Mortgage Pre-Approval Necessities

What You Need to Be Pre-Approved for a Mortgage

Mortgage Pre-Approval Necessities
August 22, 2016

Are you ready to join the world of home ownership? Before you start the home shopping process in earnest, you should consider getting pre-approved for a mortgage.

Mortgage pre-approval is a step beyond the pre-qualification process, which gives you a rough idea of the price of home that you can afford and not much more. A successful pre-approval means that your financial situation has passed greater scrutiny and that a lender has verified your information. It tells realtors and sellers that you are a credible buyer.

First, take some time to locate your preferred lender for the pre-approval process. Lenders will pull your credit report along with the reports of any co-borrowers, so find a lender you are comfortable with to avoid multiple pulls on your credit report that can ding your credit rating.

You will need to bring both basic and financial information for the bank to review. Banks may differ slightly in their requests, but all need the following:

  • Basic Documentation – The bank will require your driver's license (or similar proof of identity) and your Social Security number so that they can continue with their due diligence.

  • Proof of Income and Assets – Generally, you need recent pay stubs, W-2 forms, bank statements, copies of tax returns for the past two years, investment account statements, 1099-forms... essentially, verification for every form of income and major asset. Self-employed people may need to provide greater detail as proof of past and expected future income through the stability of their business.

    The bank will want to verify that you have a stable, regular income that makes you a low risk for default, and that you have sufficient assets and reserves to handle a down payment, closing costs, and enough cash reserves to make payment for a certain period (typically one year). Any financial gifts that you receive, such as down payment assistance from a parent or other relative, must be accompanied by a gift letter verifying that it is a gift and not a loan.

  • Good Credit – It is a good idea to check your credit score before going through the pre-approval process. You can check your score and read your credit report for free within minutes using MoneyTips Credit Manager. If your credit score is poor or you have excessive debt, you may want to improve those areas first. Lower credit scores may require greater down payments or higher interest rates.

  • Verification References – These are not character references but instead refer to people that the bank can call to verify your employment and payment history. You should come supplied with contact information for your current and any other recent employers, as well as your current landlord and other useful contacts that can verify your payment history. Most of that information will be available on the credit report, but every bit of positive information helps.

  • Debt Assessment – The lender will determine your debt-to-income ratio and assess the range of prices that you can afford based on the information that you supply. Keep in mind that making other large purchases or applying for more credit cards during the evaluation period can lower your credit score and end up harming your pre-approval — or at least lowering the price of home for which you are pre-approved.

The lender will verify your information, and if you meet the criteria for pre-approval, they will give you a pre-approval letter. Assuming you pass, you will know what price of home you can afford, and may now search for your dream home and confidently make an offer.


Photo ©iStock.com/sturti

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Erin | 08.22.16 @ 15:27
This is great information for those just getting started on the home-buying process. I wish I had had a resource like this when we were buying our home. I would have felt a lot more prepared.
Carla Truett | 08.22.16 @ 15:27
This is very spot on and useful information. I wish I had done more research before we started the mortgage process.
Irene | 08.22.16 @ 15:28
Great info and getting pre-approved can make things go so much more smoothly when you are ready to make an offer
Jonathan | 08.22.16 @ 15:29
At least banks do these checks now.
brittany.martinez530 | 08.22.16 @ 15:29
Oh this is wonderful information . I am just in my beginning stages of research so this is awesome.
Daniel Dohlstrom | 08.22.16 @ 15:30
Great checklist especially for first timers in the market
Nancy | 08.22.16 @ 15:30
I will show this to my daughter who is considering buying her first home in the near future. It should help her a lot.
Kailie | 08.22.16 @ 15:30
I think it's great that banks do these checks now, it makes it a lot smoother.
Jane | 08.22.16 @ 15:31
This is very helpful for anyone seeking to purchase and also for sellers. A pre-approval letter is stronger than a pre-qualification. I wasn't aware of this.
Leslie | 08.22.16 @ 15:35
This is great information for first t time homeowners. I've never bought a house before, but I'll definitely use these tips if I ever do buy one.
$commenter.renderDisplayableName() | 12.09.16 @ 02:09
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