Everything You Need for a Mortgage Preapproval Letter
It is not essential to get preapproved before you start looking around at homes, however it is not a bad idea to get a head start. The market is full of competition, particularly when prices are low. Keep in mind that preapproval is not the same as prequalification. Obtaining a preapproval letter means that you do in fact have the financial bandwidth to uphold your offer. Preapproval requires income verification, proof of employment, a credit check, documents listing any assets, and documentation of any debt. If you are self-employed, or just have multiple income streams in general, you will likely need to provide more information. These documents are not difficult to find, and you might even have some on hand already. Let’s highlight everything you need to receive your preapproval letter.
Proof of Income & Employment
If you only have one income source, this process will be very simple for you. However, if your income comes from more than one source, you will have to do some extra digging. If you have an income source that is W-2 based and another one that is 1099 based, you will need to provide proof for both. For W-2 wage proof, you will need a copy of your W-2 form and also two of your most recent payroll stubs. 1099 workers (freelancers, self-employed, independent contractors) will have to provide a year-to-date profit loss statement and two years of records along with their form 1099’s. No matter your income type, you will likely need copies of your two most recent federal and state tax returns. If you own any rental properties, you will need to provide documents listing your income, addresses of the properties, and their lease and market value if you wish to have this income considered for your mortgage qualification.
What Are Your Assets?
You will have to provide 60 days’ worth of bank statements from each financial account you want considered for your mortgage qualification. If you have a retirement account or any investment accounts that you wish to have considered, you will need documentation from those as well. If you have an IRA or a Roth IRA, you will need to provide 60 days’ worth of statements. The same goes for stocks, bonds, and CDs. In regard to your 401(k), you will need your last quarterly statement showing the vested balance (the amount that belongs to you after you no longer work with the company). It is important to note that when you are providing bank statements as documentation, you must provide every page, even the blank ones.
What Debts Do You Have?
If you own a real estate property, and it is being mortgaged, provide your most recent statement. It should include the loan number, loan balance, monthly payment amount, name and address of the lender, and the declaration page of the insurance policy. Lenders will also take a look at the regular monthly payments you have to make towards your debt. This is to determine your DTI, or debt-to-income ratio. Perhaps you have student loans, a car loan, or a credit card. Make sure to provide the name and address of each creditor, your current balances, account numbers, and minimum payment requirements. In the event that credit history is not available, you may also utilize utility bills or something similar to prove that you can make regular payments on your bills. Lenders just need to see that you will be able to responsibly handle your bills.
What Else Is There?
If you are currently renting, you will need to provide payment records for the past year as well as contact information for your landlord(s) for the past two years. If you have gone through a divorce, you will need to have your divorce decree on hand and any court reports for child support or alimony depending upon your situation. If you have suffered from a bankruptcy or a foreclosure, make sure to inquire with your lender about all that you will need and also how long you should wait before trying to buy a home again. Some buyers have what are called “gift lenders” who are willing to cover their down payment. All money being used in the home buying process needs to have a documented source provided. For gifts, the donor(s) will need to write a letter stating that they do not wish to be paid back, confirming that it is a gift. Letters are not needed for preapproval; however, it is good to get a head start since you will need them regardless. As long as you are informed about what you need and prepare accordingly, you will have no trouble obtaining your preapproval letter!