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Troy Segal is a senior editor for Bankrate. She edits stories about mortgages and home equity, along with the finer financial points of owning and maintaining a home.
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Jeffrey L. Beal, president of Real Estate Solutions, has 40 years' experience in multiple phases of the real estate industry.
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Whether buying or refinancing a home, getting preapproved is a crucial step in the process of applying for a mortgage. Before you are preapproved, though, the lender will need to review and verify information about your credit and financial situation. Being prepared with the documents needed for mortgage preapproval will help make the process go more smoothly and quickly.
| Pay stubs from at least the past 30 days |
| Tax returns (including W-2s) from the past two years |
| Bank statements from the past two months to three months – checking, savings, money market accounts |
| Employment information – contact information of employers in the past two years (some employers have an employment verification phone number lenders can call) |
| Business records if self-employed |
| Other income sources – bonuses, child and/or spousal support, disability or VA benefits, pension, Social Security or other sources |
| Account statements from the past two months to three months – 401(k)s and/or IRAs, CDs, mutual funds or other investment or retirement vehicles |
| Down payment gift letter, if applicable |
| Information on other real estate if you have multiple properties |
| Loan statements from the past 60 days – auto loans, credit cards, personal loans, student loans and others |
| Credit reports and scores, retrieved by the lender with your authorization |
| Rental history – contact information for landlords and proof of rent payments, such as canceled checks or paid receipts |
| Driver’s license, Social Security card or other form of ID |
| Recent residence addresses and tenure at each |
To determine whether you qualify for a mortgage, the lender must confirm your ability to repay the loan, even though you’re just seeking preapproval. To do so, the lender will verify your employment status and income. Lenders look for an applicant to have been employed with the same company or in the same industry for at least two years, with consistent income; however, if you changed jobs in the last two years, that won’t necessarily disqualify you from a loan.
The following information is needed for all borrowers signing the loan:
The lender will also request copies of your asset statements to ensure that you have enough funds to complete the home purchase and to verify the source of those funds. Some examples of assets a lender might ask for include:
Lenders need to know about your debts to calculate your debt-to-income ratio, or DTI. This ratio is a key factor in determining your eligibility for a mortgage and the amount you can borrow. DTI is also an important factor in calculating your loan’s interest rate. To assess your debt, lenders will ask for loan statements from the past 60 days. They can include obligations relating to:
Your credit history is the foundation of mortgage preapproval because it determines your creditworthiness. Lenders are primarily looking for evidence that you can make your monthly payments on time and in full. Late payments, missed payments, bankruptcies and delinquent accounts referred to collection agencies could be red flags on your application.
Lenders also determine your risk level by analyzing the variety and number of credit accounts you have open. They prefer applicants with a proven track record of managing different types of credit.
The credit history documents required for a home loan might include:
Before a lender can preapprove you for a mortgage, you’ll need to provide forms of identification. This might include:
Borrowers in special circumstances, or those seeking to get a unique type of loan, may need to provide additional documentation for a home loan preapproval. These situations might include:
When you make an offer on a home, including a preapproval letter from a mortgage lender shows the seller you’re a legitimate buyer with financing. In fact, some sellers demand prospective buyers have preapproval to be considered. A preapproval also helps save time when you’re ready to formally apply for the mortgage (assuming you’re using the same lender) because it includes much of the same documentation and information required by the underwriters.
If you’re prepared with all of your documents and eligible for the loan, many mortgage lenders can issue a same-day preapproval, or at most within a few days.
A mortgage preapproval typically expires after 90 days. Some lenders have shorter windows of 30 days or 60 days, and others longer, up to 120 days. If you chose to lock in your mortgage interest rate, this usually aligns with your rate-lock period. If you haven’t found a home within that time frame, it’s possible to easily get a new preapproval, provided your credit and financial picture hasn’t changed. Still, you might have to update your paperwork if too much time goes by.
Your credit score could drop slightly when you get preapproved because the mortgage lender checks your credit report. This decrease is only temporary. If you’re obtaining preapprovals from more than one lender, you can limit the impact on your score by getting them all within a 45-day window.
You can improve your chances of being preapproved by reviewing your credit report for any errors that might lower your score, such as incorrect contact information or paid accounts that haven’t been updated as such. You can also take steps to improve your credit score if needed. Paying bills on time is important, but you might also want to look at your credit utilization and the types of loans you have. You can also take steps to reduce your debt to lower your debt-to-income ratio. Avoid making any large purchases or opening new lines of credit while in the process of getting preapproved. Lastly, be sure to submit all documents requested in a timely manner, and simultaneously if possible.
Arrow Right Senior editor, Home Lending
Troy Segal is a senior editor for Bankrate. She edits stories about mortgages and home equity, along with the finer financial points of owning and maintaining a home.
