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Ready to begin moving forward with your mortgage preapproval process? We’ve got your A to Z guide with everything you need to get it started.
Your Complete Mortgage Preapproval Checklist
Ready to begin moving forward with your mortgage preapproval process? We’ve got your A to Z guide with everything you need to get it started.
When you’re first beginning a home search, you may think that narrowing down neighborhood, home style, and countertop material is at least half the battle. You’ll quickly find out, however, that putting together your home financing will be the most important part of the process. After all, changing out fixtures and finishes is a lot easier than raising your credit score, and a lot faster, as well. In addition, you’ll have to gather the documents needed for mortgage preapproval and submit them along with your loan application.
If you’re ready to get started, we’re ready to provide all of the information you need along with a mortgage preapproval checklist. That way you’ll be confident as you move forward through the loan application process and as you talk with your lender about your budget and your options.
You may have heard the terms mortgage preapproval and prequalification used interchangeably. In reality, however, there is a significant difference between the two processes and the resulting information you’ll receive from them.
When you first talk to your lender, they may allow you to submit some self-verified information for a prequalification to get a general idea of your financial readiness. This may help you get a sense of how much financing you could potentially qualify for and a ballpark estimate of what your payments might be each month.
A preapproval, however, is a much more meaningful measure of your ability to acquire financing and of the amount of financing you may be eligible for. Because it requires documentation and a credit check, it ensures that the result is a more accurate measure of your financial readiness.
In addition, a preapproval gives you a distinct advantage when you’re making an offer on a home. A preapproval lets the home seller know that you are financially qualified to make the offer and that you have a good chance at seeing the purchase through to its completion.
Getting preapproved for a mortgage starts well before you actually apply for the mortgage itself. In effect, you have been preparing for the preapproval process every month, depending on how you have taken care of your personal finances. Paying bills late or on time, taking on too much debt, saving or spending – all of these will have an impact on your mortgage terms and your chance at approval.
If you are still at the beginning of your homebuying journey, you may want to think ahead to some of the early steps in the preapproval process. These include the following:
Either through your credit card company or through a credit monitoring service, you should have access to your credit score on a regular basis. This will help you to understand some of the factors that impact it both positively and negatively so that you can optimize your score over time. On-time payments are essential. Showing that you’re credit-worthy by having access to credit, but not maxing it out, is another way of showing that you are responsible with your finances.
One thing to remember is that the age of your credit accounts is important. Therefore, if you are working to pay off your credit cards and loans in order to improve your credit score, you don’t want to close the accounts out once they reach zero. Keep them open to show that you are able to maintain accounts over time without using them irresponsibly.
Once a year you have the right to request a free copy of your credit report from each of the major credit reporting authorities. Check in each year to make sure that you don’t see any errors that need to be corrected. If you do see problems on your credit report, be sure and contact both the reporting authority and the individual creditor to have them resolved.
Some credit monitoring services keep an eye out for your personal and financial information, ensuring that whenever there is activity that involves you, you will receive a notification. This can be a valuable early warning system for identify theft, fraudulent activities, or other irregularities. You may want to consider signing up with one of these services, especially if you have been notified that you were the victim of exposure of your private information in a previous data breach.
While it’s good to have access to credit, you want to use it judiciously. Limit your debt and attempt to live within your means as much as possible. This shows a sense of financial maturity and helps to reassure your mortgage lender that you won’t get overextended, leaving you unable to pay your mortgage on time.
It is especially important to avoid taking on new debt in the months prior to your home purchase. While you may want to order a house full of furniture or a new car to go with that new house, you must wait until after closing to do so. Significant amounts of new debt can change your debt-to-income ratio and hamper your ability to be approved for a mortgage, even if you’ve already been prequalified or preapproved.
While it can be beneficial to move from one company to another in order to build your career, avoid doing so in the months before you buy your home if at all possible. In addition, if you’re planning to switch careers completely or to leave a steady job and start your own business, this can have a significant impact on your ability to obtain a home mortgage.
