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

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.