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Why Mortgage Pre-approval Should Be Your First Step Toward Homeownership

Are you planning to buy a home soon – or maybe you’re just starting to explore the idea? Whether you’re actively house-hunting or simply preparing for the future, one of the smartest moves you can make early on is understanding the mortgage pre-approval process.

At Legacy Mutual Mortgage, we believe in setting our clients up for success right from the start. If you’re serious about buying a home, getting pre-approved isn’t just a helpful step in the homebuying process – it’s a powerful advantage.

Pre-approval vs. Pre-qualification: What’s the Difference?

You’ll often hear the terms pre-qualification and pre-approval used interchangeably, but they’re not quite the same. The main distinction is that pre-qualification offers a general estimate of what you might be able to borrow based on self-reported information, while pre-approval goes a step further by requiring documentation and pulling your credit report to give a more accurate picture of your buying power.

Because it’s more comprehensive, a pre-approval letter is a sure sign to sellers that you’re ready to buy – which can make all the difference in a competitive market. Just keep in mind that pre-approval letters typically expire within 60–90 days, so it’s best to move forward once you’re ready to buy.

Why Pre-approval Matters

Getting pre-approved might feel like an extra step, but it shows sellers and agents that you’re a serious, qualified buyer. It also gives you:

• A competitive edge over other buyers who aren’t preapproved
• A clear understanding of your budget, so you can focus only on homes within your price range
• A head start on closing, since much of the paperwork and verification is already complete

Pre-approval helps streamline the homebuying process and can save you time, stress, and potential disappointment.

What You’ll Need for Pre-approval

To get started, be prepared to provide your lender with:

• Proof of income (pay stubs, W-2s, tax returns)
• Asset documentation (bank and investment account statements)
• Employment verification
• Valid government-issued ID
• Social Security number
• Your residential history for the past 2 years

While pre-approval doesn’t guarantee your loan will undoubtedly be accepted, it’s a strong first step – one that gives you confidence and clarity throughout your homebuying journey.

Ready to take the next step? Let’s talk! Reach out today and we’ll walk you through the process, answer your questions, and help you find the loan solution that fits your needs.

What Are Mortgage Rates?

Starting with the basics, a mortgage rate is the interest you’ll owe annually which is a percentage of your mortgage. It is typical for mortgage rates to change depending on economic factors at the time. The mortgage rate is determined by the lender and also takes into account things like the home buyer’s credit history and financial standing. The home buyer also decides whether they want a variable mortgage rate (will move up or down depending on national borrowing costs) or fixed rate (stays the same throughout the mortgage’s lifetime).

Reviewing Mortgage Rates

If you are considering buying a home, it is essential that you keep an eye on interest rates. There are a few ways to do this. First, Freddie Mac updates change on the site weekly. Prime rates are the lowest average rates banks are offering for credit. This rate traditionally follows trends in the Federal Reserve’s federal funds rate, and typically runs 3% higher than the current federal funds rate. Another helpful indicator for borrowers is the 10-year Treasury bond yield, which demonstrates market trends in interest rates. If the yield rises, usually mortgage rates do too. Likewise, if the yield drops, so do mortgage rates. Most mortgages are calculated on a 30-year timeframe, but many mortgages are either paid off or refinanced for a new rate in 10 years’ time. Because of this, the 10-year Treasury bond is a helpful standard.

Factors Affecting Mortgage Rates

• Inflation: lenders have to keep up with economic changes due the rise of costs.
• Rate of Economic Growth: higher wages may mean more demand for mortgages, which can in turn raise mortgage rates.
• Housing Market Conditions: When fewer homes are available, the decline in home purchasing means a decline in the demand for mortgages and thus interest rates go down.

When In Doubt, Buy Now

In order to get the best rate available, you’ll need to have a great credit rating and financial history that indicates you’ll be able to repay the loan. All this said, mortgage rates are also dependent on outside economic factors that are out of your control, such as the strength of the economy, inflation rates, employment numbers, and consumer spending, to name a few. So don’t hesitate to buy today – who knows what the rates will be like next week!

Getting Started as First-Time Homebuyers

First-time Homebuyers are those who haven’t purchased a residence before, but the term can also apply to those who haven’t owned a home in the past three years. Being a first-time homebuyer may seem daunting at first, but this situation actually has its perks. For instance, there are first-time homebuyer programs to help you get the best deal possible. So don’t feel frightened – owning a home is a big deal, and an exciting one!

