Should You Follow These 4 Dave Ramsey Tips for Buying a House in a Cooling Down Market?

Home prices skyrocketed during the pandemic as mortgage rates plummeted. Many people jumped into the property market, eager to buy a home and take advantage of record-low rates.

Now, however, finance expert Dave Ramsey believes the market is slowing down thanks to rising mortgage rates and reduced demand. This doesn't mean that buyers can just jump into purchasing a place without some thought about the financial impact, though.

In fact, Ramsey recommends following four rules when purchasing a property in a cooling market. Here's the advice he wants you to follow, along with some thoughts on whether it's worth listening to.

1. Get mortgage pre-approval

Ramsey recommends working with a mortgage lender early in the process of looking for homes so you're ready when a house comes up.

"Get a mortgage pre-approval," he advises. "This way, you have proof from a lender that they’re willing to work with you. Getting pre-approved will show sellers you can back up your offer with real money, which will put you in a much more competitive position."

To get pre-approved, you'll need to provide your financial information to mortgage lenders who will review it to make sure you can get a loan. They'll offer you a rate based on how qualified a borrower you are, which you may be able to lock in for a period of time. They will also give you a pre-approval letter.

Ramsey is right that it makes a lot of sense to get pre-approved for a mortgage. Many sellers won't let you come see a property without pre-approval, much less accept an offer from you. Even though the market isn't as competitive as it was, not having pre-approval could mean missing out on a chance to buy a home.

2. Stay on budget

Ramsey's next tip is to make sure you don't overspend and end up purchasing a house that comes at a higher cost than you've determined you can afford.

"Stick with your budget. We know it’s frustrating to look for a home, only to see the ones you want are all outside your price range. But buying a house you can’t afford turns the blessing of homeownership into a curse real quick," Ramsey warns. "Stay patient and keep your mortgage payment to 25% or less of your monthly take-home pay!"

This is another Ramsey tip worth following. It is really tempting to stretch your home-buying budget, especially if a lender is willing to loan you more. But, when you become house-poor by devoting too much of your monthly income to your mortgage and other housing costs, it can make life stressful and leave you falling short of other important financial objectives.

3. Get the right mortgage

Getting the right mortgage is another key piece of Ramsey's advice. And there's one specific kind of loan he recommends.

"The only home loan we recommend is a 15-year fixed-rate mortgage. It's the cheapest, quickest way to own your house outright -- other than paying with cash," Ramsey explains.

On this point, though, listening to him likely isn't wise. A 15-year mortgage is going to cost you a lot more per month even though the starting rate is lower. That's because you'll be paying off your loan in half the time.

Say you're borrowing $240,000. With a 30-year fixed-rate loan at 7.245%, you'd be looking at a monthly payment of $1,636 (not including taxes and fees). But if you opted instead for a 15-year loan at 6.242%, your monthly payment would go all the way up to $2,057.

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Spending so much extra on a home loan rarely makes sense because the return on investment (ROI) is just the interest saved. You can usually get a better return by investing the amount you would save by opting for the loan with the longer term. This means you'll have a higher net worth in the long run.

4. Work with a real estate professional

Finally, Ramsey recommends hiring a buyer's agent to help in your home purchase. "Whether you’re in a hot market, a cold one or somewhere in between, buying a house can be stressful. So partner with an experienced real estate agent," he advises. "A good agent will walk you through all the complex details to close on a home -- no matter what the housing market looks like!"

This advice makes a lot of sense as well. You don't pay a buyer's agent directly -- the seller does. And your real estate agent can help at every step of the process, from finding houses to making an offer.

You should seriously consider following three of these four tips, with the only exception being opting for a 30-year loan instead of a 15-year loan. If you do, you'll help to set yourself up for a successful purchase in this cooling market.