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Mortgage Pre-approval Checklist

This scenario happens to me approximately once per week: a potential buyer comes to me letting me know that they are looking for a 5- bedroom, 4-bath house with a large backyard, a pool, an open kitchen and a great school district. I say that I would love to help them and ask for their mortgage preapproval.

They say something along the lines of, “Oh we don’t have one yet but we probably qualify for around $600,000.” I give them the benefit of the doubt, say “Great!” and send them a list of preferred lenders or tell them to go to their favorite mortgage broker or bank and let me know when their preapproval comes in. One week later they typically call me up upset that they only qualify for a $200,000 loan.

I don’t mean to seem jaded. But buyers should be both prepared and realistic about how much home they can afford, as I think that makes their home buying experience more joyous.

Before you even start looking at houses online or drop by that open house, get your preapproval first. That way you will know what price range you qualify for a house in, and you’ll know what to expect. Below is a comprehensive mortgage pre-approval checklist of the items you need to submit to your mortgage lender in order to obtain your preapproval as well as some of the pitfalls to watch out for.

Copies of Driver’s Licenses

Copies of driver’s licenses are typically required for all buyers that are going to be on the loan. This is an important document for buyer verification and fraud detection.

Copies of Social Security Cards

Break open the safe. It is essential that you can provide your lender a copy of your social security card. Not only does this help verify that you are who you say you are and aid in preventing loan fraud, but it also helps to verify that you are indeed a U.S. citizen. Lending for foreign nationals is possible but extremely challenging, which is why foreign buyers usually have to purchase properties with all cash.

Mortgage Statement/Coupons (for all loans)

If you currently own your home, whether you plan on selling it to buy a step-up home or plan on renting it out to live in another home, you will need to show your lender exactly how much you are paying monthly for your current home. This is part of what goes into factoring your DTI, or debt to income ratio. Additionally, lenders will look at the property address and may decide to run a comprehensive market analysis to make sure you have equity on the property. If you’re underwater on your current home, you may not be able to buy a second home.

Most Recent Bank Statements

Mortgage lenders will need to see the most recent bank statements (all pages, and all accounts) from any buyers going on the loan. They will examine the debits and credits thoroughly, so don’t try to hide anything. For example, if you have a check for $1,000 going out to a family member, the loan underwriter may ask you to write a letter of explanation for it. So if you’ve borrowed money from a family member or friend. be honest with your lender, as it will get discovered and counted in your debt to income ratio one way or another.

Pay Stubs

The past 30-60 days of pay stubs are required to prove your income is as you say it is. ‘Nuff said.

Property Tax Bill

If you currently own your home you will also need to provide a copy of your property tax bill. Again, your taxes are another part of your debt to income ratio.

Retirement/Investment Account Statements

If you have a retirement or investment account you should provide one or two monthly statements to your lender. Even if you don’t plan on using these funds to buy your home, it may help prove that you are qualified. The underwriter will need to see that you have a certain amount of money in reserves. In other words, you can’t qualify for a home if it means you could only make the mortgage payment but you wouldn’t have enough money to buy food, gas or pay the utility bill. Why? Because odds are you will eventually default on that loan, and the lender’s job is to protect their investment.

Tax Returns (1040)

The past tw0 years of your tax returns show your mortgage lender your income, employer, address, verify your social security number and more. It can be a huge hassle to scan in page by page if you don’t have a PDF version of your tax return, but it’s something that the lender must have. So take some time and just get it done!

W-2 Forms for the Past Two Years (or 1099)

Your W-2 states how much money your employer paid you over the past year. Since lenders are looking at your last two years of income as part of the debt to income ratio, you will need to provide two years of W-2s or 1099s if you are an independent contractor rather than an employee.

Profit and Loss Statements

Finally, if you’re self-employed or own your own business, you will need to show two years’ worth of profit and loss statements. The lender may request additional items such as the businesses bank statements as well.

This list of items may seem like a huge mountain to climb, but don’t fret. When you sit down and focus, you can easily gather all these items together in a matter of a couple of hours and begin smartly shopping for a home loan. You’ll be able to start your home buying journey organized and prepared.

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About Sarah Davis

Sarah Davis is a real estate broker in San Diego, Calif. She enjoys helping both buyers and sellers and was voted one of the top 10 best real estate agents in San Diego in 2013 by Union Tribune readers. In her spare time she talks about real estate on a local radio show and manages her website RealtorSD.com.

Comments

  1. My concern with pre-approval is I don’t want to be tied to a schedule of when I should buy. And getting pre-approval still puts a ding in your credit, right, so it’s not cool do do it a couple times in a year? And I don’t like the thought of settling on the bank I’m going to use before I’ve picked what I want. Ug! Pre-approval just feels like a hook to get people still in the decision making process to purchase.

    • Joe Smith says:

      Aarron: What we did was a pre-approval at a big bank. The pre-approval was good for 90 days. If we made an offer during that time we just called the mortgage rep and had him draft a letter that showed us pre-approved for the amount of the offer. If we had gone past the 90 days we could have waited until we were ready to make another offer before we got pre-approved again. Alternatively we could have kept updating the pre-approval every 90 days (with the small ding to our credit scores).

      You are under no obligation to go with the bank/broker/lender that gave you the pre-approval. In fact, I didn’t like our pre-approval guy at all so we went with another lender after he sent us the pre-approval letter.

  2. I think it is ridiculous to ask for that much documentation. All I needed was the last two months worth of pay stubs and bank statements.

    I wouldn’t worry about the credit ding, it is negligible and as long as you have don’t have negative things on your credit report all they care about is income and debt levels.