Before you even begin looking at houses, we recommend you get pre-approved for a mortgage.
Why?
Because when you’re pre-approved for a mortgage, you’ll know exactly how much you can afford to spend on your new home. That makes it easy to filter out which houses fit your budget and which don’t, which saves you and your realtor a ton of time on the house hunt.
Pre-qualified vs. pre-approved
Pre-qualification is not the same as pre-approval.
Think of getting pre-qualified as a ballpark estimate of what you’ll be approved to borrow. It’s a general look at your finances and a soft credit inquiry.
You can get pre-qualified through a conversation, but to get pre-approved, a loan officer needs to conduct a full review of your income, assets and other relevant financial facts. This also involves a hard credit inquiry, so we advise you to wait until you’re serious about starting the house hunt to get pre-approved.
When you’re pre-approved for a specific loan amount, you receive a pre-approval letter. This is an offer from the lender to lend you up to the amount for which you’ve been approved. Keep in mind, it’s not a commitment on the lender’s part to lend you the money—should something happen to impact your ability to pay it back, like a change in your employment, a negative change to your credit or your decision to open more lines of credit—the lender may choose to not move forward with the loan.
Benefits of Pre-Approval
Beyond saving you time, having a pre-approval letter in hand when you’re looking at houses can make you a more attractive buyer to the seller. That’s because pre-approval is proof that not only can you afford the house, but you’re serious about going through with the purchase.
Which documents do you need to get pre-approved?
Identification
We need to verify that you are who you say you are. Your loan officer does this by reviewing identification documents for you and everybody else on the loan. Acceptable identification documents include:
- Driver’s license
- Passport
- Social Security card
- Individual taxpayer identification number
- A state-issued or federally issued identification
Income verification
Income verification is another important component of getting pre-approved for a loan. For a salaried employee, the required documents are:
- Pay stubs from the last 30 days
- W2 forms from the last two years
- Personal tax returns from the last two years
- Your two most recent bank statements
If you also received overtime pay or bonuses, you’ll need to provide statements for these as well.
Being self-employed does not mean you can’t qualify for a mortgage. You absolutely can! And to verify your income as a self-employed person, your loan officer needs to see:
- The last two years’ business and personal tax returns
- If applicable, copies of current business licenses
- IRS Form 4506-T
- A balance sheet
- A profit and loss sheet for the business
Additionally, you might need to provide retirement and investment account statements. If you receive income through Social Security or disability payments, you’ll also need to provide statements for these.
If you also receive rental income from an investment property, you can use this to qualify for a loan. Provide a copy of all current leases and their rental amounts to include this income.
Debt statements
Debt statements are the documents a lender uses to calculate your debt-to-income ratio (DTI). These are all the documents that state how much money you currently owe, like:
- Auto loans
- Tax liens
- Student loans
- Credit card statements
- All other installment loans
Proof of assets
You also need to prove that you can afford to cover all the costs associated with your purchase, like the down payment, closing costs and maintaining the required cash reserves. These documents include:
- Bank statements for every account you’ll be using for the loan (usually two months’ worth of statements)
- Recent statements for all retirement and brokerage accounts
Any other relevant documents
If there’s more to your financial story, the loan officer needs to see it so they can accurately determine how much you’re qualified to borrow. Other relevant documents you’ll need to provide in order to be pre-approved for a loan include:
- A copy of your divorce decree or court orders related to your divorce if you are currently paying or receiving alimony or child support
- Documentation related to your bankruptcy or foreclosure
- Documentation of your past 12 months of rental history and contact information for any landlords you’ve had for the past two years
- Documentation of any monetary gifts you plan to use toward your down payment. This includes gift letters showing that the individuals who gave you these gifts did so without the expectation of being paid back and in many cases, bank statements showing where the money originated
If you aren’t sure whether you need to provide a specific document in order to get pre-approved for a loan, just ask the officer you’re speaking with. They can assess your situation and tell you exactly what you need to provide to move forward with the
Ready to get pre-qualified or even take the next steps toward getting pre-approved? Schedule your free consultation with Aceland Mortgage today. We’ll talk about what you’re looking for, what kind of loan you might need, and finish the conversation with a free personalized rate quote and no pressure to work with us if you don’t feel we’re a great fit.