3 Reasons to Hire a CFP® When Buying a Home
With the median sale price of a home in the US rising to $416,200 in 2023, there is an argument to be made that one of the largest purchases of your life shouldn’t be made alone. Oftentimes, the experts you lean on in the home buying space might include your realtor, mortgage lender, or a family member who has gone through the process before.
Most people don’t consider their financial advisor for advice because they are often only seen as experts in managing investments or retirement plans. Here are three reasons why you should consider hiring a fee-only, fiduciary Certified Financial Planner™ before you sign the dotted line on your next mortgage.
1 - Pre-Approvals Are NOT Financial Advice
Before you start scheduling tours with your realtor, the first step in the home buying process is to get pre-approved for a mortgage so that your realtor knows what houses are in your price range.
Lenders are pre-approving you based on an outline of regulated criteria which usually includes your credit score, proof of income and outstanding debts. This formula spits out a number that the government thinks you should be able to afford based on the Dodd-Frank Act, which was put in place after the financial crisis in 2008.
I’m sure Chris and Barney (Dodd and Frank) put a lot of time and effort into the regulation to protect you from predatory lenders, however it is impossible for them to quantify the costs of how you plan to raise your children, when and how you would like to retire or how often you click “Buy Now” on Amazon.
Finding a financial planner who is asking these types of questions will help give you confidence that the home buying budget you are setting takes into consideration the other goals in your life that are important.
2 - This Isn’t 1989
As much as you might want to lean on your parents or an elder role model during this big decision, the home buying landscape likely looks different from when they bought their last home.
You have to consider your source when the median home price in 1990 was $121,500, which is about as much as you will need for your down payment. Not only are home prices vastly different, but lifestyles are as well.
Women in the workforce has increased by more than 30% since 1990, which means that household incomes have changed, but so have ancillary expenses. Some lifestyle expenses (sometimes called lifestyle creep) that young couples might overlook are the costs of child care, excess food costs due to lack of time/energy to prepare meals, student loan payments, and increased transportation costs to name a few.
Working with a financial planner who has experience working with clients in similar situations to yours is important so that they can share information that is relevant to you, not your parents.
3 - Home Inspectors Don’t Inspect Your Budget
One of the last items on the home buying checklist is to pay a third party professional to inspect the home you have under contract. It may be easy to see a water spot in the ceiling caused by a leaky faucet or a crack that needs repaired in the sidewalk, but it is usually the less apparent flaws that will make your dream home not so dreamy.
Testing for radon, broken underground sewer pipes, and mold behind damp walls are all major issues that most homeowners can’t detect on their own without the help of a professional.
In my opinion, the same inspection process should be followed for your personal finances as well. You may have a handle on your monthly budget or think you are saving enough for your down payment, but it is usually the less obvious financial details that can have negative long term effects on your financial goals.
For example, your lender will use the current real estate tax figures to calculate your monthly escrow payment (for taxes and insurance). They aren’t required to disclose that most municipalities reassess the property when the deed transfers to a new owner, which in many cases will cause an increase in your property taxes (and monthly payment). Lenders also don’t factor in how much it costs to maintain your home, how much you spend on childcare or how you would be able to afford your mortgage if one of the spouses was laid off.
The excitement of buying a house can sometimes cloud rational decision making and we believe that having an independent financial planner involved will help take the guesswork out of your Zillow searches. Financial advice doesn’t have to be limited to your investments. Consulting with a fee-only CFP® can help provide clarity when making a decision on anything in life that has a dollar sign attached to it. Learn more about how we help homebuyers.