In order to begin considering which mortgage options may be right for you as a first-time homebuyer, you’ll want to start at the base level, which is reviewing your finances. Make sure to check your credit score, evaluate your budget, and then consider where you stand with your ability to make a down payment and pay closing costs. Looking a little deeper, the higher your credit score, the better your chance of getting favorable loan terms – you’ll want to aim for 760 or higher. You’ll also want to make sure that your DTI (debt-to-income) ratio is low, since the higher your DTI ratio the higher interest rate you will have to pay. When examining different loan options, keep these things in mind: 20% down on a conventional loan will save you from PMI (private mortgage insurance), but you can pay as little as a 3% down payment with PMI, depending on the type of conventional loan. VA and USDA loans do not require a down payment, but FHA loans do require a minimum of 3.5% down. And finally, keep closing costs in mind. These usually range from 2-5% of the purchase price, so make sure you are able to pay these extra costs. You’ll also pay the earnest money deposit, which is usually 1% of the purchase price.

Picking Your Type of Mortgage

Next on the list, you’ll want to decide which type of mortgage to get. Consider whether you want a fixed or adjustable rate: fixed-rate mortgages never change, while adjustable-rate mortgages start with a lower rate but adjust as time goes on. Fixed-rate mortgages may be a better option for those who plan to stay in one place for a long time, but adjustable-rate mortgages could be a cheaper option for those planning to move after a short period. You’ll also want to consider the loan term; 15 year loans have lower rates but larger monthly payments, while 30 year loans will see the opposite.

Getting Pre-Approved as a First-Time Homebuyer

At this point you’ll want to get preapproved for a mortgage. A preapproval is the written commitment from the lender which tells you how much money they are loaning you. Keep in mind, this is not the finalized offer. The preapproval letter will include how much you’ve qualified to borrow, which loan program you’re going with, and your projected down payment. Note that the lender will go through all aspects of your financial profile, from pay stubs and bank statements to tax information. You’ll want to make sure you don’t skip this process, as sellers typically won’t consider your offer unless they know how you’re planning to pay for the home.

Finding Your Dream Home

After all that, and once you’ve found your real estate agent, you’ll begin the fun part – shopping for your new home. You’ll want to make sure you’re looking at homes that fit your budget and home needs – don’t waste your time looking at homes that don’t align with these things. Make sure that you also take a look at HOA documents if the home is part of a homeowners association so that you’re familiar with those rules and fees. Once you’ve found your perfect fit, you’ll want to make that offer quickly. Your offer should include the offer price, a quick turnaround time for the seller to respond, and contingencies, such as the appraisal and home inspection. Be aware that you will most likely negotiate on the price you offered with the seller. Your real estate agent will be able to help you determine negotiations.

You’ve got the offer letter in hand – now what? You’re going to apply for your mortgage, and within three days of applying you’ll receive the estimate for your loan terms which also outlines your potential closing costs. You’ll also want to consider using mortgage points (upfront fees you pay the lender so you can get a lower interest rate). If you choose to pay mortgage points, you’re prepaying some of the interest on your loan. For every point you pay, you are reducing your mortgage rate by .25%.

Final Steps

Your next step is to hire the home inspector. Their evaluation will determine the state of the home’s foundation, roof, plumbing, electrical systems, and HVAC. You and your agent should be present at the time of the inspection to ensure you’re able to get any questions answered. This inspection will reveal any major issues, which you can ask the seller to repair, but if they refuse and you’ve addressed inspection contingencies in your purchase agreement, you may choose to walk away.

You’ve made it this far – now it’s time to obtain homeowners insurance and finalize your move. Make sure the coverage you choose insures your home enough to rebuild if it’s destroyed. You may also need to purchase flood insurance if your home is located in a federally designated flood zone. It’s now time to close, which is where you’ll finalize the purchase contract and become the new homeowner. Before the closing, make sure you obtain up-to-date pay stubs to prove you’re still employed. Make sure to also get a check made out to the escrow company so that you’re fully prepared, and also bring your photo ID! Once you’ve done a final walkthrough, you’ll sign paperwork to finalize the loan and then the home is officially yours.

Home Sweet Home

You’ve made it through this long process and obtained your mortgage (and your home, of course). What should you do now? Well, you may have things you want to fix on your property, so start there. If you’ve set aside money for these repairs or renovations, you can begin your projects now. You can also look out for any changes to interest rates that may make you consider refinancing options. Your mortgage payment schedule is another consideration you may want to make. If you’re able to start making larger payments at any time, this can help you pay off your mortgage even sooner. There’s lots to consider even after you’ve moved in, but you’ve done the grunt work. Enjoy your new home as a first-time homebuyer!