Step 6: Preparing to Finance Your Home



Once you’ve found the right lender, you’ll want to get pre-approved. Start gathering your financial documents several months before you apply, just in case you need to get documents replaced or you need time to clear up issues on your credit report.

Home Financing Checklist

The first step to keeping the loan approval process moving smoothly is to make sure you’ve gathered all your documents ahead of time. Since there is so much involved, use this checklist to make sure you don’t overlook anything.

Identity Verification

  • Full legal name
  • Birthdate
  • Driver’s license and/or government-issued photo ID
  • Social security number (have your card available in case the lender needs a copy)
  • Phone number
  • Primary email address
  • Residential mailing addresses for the past two years

Income Verification

  • Primary and secondary income amounts and sources (pay stubs for the last 30 days may be required)
  • Monthly debt obligations
  • Value of bank, retirement, investments, and other assets (the most recent two months’ statements for each may be required)
  • Name, addresses, and phone numbers of all employers over the last two years
  • Information about the property being purchased, including the address, year built, purchase price, and estimated down payment amount
  • Estimates of the annual property tax, homeowners insurance, and homeowners association fees (if any) for the home being purchased
  • W-2s for the last two years
  • Federal tax returns for the last two years
  • IRS Form 4506-T — Request for tax transcript, completed, signed, and dated
  • Written explanation if employed less than two years or if an employment gap exists within the last two years

Additional Income Verification for Self-Employed

  • Federal tax returns (personal and business) for the last three years
  • List of all business debts
  • Year-to-date profit and loss statement

Credit Verification

  • Written credit explanation letter for any late payments, collections, judgments, or other derogatory items in your credit history
  • Judicial decree or court order for each obligation due to legal action
  • Payment history for public utilities, phone, cable TV, car insurance, and other expenses (if you don’t have a traditional credit history)
  • Bankruptcy/discharge papers for any bankruptcies in your credit history

Additional Documents

  • Homeowners insurance information, including agent’s name and phone number
  • Purchase contract signed by all parties

Getting Pre-Approved for a Mortgage Loan

Make sure the lender requires full documentation for a pre-approval. This allows the lender to accurately review your application, and the documentation will be needed for the actual loan application anyway. By providing it to the lender with the pre-approval, you’ll be that much ahead. Plus, you don’t want to get pre-approved by a lender who doesn’t require documentation because it could be a false approval, and you don’t want any unhappy surprises when you go to close on your loan.

Remember: once you get the pre-approval, be very careful with your credit. It’s critical that nothing changes with your credit, income, or employment status between the pre-approval and the closing. The lender is pre-approving you based on your existing circumstances and information.

What Does Pre-Approval Mean?

Getting pre-approved shows you what you can afford. However, you’re not committed to the lender that grants pre-approval. In fact, you can get several pre-approvals before officially locking in your loan, and you should get at least three so you can compare rates. The pre-approval is like a promise. It shows how much house you can afford so you don’t waste time looking at houses out of your price range.

Being pre-approved for a mortgage is a powerful negotiating tool because it shows you’re a serious home buyer. Having this letter could propel you to the head of the negotiating line if you find a home with several offers.