Advising your clients on buying their first home

April 05, 2019 by Tyler Martyniak

About the author

Tyler Martyniak

Account executive

Tyler Martyniak is an account executive at Advicent, the financial planning technology provider of choice for nearly 100,000 financial professionals.

Holistic financial planning is all about being a financial life coach and go-to resource for your clients. Buying their first home is one of the largest decisions they will make and can be daunting especially for younger clients. When you throw in the potential financial ramifications between renting and buying and how their decision will impact their future financial situation, the process becomes even more difficult.

It is a financial advisor’s job to guide clients through this process and illuminate them on all the potential impacts a home purchase will have on their goals. Here are various considerations to take when guiding clients through the first-time home buying journey.

Is it truly time to buy instead of rent?

Though clients may come to an advisor with their hearts already set on making their first home purchase, it is important to ensure they have considered everything that comes along with home ownership. Many times, people inherently believe that home ownership simply offers more benefits than renting does. Clients may think “why would I prefer to pay rent when I could own and gain equity from my mortgage payments?”

Often, the true cost of ownership is underestimated. Insurance costs, property tax, closing costs, and general upkeep usually are not factored into an individual’s buying decision. Financial advisors should help clients understand these ‘hidden’ costs and show what to truly expect in the short and long term.

What can they afford?

Homeownership and mortgage debt is a perfectly good element in a solid financial plan, as long as it doesn’t impede the client’s ability to save for their future goals. If clients are currently paying off substantial debt, expecting a new child, or planning some type of large purchase in the near future, holding off for a more stable period of financial health may be worthwhile. Tools to compare different scenarios, such as NaviPlan’s scenario manager, will be useful to show the impact a home purchase will have on a client.

Here are some questions advisors should consider with their clients:

  • “Will your new housing costs still allow you to save 12-15% of your pretax income?”
  • “Will your plan work for both a 15- and 30-year mortgage?” And show the benefits of each option.
  • “Are you capable of maintaining a reasonable emergency fund?”
  • “What is your contingency plan if various unfortunate circumstances arise right after purchasing your home, such as losing your job?”
  • “How much of a down payment makes the most sense?”
  • “Are the current market conditions advantageous to your home buying goals?”
  • “Is your current credit adequate for a quality mortgage?”
  • “What other debt are you currently carrying?”
  • “How long do you plan on living in the home or area?”

Going through these questions is important to ensure clients have covered all their bases covered.

“How I can help” vs “What you must do”

When advising clients on their home buying journey, think about how impactful the tone of advice can be. Rather than telling a client “this is what you must do,” presenting different options and showing how their choice can work into their short- and long-term financial picture is much more supportive. Remember that it is an advisor’s job to help navigate difficult decisions and, even if they choose something other than the perfect financial choice, they will be supported to make it happen.

To learn more about how NaviPlan is built to meet the needs of any planning strategy, click here.