You may have figured out how much cash you need for a down payment based on your projected homebuying budget. However, you may be leaving out some fairly significant expenses, including closing costs, homeowner’s insurance, or private mortgage insurance (PMI) if you’re putting down less than 20 percent. You’ll need to show that you can cover all of these costs when you buy.
In addition, you may end up with some repair costs to cover or a gap between the appraised value of the home you want and the purchase price. Either of these circumstances could end up costing you thousands of dollars and undermine your ability to successfully arrive at the closing table.
Of course, putting together all of this information and seeking a preapproval requires you to connect with a suitable, well-qualified mortgage lender. You may want to consider a couple of lenders in order to find the one with whom you will work most effectively and whose communication style gels with your own.
Once you’ve prepared for the process with a stellar lender, it’s time to start putting together the documents you need. Some of them you will already have easy access to, while some may require the help of others. In the next section, you will find a comprehensive list of the documents you may be required to obtain and submit as part of your preapproval process.
Gathering together your documents will take time. If you’re a careful record keeper, and if many of your bills and statements are sent to you via mail, you may have paper copies of some of these documents. Otherwise, you can find many of them online or via special request.
If you manage your financial affairs through a program like QuickBooks, you may be able to track some of your required information there. In addition, if you work with a CPA to manage your finances or taxes, they may be able to help you gather documents as well.
If you are self-employed, talk to your lender about specific requirements for documenting your income and your business’s viability. In addition, talk with them upfront to determine whether they are experienced in working with self-employed individuals.
If you are planning to use funds that have been given to you to help with your down payment or closing costs, your lender will require a gift letter to document the source of the funds. They may also ask for a bank statement showing the funds leaving the donor account and being deposited into your account. In addition, some lenders will only allow gift funds from certain close family members. Talk to your lender as soon as possible to understand the requirements for gift funds in your particular situation.
When you’re putting together your information for mortgage preapproval, you may be operating under a restricted timeline. You never know when your dream home will hit the market, and it pays to be prepared. Run through this preapproval checklist and make sure that you have access to all of the documents it describes. If there are online resources you need, make sure that you have the links, usernames and passwords required to access them.
Personal identification Verification
Proof of Income Documentation
If you do not have recent paystubs, you may be able to obtain them through your company’s payroll department.
Tax Documents
Asset Statements
Debt Statements
Rental History
Gift Funds
Military Records (for VA Loans)
Whenever there is a hard pull on your credit report, it can impact your credit score by a few points for at least a few months. If you decide to compare lenders and have several preapproval processes completed, do so within a narrow window of time, typically two weeks, to keep from duplicating this effect multiple times.
The preapproval process can take different forms and different amounts of time, depending on the lender and the process. A standard preapproval may take somewhere around ten days to complete. A fully underwritten preapproval may take longer and require more paperwork, however it gives you and the seller added peace of mind, knowing that final approval is far more likely as long as there are no significant changes to your financial or employment situation.
Once obtained, a mortgage preapproval generally lasts somewhere around 90 days, though some may vary. If you anticipate a longer home search process, talk to your mortgage lender and find out if there is the possibility of an extension for your preapproval or if you’ll need to more accurately time your initial application for preapproval.
The reason that preapprovals do not last indefinitely is because so much can change in a short time. Your income, your debt levels, and your employment are all subject to change, both due to factors within your control and those without. It is important for you to communicate consistently with your lender to ensure that your preapproval will be ready when you are ready to make an offer.
A mortgage preapproval is a valuable resource and a process to keep in mind no matter where you are in your home purchase timeline. Talk to your lender about the specific information required for the loan product you’re most interested in. Start now gathering information, maximizing your credit score, and keeping track of the documents you’ll need so that you’ll enjoy an easier and more seamless process when the time comes to apply for your mortgage.
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