I Tried to Apply for Mortgage Pre-Approval Online. Here’s Why I Failed

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Some mortgage lenders advertise quick and easy pre-approval online — but read on to learn why that didn’t work for me. 

Getting pre-approved for a mortgage loan is important before going house hunting. When you are buying a house, most sellers want to see that you have been pre-approved. Sometimes, you must provide this pre-approval before you’re allowed to go for a showing to see a house, but even if that’s not the case, you’ll almost definitely need it before you get an offer accepted.

Recently, I tried to get pre-approval from several online lenders that offered speedy approvals and a digital-only application. I wanted to go see a house that requires it, and the online lenders promised a loan commitment letter within hours.

Unfortunately, I failed at getting fast pre-approval with every lender that I tried. Here’s why.

This was the big problem with my loan application

There’s a very simple reason why I was not able to get a speedy pre-approval when I applied for a home loan from sites that offered one. I’m self-employed.

When I started the application, each of the different lenders asked what my sources of income were. If I was a traditional employee, I would have been able to move forward with the application right away. All I would have had to do was upload my W-2s.

But, as soon as I checked the box that said I was self-employed, I was immediately halted in my efforts to move forward. One lender said I had to go into their “Platinum Pre-approval” process, which involved filling out a lot of forms and uploading an endless number of documents. These included business and personal tax returns, copies of my property tax bill on my current house, and a photo ID. And another said I would have to call and talk with a loan specialist to get pre-approved.

Unfortunately, this kept me from reaching my goal of getting a timely pre-approval in order to see a house in the coming days. And I ended up having to jump through a ton of hoops before finally getting my letter from the lender indicating what amount I was approved to borrow and my estimated rate.

I understand why this happened, though, as it can be much more difficult to verify income when it comes from a company and not an employer. Plus, lenders generally tend to view income from self-employment as being less reliable than when it comes from a company that provides a paycheck.

Here’s how to cope with applying for a mortgage when you’re self-employed

If you are self-employed, you will likely also face the same problem I did. Instant pre-approval isn’t going to be an option and any lender you work with is going to require a lot more from you.

The best way to cope with this is to be prepared for it. And that involves getting a bunch of documents together early in the process. I now have a folder on my desktop labeled “Mortgage Stuff” with all the documents lenders are going to ask for so I can still shop around and get multiple quotes to buy a home. This includes:

Personal tax returnsBusiness tax returnsA profit-and-loss statement for the current yearAsset statements for business and personal bank accounts

By getting these documents ready in advance, you can be prepared to move forward with the more in-depth pre-approval process lenders are going to require due to your income source.

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