A pre-approval letter from a lender is a powerful tool buyers can use to give their offers more heft.
It shows that a lender has reviewed your financial documentation and has confidence you've already chosen a lender who has reviewed your financial documents and finds you a good candidate to pay a mortgage on the home you want.
The letter will help you when you get ready to bid.
Organize financial documents
You will need documentation of the amount of money you earn at your job, regardless if it's salaried or from your own business. Federal tax returns are a great way to start. Documents from an accountant who helps you file for your business will also be very valuable.
- Pay stubs
- W-2s
- Federal and state tax returns (at least past two years)
- Profit/loss statement of your company, if self-employed
- Letter from accountant attesting to your company's financial health, if self-employed
- Business license, if self-employed
- 1099 forms, if self-employed
Compile your debt documents
Lenders also will want to know how much money you owe to others and what kinds of spending habits you have when it comes to credit cards. Don't forget to include documents showing how much you pay an ex-spouse as a result of a divorce.
- Credit reports
- Copies of credit card statements (several months)
- Copies of automobile loan and payment statements from several past months
- Copies of any personal loan you have taken
- Divorce decrees (if you pay child or spousal support)
Prepare a list of your assets and income sources
Income isn't the only way to get the cash for a home. Stocks, bonds, savings and cryptocurrency holdings also can be used.
- Bank statements from last two months
- Deed to investment properties, if any
- Documentation of any rental income from investment properties
- Social Security award letter showing your entitlement to an amount of monthly benefits
- Documents showing child or spousal support
- Statements from retirement accounts such as 401(k) plan at work
- Statements from anyone who has recently given you a gift of funds
- Statements of stock/bond investments
- Documents showing your ownership interest in additional assets such as gold or cryptocurrency
Additional documents you may need
A driver's license or passport counts as an official document proving your identity.
- Photo ID
- Proof of residence
- Letters explaining any gap in recent employment
- Letters explaining any anomalies in your financial past, including large bank deposits