Mortgage Pre-approval Checklist: What Documents Do You Need?

Whenever you apply for a new mortgage, you’ll be required to provide the lender with what seems like an endless amount of documentation. All of this documentation helps the lender get an understanding of your financial picture, how much loan they’d be willing to lend, and which loans you qualify for. If this is your first mortgage, you may be wondering what documentations do I need for a new mortgage? We’ll be covering all of these details below, which will allow you to have a more enjoyable and streamlined experience!

What Is Preapproval?

Before you actually get the final mortgage on your home, you’ll go through the preapproval process, also known as the fact find. This is where a lender will dive deep into your financial history to ensure you’ll be able to pay back whatever loan they give you.

Getting preapproved for a home is a great benefit for you and your real estate agent, as you’ll both know which homes are within your price range and can filter your search accordingly.

Employment & Income Verification

The following documentation is necessary when you’re going through the preapproval process.

Pay Stubs

If you’re a W2 worker, you’ll need to submit recent paystubs. Not only will this confirm you are actively employed, it will also give the lender an understanding of your income. Considering the various financial ratios the lender will calculate off of your income, it’s important the lender has the most up-to-date information.

Previous 2 Years Tax Returns And W2 Or 1099

In addition to providing recent pay stubs, the lender will also ask you to submit the previous two years of tax returns. This allows the lender to get an understanding of your income over a longer period of time. Generally speaking, lenders like to see your income stay consistent, or increase, over time. You won't be blocked from getting a loan if your income took a significant paycut year over year, just be sure to provide supporting reasons or documentation as to why that happened.

P&L Statement

For business owners, you’ll need to provide a profit and loss statement, or P&L, for the trailing few years as well. This will show the lender you and your business are stable enough to take on debt, and the business isn’t on the verge of bankruptcy. It would be difficult convincing a lender to give you enough money to purchase a home if the lender is concerned your business is going to shut down due to being insolvent.

Real Estate Income

If you currently rent out all, or part of your home, don’t forget to include that in the documents. The more income you can show, the more comfortable a lender will be giving you a mortgage. More income may also make it possible to qualify for a larger mortgage as you may be able to afford a great monthly payment.

Additional Income Sources

Don’t forget about the additional income sources you may be receiving. Some of the most common sources include; child support, alimony, social security benefits, long term disability, VA benefits, or the various income you receive from retirement accounts. Again, when you are submitting your income to the lender, be sure to include all sources of income and the corresponding documentation.

Basic Financials

Of course, income isn’t the only important financial metric. Lenders will want to get an understanding of your assets, liabilities and various banking information. .

2 Months Of Bank Statements

You can expect to disclose the most recent two months of bank statements as you go through the underwriting process. This allows a lender to get an understanding of your inflows (income) and your outflows (bills). They also want to be sure the flow of money is normal and there aren't any large purchases or deposits that don’t make sense.

Credit Report

Your credit report is essentially a snapshot of your credit history with various debt lenders. The credit report will show your credit score, which is a number between 300-850. The higher the number, the better. A high score shows you are creditworthy, pay all of your bills and debt on time, and have a nice balance of credit.

A low score would suggest you have, or had, outstanding bills or debt obligations. You may have one or more accounts in collections, had a vehicle repossessed, or had assets seized. You can work on improving your credit score through various online tools, or you can consult with a credit repair professional on what course of action is best for you.

Said simply, a credit score is one metric a bank will use to determine how likely you are to pay them back. Banks want to reduce their risk as much as possible. All hope isn’t lost if you do have a low score. There are various mortgage options available for folks with a credit score as low as 580.

Debts & Expenses

Lenders need to get an understanding of all your debts and expenses to calculate your debt to income ratio, or DTI. The debt to income ratio is one of the most important financial ratios when it comes to securing a mortgage. Many lenders will not issue a mortgage to a borrower if their debt to income ratio exceeds 41%.

You can get an idea of your debt to income ratio yourself. All you need to do is add up all your monthly debt (utilities, credit card debt, student loans, cay payment, etc) and your income. If your debt is $1,000/month, and your income is $5,000/month, your DTI is 20%.

Bank Account And Routing Number

Your bank account and routing number will also be requested. Your bank account is considered an asset, and the lender will want a list of all your assets, and their value, before providing you with a mortgage. In case of default on a loan, the lender may be able to come after your assets as a way to get some of their money back.

