How a Financial Advisor Helps Plan for a Home Purchase

Buying a home is often one of the most consequential decisions you’ll make in your adult life. It takes careful planning, saving, and patience to successfully purchase and own a piece of property. While you can go it alone, having a financial advisor by your side can help you be more prepared for such a significant milestone.

In this article, we’ll explore five ways a professional can assist during the home-buying process, including determining the right time, structuring your budget, and how it fits into your overall plan. You’ll also learn how to find an experienced expert who suits your situation and goals.

1. Deciding When You’re Ready to Buy

Knowing when you’re ready to buy a home is a crucial choice that requires careful financial planning. A home purchase demands significant savings for a down payment and closing costs. Coupled with fluctuating real estate prices, this makes it difficult to determine the right time to commit.

“The emotional excitement of homebuying can often lead people to rushed financial decisions,” says Ben Loughery, CFP^®, CRPC^™, financial advisor and owner of Lock Wealth Management. He adds that a “financial advisor serves as a rational, numbers-driven partner who can help through this.” The guidance of a professional can provide you with the perspective and financial analysis needed to make a well-informed, strategic decision rather than an emotional one.

More specifically, an advisor can assess your financial health by reviewing key factors like your credit score, debt-to-income ratio, and cash flow to determine whether buying now is the right move. For example, if a down payment depletes your savings and leaves you without an emergency fund, they may advise you to hold off until you’re in a stronger position.

“I like to sit down with people as soon as possible during their home-buying process,” shares Marcus Sturdivant, Sr, a financial advisor based in North Carolina. “The benefits of seeking out a professional at this point,” he continues, are “basic cash flow analysis, talking the plan out, and setting SMART Goals.” By working with an expert, your homeownership goals are likely to come into clearer focus, allowing you to formulate an actionable strategy to get there.

2. Creating a Savings Strategy to Plan for a Home Purchase

Buying a home requires several major expenses, including a down payment, closing costs, and a monthly mortgage. To be able to afford it, you must diligently plan and save with your goal in mind. A financial advisor can help you develop a comprehensive savings and investing strategy that aligns with your income, expenses, and risk tolerance.

Being a first-time homebuyer requires a significant down payment, which typically ranges from 8% to 20% of the total list price (not including closing costs). By working with a professional, you’ll be able to map out how much you should save per month and, potentially, build a short-term investing plan to get closer to your goal. According to Loughery, advisors can also “make sure [you] don’t drain [your] emergency fund reserves for a down payment, leaving [you] vulnerable to unexpected costs.”

As mentioned above, an advisor may be able to help you select investments that are optimal for saving for a home. This may include:

• Certificates of deposit (CDs)
• High-yield savings accounts (HYSAs)
• Bonds
• Treasury bills
• Money market funds

Because buying a home is such a big investment, it takes careful planning to ensure you’re financially stable afterward. By implementing a realistic and actionable savings strategy under the guidance of an advisor, you’ll be better equipped to realize your goals without overextending.

3. Establishing a Budget to Include Homeownership Costs

Once you become a homeowner, you bear all of the financial responsibilities that come along with it. This may include:

• Monthly mortgage payments
• Utilities (water, electricity, gas, etc.)
• Homeowners Association (HOA) dues
• Appliance repair and replacement
• Homeowners insurance
• Property taxes

Even if you’ve saved enough to buy a home, paying for all of the above becomes another challenge to overcome. Before and after you buy, a financial advisor can help you establish a budget that factors in these costs. This can be highly beneficial in keeping you organized and reeling in additional discretionary spending if it’s not within your budget.

For instance, suppose your total monthly home-related expenses equal $2,700, including a $2,000 mortgage payment, $300 in utilities, $150 in HOA dues, and $250 in insurance and property taxes. If your income is $6,500, your advisor might recommend keeping non-essential spending under around $1,500 per month while prioritizing savings for home repairs and unexpected costs. Keep in mind that this is just a general example and your advisor can help create a budget tailored to your unique financial situation.

“I personally remember buying my first home that I lived in for five years. There is a lot more work and projects you may want to take on or at least that was my experience,” Loughery relates. Your financial advisor will be able to help you plan for these unexpected costs so that they don’t derail your other goals.

4. Helping You Avoid Common Mistakes While Buying a Home

The home-buying process can be overwhelming, especially for first-time buyers. With so many decisions, it’s easy to overlook crucial details that could impact your long-term financial well-being. Luckily, a financial advisor can act as a second set of eyes, helping you avoid common mistakes and be more decisive.

Taking on too much house and underestimating the costs of ownership are potential mistakes that are easy to make. Loughery, a financial advisor with homeownership experience, warns that not accounting for “total homeownership costs – property taxes, HOA fees, maintenance, and insurance can make a home more expensive than expected.” These additional costs can turn what seems like an affordable home into a financial strain if you don’t factor them in from the start.

Another common mistake is using too much of your savings to make a down payment. “Draining savings for a down payment…can create major financial stress” because it leaves you with “no emergency fund” to bail yourself out of unexpected costs, says Loughery. Without having saved enough, you may struggle to handle financial setbacks, like job loss, sudden repairs, or a medical emergency.

It’s also possible to overestimate how much you can afford. Sturdivant notes, “Far too often, people are approved for X amount of dollars and look to buy a home right at that limit. I would advise against this.” Instead, he says that it’s ideal to keep “a buffer from the total loan amount and how much you actually borrow.”

5. Fitting a Home Purchase into an Overall Financial Plan

Buying a home doesn’t just mean finding a place to live, it’s also a major investment that can impact your financial plan. Owning a home can be a powerful tool to help you build wealth and, in some cases, boost your retirement savings if you choose to sell one day. An advisor can work with you to fit this asset into your overall financial plan so you can see how it could benefit you.

Beyond the logistics of affording and owning a home, an advisor can also help you assess whether you should “put more down upfront or invest excess cash elsewhere for higher returns,” such as in a retirement or taxable brokerage account, explains Loughery. With their investment acumen, a professional should be well-equipped to help you make such decisions.

As mentioned, your home can also be an important tool for retirement planning. Your advisor may also be able to help you determine how selling your home or using it as a rental property later on can fit into your long-term plans.

How to Find a Qualified Financial Advisor

As a potential homebuyer, selecting a financial advisor that best suits your needs is crucial. To begin with, it’s essential to find a professional with relevant credentials, such as a Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC). These both indicate expertise in holistic planning and require professionals to adhere to a fiduciary duty.

Depending on your situation, you may also want to pay close attention to an advisor’s fee structure. As a first-time buyer, you may not have enough investable assets to work with an advisor directly on an assets under management (AUM) fee basis (although smaller firms may offer this structure for clients with fewer assets). If this is the case, a flat-fee schedule, focusing on hourly or per-project rates, may be optimal.

If you need help locating a high-quality financial advisor, we recommend using this free matching tool. After filling out a brief quiz regarding your goals and current situation, it’ll connect you with a professional who aligns with your needs.