Understanding the Pre-Approval Process & What Documents Are Necessary
Many buyers start their home search without having a clear understanding of how the mortgage process works, which could lead to disappointment later on during the purchase.
The mortgage preapproval process is an integral step of the home purchasing process. It guarantees you have enough funds to purchase a property and may also identify any issues which might prevent you from receiving financing.
Mortgage preapproval is not necessary in most markets, but it can be an excellent starting point for the home-buying process. This typically involves providing various documents to verify your income, assets, debts and credit history before the lender issues the loan.
Your financial situation should remain stable as you move through the home buying process, so make sure all of your necessary information is prepared for when you receive pre-approval.
Maintain a record of all monthly debt payments, such as rent, utilities, groceries, credit card debt and student loans. These documents will allow the lender to determine your current debt-to-income ratio.
If you own a small business, lenders will also want to see your balance sheet and profit-and-loss statements. They also require any federal tax returns filed within the last two years.
Before You Shop
If your financial situation changes after being pre-approved for a loan, you’ll need to re-verify your income and debts before making offers on homes. Doing this helps avoid any delays in the mortgage application process and keeps you on track with your home buying goals.
Offering a copy of your credit report is optional for most lenders, but it’s beneficial to have one on hand. Doing so allows the lender to review any inaccuracies or red flags that could affect approval and gives them an idea of how much to approve you for.
The lender will use this information to calculate your interest rate and loan terms. As this can have a major impact on your home-buying budget, having accurate details before submitting your mortgage application is essential.
Be sure to provide copies of all your tax documents for the past two years, along with a detailed description of your business. This will enable the lender to assess whether or not your company can support your home-buying plans.
If you have a spouse with a different income, the lender must also know about that income. This data helps the lender calculate your current debt-to-income ratio, which could influence your home buying budget.
Your lender will also require the name, address and phone number of your employer as well as pay stubs from the previous year. This helps verify that you’re working with an authentic entity rather than one using false identities or scams.