Should You Get Pre-Approved for a Mortgage? Here’s What Dave Ramsey Says

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

It’s a move you may want to make for several reasons. 

The process of searching for and buying a home can be a stressful one. This holds true even in the most buyer-friendly housing markets.

Today’s real estate market, however, is anything but. And since housing inventory is still very low on a national level, it’s important to do what you can to give yourself a leg up over the competition.

To that end, financial guru Dave Ramsey has some solid advice. And it’s worth following it if you’re serious about being able to buy a home in the near term.

Get pre-approved for a mortgage

Getting pre-approved for a mortgage is not the same thing as signing an actual mortgage loan. But what a pre-approval letter does is show home sellers that you’re a serious buyer whose finances have already been looked at by a lender. And that’s an important document to have in a tight housing market where there’s still a lot of competition for available homes.

As Ramsey says himself, “Getting pre-approved for a mortgage before you go house hunting is a must in any market. And it’s even more important when home supply is low. If you don’t do this legwork ahead of time in a market like this, you could give a pre-approved buyer free rein to swipe the home you want right out of your hands.”

Remember, when a home seller enters into a contract with a buyer, they take the risk that the buyer in question may not be able to qualify for a mortgage on the property they’re looking to purchase. And that could lead to a deal falling through.

That’s why so many sellers prefer cash offers. Those don’t hinge on mortgage approval, so if a buyer can prove they have $500,000 sitting in their bank account they can transfer to a seller at any time, that’s more of a sure thing.

But when you come in with a mortgage pre-approval letter, you give your seller similar peace of mind. And so if you’re competing with another buyer for the same home, and that other buyer didn’t get pre-approved for a mortgage and you did, it gives you an instant advantage.

Help in narrowing down your home search

In getting pre-approved for a mortgage, the lender you work with will tell you what amount you’re pre-approved for. And that could help you embark on a more efficient home search.

If you’re told you’re pre-approved to borrow up to $400,000, and you have $100,000 to put down on a home purchase, it means you’re looking at a $500,000 limit. So in that case, you’ll know not to bother looking at homes in the $600,000 range.

All told, getting pre-approved for a mortgage is a smart move to make in a market like the one we’re in today. But even during markets where buyers have the upper hand, it still pays to get pre-approved for a mortgage for the numerous benefits involved.

Just keep in mind that your mortgage pre-approval letter might have an expiration date on it. So it’s best to get pre-approved for a mortgage once you’re serious about starting your search for a home.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More