Documents Needed for the Mortgage Pre-approval Process

Reader Question: "I plan to apply for a mortgage loan to buy a house later this year. I was told I should get pre-approved first. What kind of financial documents are needed for the pre-approval process?"

I'll get to the documents part of your question in just a moment. But first, I want to touch on the reason for pre-approval. Through this process, a mortgage lender will review your financial situation and tell you how much they are willing to lend you. It's not set in stone, and it doesn't obligate the lender into giving you that amount -- but it's still a useful step worth taking before you start looking at houses.

Getting a mortgage pre-approval helps you in two ways. For one thing, it helps you narrow your home search by giving you a price range. Granted, you should establish your own budget before you even start talking to lenders, but a pre-approval is still helpful in this regard. The second way it helps you is by making sellers take you seriously. This is especially important in a seller's market. If a seller receives three competing offers, but only one of the buyers has been pre-approved, they'll probably take the pre-approved offer more seriously -- and for obvious reasons.

The Documents Needed for This Process

When you arrange for a mortgage pre-approval, the lender should tell you which financial documents you need to bring. If they don't give you a list of required documents, you should ask for one. Today, in the wake of our economic recession, lenders are asking for even more documents than they've required in the past. Here's a list of the most common items needed during the mortgage pre-approval process:

• W2 statements (or 1099 income statements) for the last two years
• Federal tax returns for the last two years
  
• Bank statements for the last few months
  
• Recent pay stubs and proof of other income (if applicable)
  
• Proof of investment income you are currently receiving (if applicable)
  

Again, this is just a standard list of documents needed for pre-approval. Your lender may not require as many of these items, or they might ask for additional items not listed above. So be sure to ask for a complete list before you go to your appointment.

Why are all of these documents needed to get pre-approved? Basically, the lender is trying to figure out (A) how much money you earn and (B) how much cash reserves / savings you have on hand. Specifically, they want to make sure that you make enough money to cover your mortgage payments. This is how they determine the amount they are willing to lend you. It's all based on the documents you provide and your current credit score -- everything else is secondary to this.

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