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Thursday, March 27, 2014

First time Home buyers – before you even consider buying a house

This is the first in a series of posts for the first time home buyer. In most posts in this series I’ll be discussion topics directly related to the home buying process. In this post I examine what you need to do well before you get into the home buying process and look at the question – “What should I do to get ready to be a home buyer?”

First let me say, welcome to the big time. You may have made other buying decisions already – a car usually being the biggest purchase before a home – and you may even have made some other big financial decisions, those may have involved student loans. But here you are starting to think about buying a house. Good for you. Let me give you a piece of advice that too many of
use learn too late – get yourself a financial adviser first.

When you get to this stage in life (and hopeful even before), you should stop trying to “play it by ear” and professional help to get your financial life in order. Now you may think that it’s too early, that you don’t make enough yet to worry about having a financial advisor; but, I would argue that it is the perfect time to start, before you dig yourself into too many big holes.
A financial advisor at this stage in your life (and in any stage for that matter) is not about how much you make, it’s about what you do with what you make. It’s about working with a pro to set up a budget for yourself and getting the discipline to start saving for the things that are important in life, like a home and like your retirement. The good news is that it is actually much more affordable than you may think. Most financial advisers charge an up-front fee to set you up as a client and get you started with a Financial Plan; but that fee is really nominal in the grand scheme of things. You should discuss fees and how the adviser will work with you in the future before signing up. Most get a good portion (sometime all) of their fees from the investments that they make for you.

You may be saying, “Holy crap, I’m only in my 20’s, why should I be thinking about retirement
now?” Because the longer you r wait, the deeper that hole gets. It doesn't matter if you can only put $10-20 per paycheck into your retirement fund now; what matters is that you are putting that money in and giving it time to grow. Have your adviser show you what your $20 per pay check today works out to be worth 30-40 years from now.

Your financial adviser will recommend the same disciplined approach concerning a house purchase. He/she will help you set up a budget and understand what you can and cannot afford for housing at this stage in your life.  He/she will be able to discuss with you all of the factors other than the price of the house that you’ll need to consider and budget for; things like insurance and taxes and furniture and maintenance.

It may well be that a good financial planning session will reveal that you are not yet ready to become a homeowner. If that’s the case, at least you’ll know it ahead of making a mistake and will have a plan to get in position for that step in your life. We make jokes about “putting on your big boy (or big girl) pants”; but buying a house is a serious move and you need not only to put on those pants, but to start acting like a big boy or girl and get the professional help you need to start and maintain a more disciplined approach to life and your finances.


For those who scoff at the need for a financial adviser I am reminded of a TV commercial some time back that showed a guy on the phone with his doctor. He has a butter knife in his hand and the doctor is saying to him, “Now, first make a three inch incision in your chest right below your left breast.” The guy has a befuddled and frightened look on his face. There are just some things that you can’t do for yourself and good financial planning is usually one of them. You don’t have the tools and the training. I realized that in my own life, albeit it a little late (in my 30’s instead of my 20’s), but it has proven to be one of the best things that I ever did. If you've in my area of Michigan I can recommend some good financial advisers. If you are elsewhere here’s a good article from the Wall Street Journal about how to find and choose a financial adviser. 

Good luck. You’ll look back upon the decision to do this as a key to your success in life.

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