- Why getting preapproved is so important.
- What do mortgage lenders want to know about you?
- What documents you need?
- FAQ: Frequently Asked Questions
Why getting preapproved is so important?
It’s important to understand there is a difference between preapproval and prequalification. When you apply for a loan, you will go through the preapproval process. This means your claims about income, assets, and debt are verified and your credit is pulled. The broker will determine if you can obtain a loan and the amount for which you are pre-approved.
Prequalification does not require verification of any of your financial information. The information you offer is taken at face value and assumed to be accurate, and then you are told an amount for which you might qualify. Preapproval does require verification, so it carries more weight.
A preapproval letter tells realtors and sellers whether you can afford to buy the house for which you’re making an offer. It also lets them know you won’t have problems finding a lender when you decide to purchase. This is especially important in a seller’s market when houses are moving quickly, and bidding wars are common.
Ideally, you should apply for a loan and get preapproved before you start looking at homes.
What do mortgage lenders want to know about you?
What documents do you need for the preapproval process?
In order to be preapproved, the mortgage broker will need to verify the financial information you offer. You need to give the following documentation and information.
Income Information and Documentation
Income Information needed for all borrowers listed on application
- W-2 forms (two years’ worth)
- Copies of two most recent paystubs (last 30 days)
- Self-employment requires year-to-date profit and loss statement (two years’ worth), Form 1099s used for income reporting and taxes. Must be self-employed for two full years.
- Alimony and Child Support
- Real estate income documentation includes rental income, address, lease, and current market value of rental property if using this to quality for a mortgage
- Most recent months’ bank statements (60 days/2 months) complete statement/all pages.
- This includes any source of funds you’re using as assets for this loan (e.g., savings, checking, money market, mutual funds, stocks, bonds, retirement, gifts, trust, net equity)
- List any property you own free and clear, and the taxes and insurance associated with this property.
Your credit report will provide most of the information needed about your debt. Share any debt that isn’t likely to be on your credit report.
- A loan from your employer that may show up on your pay stub.
- Personal loans or any documented outside loans
- Any kind of loan that has a lien against the property
- Real Estate Debt: If you currently have a mortgage, share the most recent mortgage statement.
Other Records and Information:
- Renters: If your credit is below 640, you may need to show payments for the last 12 months, contact information for landlord for the past two years
- Divorce: Be prepared to share any documentation relating to child support and alimony payments. This includes ALL pages of divorce decree. If you don’t have the divorce decree in PDF file, you can get it from your attorney.
- Bankruptcy and foreclosure: All pages of bankruptcy or foreclosure documents, even the blank pages.
- Copy of valid ID
- Social Security Number
Is applying for a loan different than applying for preapproval?
The preapproval process is part of the loan application process. When you first complete the application for a loan and submit the required documents, the broker will verify your information and give you a letter that states if you’re approved and for how much. This is an important part of the home buying process.
When you have that letter in hand, you and your realtor start looking at homes. After you sign a contract on a home, immediately contact your broker and send a copy of the signed contract. This will get the ball moving on the mortgage loan process. Note: If you’ve given all the necessary documents to your broker when you first completed the loan application, it will help avoid delays.
Does preapproval guarantee that I have a loan?
A preapproval letter is the closest thing you can get to a guarantee, but nothing is finalized until the entire mortgage loan process is complete and the lender’s underwriter sign’s off on your file and you are clear to close.