Speaking with a financial advisor can help potential buyers iron out the wrinkles that accompany the home-buying process — from qualifying for a mortgage, to paying off debt for better rates and helping steer clients to make smart decisions that impact their financial future.
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Try This: 7 Reasons You Must Speak To a Financial Advisor Before Spending $50,000 or More
In our guide, we bring three significant reasons to consider speaking to a financial advisor before purchasing a house in 2024.
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1. Learn Financial Strategies to Help You Qualify for a Loan
Tyler End, CEO and Co-Founder of Retirable, who is a Certified Financial Planner, recalls how he recently helped a couple who got turned down for a mortgage turn their financial situation around, so they could qualify.
His clients, let’s call them the Millers, were retired. One of them was on disability, so he was no longer able to work. “They had some assets, were sick of renting, their rent kept going up, and they wanted to buy a home in retirement,” said End.
The Millers initially had their mortgage application declined because most of their money came from fixed income; the bank wanted to see that there was more money coming in so it wasn’t a risk for them to default on the loan,” said End.
“Their ratio was lower than what the mortgage broker wanted to see, but we were able to help them out because they had some [investment] accounts with us,” End said.
“We were able to start sending them periodic distributions from their retirement accounts, and we showed [the bank] it was set up to be ongoing from our clients’ retirement accounts to their checking accounts that they weren’t necessarily spending, but it proved to the bank that they had additional money that was coming in as income,” said End.
“The Millers were able to qualify for that mortgage and get their first home purchase ever, which was great because it was near their kids,” said End.
“They really wanted to move to an area where they could see their grandkids.”
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2. A Financial Advisor Can Be Your Voice of Reason
“I think the biggest reason to work with a financial advisor when you’re going through the decision of buying a home is usually an emotional-based decision,” said End.
“It’s not just a dollars and cents decision, and it’s usually stirred by something emotional: downsizing because of a health concern, and because of that when [looking] to buy a house it’s easy to get wrapped up [in emotion].”
“If you work with a financial advisor, they can be this third party to remind you that it’s going to be a huge financial decision that’s going to have long-term implications,” End said.
“What’s really pressing is this fluctuation of interest rates has a direct impact on what you’re going to be spending on your mortgage,” he added.
For example, you’re thinking, “I want to buy a house that is close to my grandkids; my budget is $300 grand, but then think, this one has a backyard, and now [you’re] looking at $350 and okay, this one comes with an attached garage, and I’m at $400 and you get really invested and say that’s the one, it’s going to be the best upgrade for my lifestyle, whatever it is, and all of a sudden you’re outside your budget,” said End.
“I think it’s important to have that objective decision-making sounding board alongside you,” he said.
3. Financial Advisors Can Provide a Big-picture View of Your Finances
Financial advisors can provide a holistic picture of your current financial situation and create a plan for your long-term goals. They can look beyond the home price to ensure you don’t take out a loan you can’t afford to pay even if you qualify.
Some things advisors can examine include mortgage, taxes, utilities, business expenses, retirement savings, your child’s or grandchild’s college fund, annual family vacations, other expenses and investments you wish to include in your financial plan.
Financial advisors also advise homeowners on building an emergency fund they can access without being penalized when needed. End recommends putting money in a high-interest checking account rather than a CD.
Having money in a checking or savings account will allow instant access to your money for unexpected events such as home repair and replacement needs, such as an HVAC system breaking down or a roof that needs replacing, which is usually not covered by a home warranty.
If you experience a layoff, unemployment insurance may not be enough to make your mortgage payments. End recommends having a three to six months of your income of funds you can access for unexpected events.
It’s an interesting time to buy a house in 2024, said End. Buyers eagerly wait for the FED’s decision in September to see if the interest rates will go down. But they also wonder if they should invest in a home now because there will be more buyers later.
“There are a lot of trade-offs that they need to consider that a financial advisor can help you with,” End said.
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This article originally appeared on GOBankingRates.com: 3 Reasons You Should Speak to a Financial Advisor Before You Buy a House in 2024
