What Do You Bring to the Bank to Get Preapproved for a Mortgage?

Many financial institutions quote low interest rates in advertisements, but no banks actually guarantee a specific interest rate until a prospective borrower submits an application. The application begins with a pre-approval, during which the lender reviews the applicant's financial information. The final approval depends on the value and condition of the home. The applicant needs to bring certain documents to the bank during this process.

Identification

• When applying for a mortgage, you must first identify yourself. Lenders typically require borrowers to produce a U.S. passport, a state-issued driver's license or a state-issued non-driver's ID card. Some lenders accept non-U.S. passports. Co-borrowers and co-owners of the home must also provide the lender with valid ID. In addition, lenders require Social Security numbers from borrowers. Anyone buying or refinancing a home held under a trust must produce a copy of the trust documents and the tax-identification number of the entity.

Types

• Banks require income verification in the form of the two most recent pay stubs, two most recent W2 forms and, for self-employed applicants, two years of personal and business tax returns. Social Security recipients must produce their annual Supplemental Security Income award letters. Retired state employees must provide annual award letters for state pensions. People who pay or receive child support or alimony must provide the bank with statements relating to those payments. Additionally, lenders require 60 days of bank statements covering all of the applicant's accounts.

Function

• Lenders use the documents relating to income to establish the applicant's debt-to-income ratio (DTI). Banks determine the DTI by adding up the applicant's monthly debt payments and dividing the total into the person's gross monthly income. Generally, DTI cannot exceed 41 percent. Mortgage officers also ask applicants to provide information about their existing debts, but they use credit reports from Equifax, Experian and TransUnion to establish the exact debts the borrower has. Borrowers are legally required to inform the lender of any private loans not shown on the credit report.

Considerations

• In addition to the required personal information, banks like to receive as much information on the property as the prospective borrower can provide. People planning a refinancing should bring a copy of their warranty deed, homeowners insurance declaration page, survey, current mortgage statement and, if possible, a mortgage payoff. Prospective buyers should provide the property address and, if possible, a sales agreement. Pre-approval pertains to the creditworthiness of the applicant, but providing these documents speeds up the full application process.

Misconceptions

• Many people confuse pre-approval with pre-qualification. Pre-approval happens when an underwriter reviews an applicant's file and the supporting documents and approves them for financing. Pre-qualification involves a lender checking a prospective borrower's credit and relying on verbal information to assess the person's overall debt and income levels. Some borrowers round up or overstate their income to gain pre-qualification, but their applications are later rejected when their W2's and pay stubs reflect lower levels of pay.