a primary document. Lenders typically request the two to three most recent pay stubs. These documents provide insight into current earnings, deductions, and the frequency of payments. Additionally, W-2 forms from the past two years are routinely required to confirm annual income reported by employers.

Tax returns for the past two years, both personal and business if applicable, are also an important part of income verification. For those who are self-employed, lenders will delve deeper into business financials. This includes requiring profit and loss statements, balance sheets, and potentially bank statements for the business. Other income sources, such as Social Security benefits, pension payments, alimony, child support, disability benefits, bonuses, or commissions, also require official documentation to be considered in the overall income assessment.

Documentation of Assets and Savings

Lenders need to verify a borrower’s available funds to cover the down payment, closing costs, and demonstrate financial reserves. Evidence of these funds helps assure the lender of the borrower’s financial preparedness beyond just income.

Bank statements from checking and savings accounts are consistently requested, covering the last 60 days. It is important to provide all pages of these statements. Any large or unusual deposits appearing in these statements may require a detailed explanation to ensure the funds are “seasoned,” meaning they have been in the account for a sufficient period and are not a newly acquired loan or unverified gift. If a portion of the down payment is a gift from a family member, a signed gift letter from the donor, along with their bank statements, may be necessary to verify the source of funds.

Beyond traditional bank accounts, statements from investment accounts also serve as proof of assets. Lenders commonly request the two most recent statements for retirement accounts like 401(k)s and IRAs, as well as brokerage and other investment accounts. These statements confirm the existence and value of additional liquid assets that could be utilized for the home purchase or as financial reserves.

Documentation of Debts and Credit

Lenders thoroughly evaluate a borrower’s existing financial obligations and credit history to assess overall creditworthiness. The information gathered in this stage plays a significant role in establishing the terms of a potential loan.

While borrowers do not directly provide their credit report, the lender will obtain it through a hard inquiry. This report also includes the borrower’s credit score. In addition to the credit report, lenders typically require statements for all existing loans, such as auto loans, student loans, and personal loans. Credit card statements are also necessary to show current balances and minimum monthly payments.

The information from these debt statements allows the lender to calculate the debt-to-income (DTI) ratio, which measures how much of a borrower’s gross monthly income is allocated to debt payments. Lenders also review recent credit activity, as large purchases or new lines of credit opened shortly before applying for a mortgage can impact the assessment of financial stability and could affect loan terms.

Additional Required Information and the Pre-Approval Process

Beyond financial documentation, lenders require several other pieces of personal information to complete the pre-approval application. This includes a valid government-issued photo identification, such as a driver’s license or passport. The borrower’s Social Security number is also essential, as it allows the lender to access credit reports. Additionally, lenders typically ask for a residency history, detailing previous addresses for the past two years.

Once all the necessary documents and personal information have been submitted, the lender begins a comprehensive review process. Loan officers and underwriters assess the provided financial data, including income, assets, debts, and credit history, to determine the maximum loan amount for which the borrower qualifies. During this review, the lender may reach out with follow-up questions or requests for clarification if any information is unclear or additional details are needed.

Upon completion of the review, if the borrower meets the lender’s criteria, a pre-approval letter is issued. This letter is a formal document outlining the specific loan amount the borrower is conditionally approved for, the potential interest rate, and the type of loan program. The pre-approval letter typically states any conditions that must be met before final loan approval. These letters are time-sensitive, commonly valid for a period of 60 to 90 days, though some lenders may issue them for 30 days. Should the pre-approval expire before a home is purchased, the borrower will need to re-engage with the lender to provide updated financial information and potentially undergo another credit check to renew the pre-approval.