Long-Term Financial Preparations for a Home Purchase & How Adam Can Help
- Adam Garrett
- Jun 14, 2023
- 8 min read
Updated: Jun 9
I regularly am contacted by prospective buyers who are looking to buy but who can't qualify. While some agents may not want to help a buyer get ready to buy, that's typically not the case. Also, some agents are better equipped than others with getting a buyer ready to buy.
Disclosure: I'm Not a CPA or CFP
Disclosure: Please keep in mind that I am not a certified public accountant and that one is best consulted prior to taking action based on tax implications. I am not a certified financial planner. Any tax-advantaged discussion, investment discussion, or other primarily financially focused discussion is Adam's unprofessional opinion.
No Search With Immediate Updates If Not in a Good Position to Buy For Months
Typically if not looking to buy for months it wouldn't be opportune to go heavily in depth in a search, and if a search was created, it shouldn't have immediate updates for homes, but either not have any updates, or only monthly updates.
No Search With Any Updates if Not in a Good Position to Buy for Years
For those not looking to buy for years, you may want to forego putting together a search entirely in an initial consultation. If you do want to put one together, keep in mind that the pricing 3 years from now and the interest rates could paint a very different pictures, and that your own financial situation could be very different in 3 years.
The Topics that Could be Discussed in an Initial Consultation with Adam for Those not in a Good Position to Buy for Years Who Plan to Use a Mortgage:
Many buyers are unaware of the long-term impact that the below topics can play in getting a mortgage. With all of these topics, they're actually better discussed in childhood than in adulthood, so there's really no reason to wait at all to discuss these if you're already an adult, even if you don't plan to purchase for 5 or 10 years from now.
Financial Accountability Is Proven to Increase Your Success
Did you know that it's been proven that those who are accountable with others about their written goals are statistically more likely to accomplish those goals than those without goals?
An article published on the website for the Association for Financial Counseling & Planning Education states that "A recent study on accountability was done by the Association for Talent Development. This article references the study https://uponly.co/2015/01/08/how-to-increase-the-odds-of-reaching-your-goals-by-85-2/.
The researchers found that individuals have the following probabilities of completing a goal by taking these actions:
Having an idea or goal: 10% likely to complete the goal
Consciously deciding that you will do it: 25%
Deciding when you will do it: 40%
Planning how to do it: 50%
Committing to someone that you will do it: 65%
Having a specific accountability appointment with someone you’ve committed to: 95%"
The Impact of Taking Too Long to Get Ready to Buy
Sometimes a buyer will take years to get ready to buy. In some cases buyers need to take those years, in some cases it's best for them to do all those steps, and in other cases, they really should have pulled the trigger sooner rather than later and shot themselves in the foot by waiting. I've seen where I was working with a buyer, whose parents were involved in their son's decision, and they were horrified that the price per square foot from the start of when we looked and a few years later had gone up by over 30% due to rapid appreciation following rapid inflation. In some cases, buyers spend lots of time on a 20% down payment, only to find out later that they would have been better off with a no down payment loan due to appreciation that occurred between when they started saving and when they pulled the trigger on a purchase. Interest rates are a big factor as well. In addition, sometimes high savings can disqualify you from options for down payment assistance or other incentives/assistance.
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Debt Reduction
Many buyers have "bad debt", where the best attack is a good defense of never getting into it. That's why a discussion in childhood, or long before purchasing, is ideal. For more on the "debt snowball", which is a solid step for getting out of debt if you're already in it, view the video below:
Budgeting
If you don't have a budget and stick to it, no matter what your income, you'll always be financially behind. I even spoke to someone with an under $750/month income who was able to purchase and one of the reasons why she was able to do that is because she budgeted well enough to be able to not get into too much debt, as discussed in the section above. For more details on a budgeting discussion, go to my page on the subject here.
Growing Savings & Investments
This category is one of those that should ideally start in childhood. Where should your money go while you're saving? Many agents aren't well informed on the subject, but if you're working with me, you're not working with a typical agent. I have over 20 banking and credit union accounts to fill various niches. I can guide you as to what banks you should consider if you don't already have a no monthly fee high interest savings and checking account(s). I can also guide you into the importance of using more than just 2 accounts at more than 1 institution in order to allocate designated funds towards different expenses, such as an emergency fund, auto fund, education fund, tax fund, housing fund, etc. To see more of my banking recommendations, go here.
