So you are ready to purchase your dream home. And with that comes the process of getting a mortgage. Your first step should be to get a mortgage pre-approval. A mortgage pre-approval is a lender’s conditional approval stating how much the lender is willing to loan you to purchase a home. This is an important part of the process that you should be familiar with.
Although obtaining a mortgage pre-approval is not difficult, there are a few considerations that you should take into account. This article will first define a mortgage pre-approval and then go over the documents required to obtain one; this is typically done prior to submitting the Mortgage Loan Application.
Table of Contents
What is a Mortgage Pre-Approval?
A mortgage pre-approval is a type of mortgage document that allows you, the home buyer, to know what types of mortgage loans you qualify for. The pre-approval shows that you have enough income to qualify for mortgage financing through an approved lender. At this point, the lender will check your financial details and credit. If approved, the lender provides you with the mortgage terms, including the repayment period and interest rate.
A lender’s mortgage pre-approval is not a guarantee that you will be approved for a mortgage. When submitting the mortgage loan application, the lender will conduct another review to see if your financial situation has changed since the pre-approval was issued. But you may be wondering why you should get a pre-approval? Bear with me because I am going to explain why.
How Does Getting a Pre-Approval Letter Help You?
Although getting a mortgage pre-approval does not guarantee you will get a loan, it helps you in various ways. Here are the details:
- A solid pre-approval letter sent with a purchase offer gives the seller more confidence in your ability to get a mortgage and shows that you are a legitimate buyer.
- It informs you if you are qualified for a mortgage and for how much .
- It provides an estimate of your total housing payment.
- Because much of the information-gathering has already been done, a pre-approval also saves time when you want to submit the formal mortgage application.
Now that you know what a mortgage pre-approval is and why it is essential, let’s move on to the main part of this article: the mortgage pre-approval documents.
What are the Required Mortgage Pre-Approval Documents?
You must submit a loan application and supporting documents for the loan officer or underwriter to review prior to receiving a pre-approval letter. Making sure you have all the necessary mortgage pre-approval documents on hand helps the process go quickly and smoothly. Here is a list of the documents required to obtain a mortgage pre-approval:
Identification
The lender will need documentation to confirm your identity. You should provide your social security number and a form of identification, such as your driver’s license or passport.
Income
You must also show proof of income. Documents for proving your income vary depending on how you get paid. If you are a wage earner, you must submit pay stubs from at least the past 30 days. The lender will also need copies of your W-2 statements from the past two years. If self-employed, you should provide a year-to-date P&L Statement (Profit and Loss Statement) and your last two years’ tax returns.
Assets
Statements from your bank and investment accounts prove your ability to cover the necessary down payment, closing costs, and your cash reserves. The lender will require the last two or three months worth of statements for each bank you use.
Debts
To determine your Debt-to-Income ratio (DTI), lenders look at your monthly debt payments, such as credit cards, mortgages, car loans, and school loans. Remember to include your creditor’s name and contact details, the total amount owed, and the minimum monthly payment needed when submitting your list of debts.
Your DTI does not take your monthly variable spending into account. This Includes utilities, groceries, entertainment, and transportation costs.
Other
In addition to the above mortgage pre-approval documents, depending on your situation, you may need some others. For example:
- A Letter of explanation for any employment gaps or a change in career.
- Any late payments, judgments, or bankruptcies on your credit report.
- Lease agreements if you own rental properties.
- Mortgage payment coupons if you own other real estate.
- Divorce and child support documents.
- If someone offers you cash for a down payment, you will need a gift letter to demonstrate that it is not a loan you must repay..
For both conventional and non-conventional loans, including FHA and USDA loans, the above mentioned paperwork is often required. However, some nonconventional loans could require extra paperwork for the mortgage application process.
What Happens If You Are Not Pre-Approved?
A lender will decide whether to pre-approve, deny, or pre-approve with conditions after analyzing the mortgage application. To fulfill the loan requirements, the lender might ask the borrower to submit more documentation or reduce their existing debt. The lender must provide reasons for any denials and provide options to increase a borrower’s chance of receiving a pre-approval.
Wrapping up
Hopefully now you have a better idea of the mortgage pre-approval process and the documents required to get one. It is worth remembering that mortgage pre-approvals are just that—an early first step in the mortgage application process. Perhaps most importantly, a mortgage pre-approval is one more step along your path toward homeownership and shows a serious commitment to the process. We highly recommend that you start collecting your mortgage pre-approval documents as soon as you start thinking about buying a house so that you can avoid any unwanted delays when submitting your mortgage application.
If you need professional help getting approved for a mortgage, the Mortgage Ready Program is a step-by-step process that helps you go from renting to owning. We take you by the hand and help you through all the required paperwork and can even work to repair your credit, if needed. Feel free to contact us for more information. We would be more than happy to help.
0 Comments