What documents do I need for mortgage loan preapproval? #CashNews.co

Getting preapproved for a mortgage before finding your dream home may be optional, but it can help you stand out in a crowd of hopeful home buyers. A preapproval letter indicates your lender is willing to give you a loan for a certain amount, which lets the seller know you have the means and intent to actually buy the house.

The preapproval process is not as onerous as applying and qualifying for a mortgage — but the lender will still need documentation and information from you to determine whether you are a good candidate for a home loan. Understanding what documents your lender will ask for can help you streamline the preapproval process.

Learn more: Does mortgage preapproval hurt your credit score?

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Before preapproving you for a mortgage, your lender needs to see proof of several things to determine your ability to repay a mortgage. Specifically, your lender must receive multiple documents that prove your identity, income, assets, and debt obligations.

Depending on your specific situation, you may need some or all of the following documents:

• Social Security number or Individual Taxpayer Identification Number. All traditional lenders require your SSN or ITIN. The latter is a government-issued ID for people who pay taxes but don’t qualify for an SSN — typically, those who have immigrated to the United States but are not citizens.

• Government-issued photo ID. You can use identification like a current driver’s license, passport, or other state-issued ID.

• Name change documentation. If you have recently changed your legal name, you may need to provide documentation of the update.

You must provide your mortgage lender with proof that you have consistent income. Here are the most common documents lenders will ask for:

• Recent pay stubs. Generally, you must provide pay stubs from the last 30 days of work. You can get this information from your employer if you do not have it on hand.

• Two years’ worth of W-2 forms. This wage and tax statement provided by your employer provides information about your annual income. If you have not kept your recent W-2 forms, you should be able to request new copies from your Human Resources department at work.

• Two years’ worth of signed federal tax returns. If you do not have a copy of these returns, you can request a tax return transcript online from the IRS website.

• Documentation of any other sources of income. This may include alimony, child support, pensions, or Social Security benefits.

If you are self-employed, you will need to provide slightly different income information:

• Two years’ worth of personal tax returns. If you are a freelancer or gig worker, you probably don’t have traditional W-2s. Instead, you can provide these tax forms as proof of income.

• Business records. If you are a business owner, you must provide two years’ worth of business tax returns, a year-to-date profit and loss statement, and a balance sheet.

Learn more: How a non-QM loan can help self-employed workers buy a home

The lender wants to know what money you have available for the down payment and other costs associated with buying a house. Make sure you have the following documentation when applying for preapproval:

• Recent bank statements. The lender will want to see statements from any and all bank accounts you have, including checking, savings, and money market accounts, as well as certificates of deposit (CDs).

• Recent investment account statements. Your lender will want to see the most recent statements if you have any investment accounts, including 401(k), IRA, mutual funds, or other retirement or investment vehicles.

• Down payment gift letter. If someone is giving you money to use for the down payment, you will need a signed statement from the donor that the money is a gift and not a loan.

Read more: How much down payment do you need for a house?

Depending on your debt obligations, your income and savings may not be enough for you to afford the costs of buying and owning a house. Knowing how much debt you owe helps your lender determine your debt-to-income ratio (DTI). Your DTI ratio helps determine what type of mortgages you qualify for and even what interest rate you pay. You may need to provide these documents for loan preapproval:

• Recent loan statements. Include the statements for any outstanding loans, including auto loans, student loans, credit cards, personal loans, and other debts.

• Credit report and scores. The lender will gather this information with your authorization. Just make sure you provide the necessary information and permission. If you keep your credit frozen for fraud protection, make sure you have unfrozen your credit report before making the request.

Learn more: The credit score needed to buy a house

While the following documents are not required, they may help you qualify for preapproval:

• Certificate of counseling or education. If you have completed a home-buying counseling course, including this certification with your preapproval application could help your lender make a decision.

• Reference from your landlord. If you’re a renter, a letter from your current landlord providing proof that you have made on-time payments during your lease agreement may help you qualify.

Some things you need for preapproval don’t require documentation — but you should have this information on hand when filling out the application.

• Employer contact information. The lender may need to contact your employer to confirm your employment. You will only need your current employer’s information if you have worked for the same company for two years or longer. If you have changed jobs in the last two years, make sure you have the contact information for every employer you have worked for in that time.

• Two years’ worth of mailing address information. You will need the address of your current home and any other residences from the past two years.

• Real estate information. If you currently own any real estate, the lender needs you to list all the properties you currently own and related information, such as the property values and outstanding mortgage balances on each one.

• Other liabilities. List other monthly financial responsibilities, such as child support, alimony, or work-related expenses in your application.

Learn more: How long is a mortgage preapproval good for?

The preapproval process can vary among different lenders, but it will generally take no more than a few business days for qualified borrowers to receive a preapproval letter — once the lender has received all the required information. Ensuring you have all the necessary documentation before requesting preapproval can help speed up the process.

Loan preapprovals have an expiration date. In most cases, the preapproval is only valid for 30 to 90 days.

While the specific documentation required for preapproval may vary somewhat from one lender to another, most borrowers need to provide documentation proving their identity, income, assets, and debt obligations.

This article was edited by Laura Grace Tarpley.