Retirement Account Balance

Your retirement account balances, such as your 401k or IRA, should also be submitted. These accounts can have a meaningful amount of money in them and are certainly an asset you’ll want to show. Showing more income, and more assets, is always a good thing. Lenders will take comfort knowing you have assets to support and backup your request for a loan.

Down Payment Confirmation

After all that financial information is provided, it’s now time to discuss the down payment. Unless you plan on using a USDA or VA loan, you’ll need to provide a down payment. Most down payments range from 3.5% - 20%, depending on which type of loan you want to use. Before you are preapproved, banks will want to confirm you can come up with the down payment requirements.

Source Of The Down Payment

Providing your bank statements serves two main purposes. The first purpose is to give the lender an understanding of your spending habits. The second purpose is to substantiate your ability to meet the down payment requirements. Your bank statement will of course highlight your account balance. A lender wants to be sure you’re not completely wiped out of cash once you pay the down payment.

Sale Of An Existing Property

If you’re looking to use the sale of an existing property as a down payment, that’s not a problem. The lender will request a copy of the sale agreement to get an understanding of how much money you’ll net from the sale. Keep in mind, there may be contingencies. For example - if the sale does not go through, the lender will not approve the mortgage unless you have the means to comfortably cover the down payment through another fashion.

Gift Letters

If someone plans on giving you money as a way to cover the down payment on a house, you’re in luck! Your lender will request a gift letter which simply states how much money will be provided to you by way of a gift, and repayment is not an expectation or requirement. This isn’t a common practice, but it does occur. Some families choose to gift a newly married couple with funds to cover the cost of a down payment on a home.

Assistance Programs

A down payment assistance program (DAP) is a program that recognizes how challenging it can be to save enough money to cover the down payment on a home. There are various programs out there that help bridge the gap. If you can comfortably afford the monthly mortgage amount, but do not have the money saved to make a down payment, you may be able to qualify for a DAP.

Check with your state to see if they offer this program, and if you qualify. If so, the state will provide you with a low interest loan which will cover the down payment amount and closing fees.

Property Details

You’re almost done submitting all the documentation! Before the loan is 100% approved and you get the clear to close, you must submit various details on the property.

Real Estate Listing

The lender will need to know where the property is located and what the property tax estimates are. Generally speaking, providing them with the MLS listing, which discloses the full address, is sufficient. They may request a copy from the cities tax assessor that highlights the tax assessment on the property and the mil rate.

Accepted Purchase And Sale Agreement

Last but not least, you’ll need to provide the lender with a copy of the Purchase and Sale (P&S) agreement. This is the agreement between both parties after there has been a mutual acceptance of an offer. This agreement will state the final sale price and the various terms and conditions that are being requested from either party.

When Should You Gather The Documentation?

The sooner you gather this information, the better. It’s best to proactively manage every step of the home buying experience, and that starts with the mortgage process. Keeping everything neat and organized is important as it will help the lender and underwriters get through your information in a timely manner.

In a competitive market, buyers may entertain numerous offers on their home. If you want to increase the probability of buying any particular home, the sooner you can get the funding together to finalize the loan, the better. Sellers are often looking to get out of their home as quickly as possible, they may not have the time or patience to wait as one works through securing funding.

Put It All Together And Get Your House!

There are many steps involved in obtaining a mortgage. Considering how large of a loan this can be, a bank will certainly be doing their own due diligence on any mortgage applicants. Banks want to be confident the borrower can pay back their loan, as banks aren’t in the business of losing money.

All lenders will require the applicant to submit a great deal of paperwork and documentation before they issue the loan. This will include; proof of income/pay stubs, tax returns, p&l reports, disclosing the various sources of income one may have, bank statements, a credit report, an outline of all of your debt/expenses, proof of ability to meet the down payment requirements, and specific details on the property.

Once the lender receives all of this information, they will submit it to their underwriting department, which will calculate if you qualify for a loan, and if so, how much loan you qualify for.

The best way to manage the mortgage process is proactively. As soon as you make up your mind that you’re in the market to purchase a home, begin gathering all of this information to expedite the process.


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This page last updated: March 21, 2022