Mortgage Pre-Approval Process

Requirements, & Key Definitions

Your Mortgage Pre-Approval Checklist:

Documents You Need to Gather Today

Securing your pre-approval letter is one of the most critical steps to get preapproved for a mortgage. It tells sellers you are serious and financially qualified. To smoothly navigate the mortgage pre approval process and get an accurate result, you will need to provide your lender with the following documents needed for mortgage pre approval:

This simple mortgage pre-approval checklist ensures you have everything ready for a fast, hassle-free experience.

Required Documents:

  • Proof of Income (2 Years): The lender needs copies of your W-2 forms and personal (and/or business) federal tax returns for the last two years. This provides a clear picture of your reliable earnings.

  • Recent Pay Stubs: Provide your most recent pay stubs covering the last 30 days to verify current employment and year-to-date earnings.

  • Asset Verification: You will need statements for all checking, savings, and investment accounts (such as 401k/IRA accounts) for the last 60 days to confirm funds for the down payment and closing costs.

  • Debt & Credit Obligations: Documentation for existing debts, including auto loans, student loans, and current credit card statements.

  • Identification: A copy of your government-issued photo ID and Social Security card.

Pre-Qualification vs. Pre-Approval:

Understanding the Key Difference

One of the most common questions from new homebuyers revolves around the difference between prequalified and preapproved. While the terms sound similar, they represent drastically different stages of commitment from a lender. Understanding the distinction is vital as you begin to shop for a home.

What is Loan Pre-Qualification?

  • Definition: Loan prequalification is a quick, initial estimate of how much money you may be able to borrow.

  • How It Works: It's based entirely on unverified financial information that you provide to the lender (e.g., verbal estimates of your income and debt).

  • Impact: This initial estimate is useful for setting a rough budget, but it is not a guarantee of financing.

What is Mortgage Pre-Approval?

  • Definition: Mortgage pre approval is a detailed, conditional commitment from a lender to provide you with a specific loan amount.

  • How It Works: It involves an underwriter thoroughly reviewing and verifying all of your financial documents (see the checklist above). It typically requires a hard credit pull.

  • Impact: A pre-approval letter holds significant weight, as it shows a seller and their agent that a financial institution is ready to back your offer once the property itself is approved.

DEFINITIONS

Mortgage

A loan you take out to buy a house or property. You borrow money from a lender and agree to pay it back over years. The house itself is the “promise” you give: if you don’t pay, the lender can take it.

Interest Rate

The extra percentage you pay the lender on top of the money you borrow. It determines how much more you owe each year.

Fixed Rate Mortgage

A mortgage where your interest rate stays the same for the whole loan. That means your monthly payment stays roughly the same.

Adjustable Rate Mortgage

A mortgage where your interest rate starts fixed (for a set time) and then can change (go up or down) based on the market.

Loan-to-Value (LTV)

A percentage that shows how much you’re borrowing compared to how much the house is worth. For example, if house is worth $100k and you borrow $90k, LTV = 90%.

Pre-approval

When a lender says, “Based on what we see now, you could borrow up to X amount.” It’s not final, but it gives you an idea of your budget.

Escrow

A special account the lender might hold to pay things like your property taxes or homeowner’s insurance so you don’t have to juggle them separately.

Debt-to-Income Ratio (DTI)

A number that shows how much of your income goes to paying debts each month. Lenders use it to decide if you can afford a mortgage.

Refinance

When you replace your existing mortgage with a new one (maybe to get a lower interest rate or change terms).

APR (Annual Percentage Rate)

The real cost of your loan per year, including interest rate + some fees. It gives a better comparison between loan offers.

Equity

The part of the home you really own. If you bought a house and have paid off some of the loan, your equity is the house value minus what you still owe.

Down Payment

The amount of money you pay up-front (from your own pocket) when buying a house. The mortgage covers the rest.

Private Mortgage Insurance (PMI)

If you don’t put down enough money (often less than 20%) when buying a house, the lender may require this extra insurance so they’re safer.

Foreclosure

What happens if you stop making mortgage payments: the lender can take the house away from you.

Closing Disclosure

A document that lays out all the final numbers for your home loan: interest rate, payments, fees, what you owe at closing, etc.

Appraisal

An estimate of how much the house is worth, done by a professional, so the lender knows they aren’t lending you more money than the house’s value.

Closing Costs

Extra fees you pay when you finally close the deal to buy the house – things like legal fees, inspection fees, etc.

Home Equity Line of Credit (HELOC)

A kind of loan where you borrow against the equity in your home—sort of like a credit card, but secured by your house.

Points / Discount Points

Extra fees you pay upfront to reduce your interest rate. Think: “buying down” your rate.

Principle

The amount of money you originally borrowed (not including interest).

Amortization

The process of paying off your loan over time through regular payments. Each payment goes partly to the interest and partly to paying off the borrowed amount (principal).

Amortization Schedule

A detailed plan that shows how much of each monthly payment goes toward interest vs principal, and how your balance changes over time.