Insurance
Did you know that what kinds of insurance you have prior to purchase can dramatically impact your ability to purchase? That's right, if you have the wrong insurance, or don't have the right insurance, you can either hurt your credit or end up getting disqualified for the home you want due to the need for a new loan to keep your credit intact, impacting your overall debt to income ratio. For more information on what insurance options might be best for you, I'm not an insurance agent, but I do know more than most on the subject. Also, sometimes those in the business will encourage you towards products that I wouldn't recommend, such as whole life insurance. In addition, if your net worth is high enough, there are some insurance options you don't need at all. Social security amounts & family status are also factors to consider when considering insurance.
Credit
Did you know that some real estate agents can help you boost your credit score for free? That's right. I've successfully helped numerous buyers and prospective buyers boost their credit.
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Programs to Reduce Home Cost
Did you know that 0% interest loans are available for those who meet certain criteria and apply during a small window once a year, who then complete hundreds of hours of community service? All that takes time, and if you wait to know about things like that until right before you plan to purchase, it will be too late. Likewise, something like NACA, with no closing costs, no down payment required, and no credit score considerations, typically takes 3-6 months prior to purchase.
In some cases, your savings can actually work against you with programs, with maximum asset limits with certain programs, so knowing the rules of the program you are planning on using is critical early on so that you aren't spinning wheels.
For more examples of programs to buy that don't require a down payment, go here.
Saving on Taxes
Many people don't get the net income that they could because they aren't smart about their taxes. While I have a relatively elementary understanding of tax savings compared to someone like a CPA, tax advantaged options like the following can be highly beneficial when saving for a home, with the most dramatic savings occurring if they occur for years and all or a portion of the savings go towards a savings account or investment account like a Roth IRA for a home purchase:
1. a Roth IRA that can at times be used towards a home purchase without penalty as long as taking from principal after 5 years of Roth IRA ownership
2. Savers Credit that can combine with a Roth IRA to reduce low-income buyer's tax burden by as much as 50% of their contributions to a Roth IRA or other retirement plan, with substantial additions to savings accounts available in some cases
3. a Health Savings account that enables both tax deductions on contributions and no taxes on earnings to reduce buyers' taxes who meet qualifications including a high deductible health insurance account
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Appreciation Projections
While most interest rate projections are only a year out, it is helpful to know where the market is going. Appreciation projections can impact the speed with which you seek to purchase & what time of the year you look to purchase. For more details, go to my page on the subject here.
Interest Rate Projections
Mortgage interest rates often have projections further out than 1 year. In light of that, it's helpful to know where interest rates are going per the experts. Interest rate projections can impact the speed with which you seek to purchase. For more details on rates & projections, go here.
For more details
When You Want to Buy, Will Purchasing Be Your Best Option?
Purchasing isn't for everyone, despite buyers having 40x the net worth of renters on average per CNBC. It's helpful to discuss early on if buying is best for you in the future so that you have a better idea about how you should be positioning yourself.
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Getting Professional Help
Consider speaking with a certified public accountant on your taxes and a certified financial planner or similar substantive certification about other elements of your finances. While I am not certified in either, they will be better versed in your needs and what is ideal for you in many cases. That said, be careful about who you speak to and be sure that you can trust them. A "Certified Financial fiduciary" is more likely than a typical financial planner to both know what they are doing and to have your interests at heart. Also, someone paid by the hour with no commission-based options who doesn't have a financial incentive for you to acquire their brands of products will be more trustworthy.
For instance, I recall a conversation I had with a "financial planner" that wasn't paid by the hour who stated that if I were to become disabled that I would need to sell my car and use the funds received from that prior to being able to receive social security income. I wasn't married at the time, & 1 car per household is allowed to still receive SSI. I like to be candid with people, so when it didn't sound right, I fact-checked them on the spot and called them out on it. She wanted me to purchase long-term disability insurance that she would have received a % of as payment. If you opt for a commission based option, some are a lot more trustworthy & knowledgeable than others. Check their reviews (particularly looking for their integrity, selflessness, etc.), experience level, education level, and certifications before agreeing to meet, even if it's a free consultation.
Getting Non-Profit Help
There are a number of options listed here with availability across the US from the website Needhelppayingbills:
If looking for non-profit options, either of the 2 below are local options available:
https://www.theupcenter.org/how-we-help/crisis/housing-financial-counseling/
2. https://www.cceva.org/need-help/financial-housing-counseling/
The closest offices for many are in Chesapeake & Newport News
Call (757) 484-0703 to schedule a budget counseling session
Getting Help from Adam
While I'm not a certified financial planner of certified public accountant, I know more than most about finances and have template based & article based options I've created to assist with buyers I serve free of charge in their finances.
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