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

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 returns
• Business tax returns
• A profit-and-loss statement for the current year
• Asset 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.