What Issues Should I Consider When Buying A Home?

Buying a home is one of the biggest financial moves that our clients will ever make. There are a number of issues they should be aware of, including how the costs of purchasing and owning a home will impact their overall financial planning goals.

In this checklist, we cover a number of financial issues that our clients need to consider when buying and owning a home, including:

• Cash flow issues, such as the costs to maintain the home once they own it, the impact that owning a home will have should one spouse need/want to stop working to raise children, as well as how long they intend to live in the home.

• Financing issues, including your clients’ debt ratios, qualification for advantageous mortgage terms and/or special lending programs (e.g., VA loans), and the loan application process.

• Income tax and estate planning issues, including mortgage interest deductibility, basis tracking, and how to properly title the home.

• Insurance issues, including property and casualty policies, and appropriate levels of life insurance coverage.

This is a comprehensive checklist of the types of issues that advisors should be discussing with their clients who are considering purchasing a home. Clients are not always fully aware of the financial ramifications of such a major decision, and it is our role as their advisor to ensure that they are equipped to deal with these issues, allowing them to enjoy homeownership to its fullest.

Purchasing a home is a significant financial decision that can greatly impact your overall financial planning goals. It's essential to consider various financial factors to ensure you make an informed choice and avoid potential pitfalls. In this blog post, we present a comprehensive checklist compiled by Todd Pouliot from Gateway Financial, covering essential financial considerations when buying and owning a home. By addressing these issues, you can make informed decisions and enjoy the benefits of homeownership to the fullest.

1. Cash Flow Issues: Owning a home involves more than just mortgage and insurance payments. Consider additional costs such as property taxes, homeowner's insurance, utility bills, maintenance expenses, commuting costs, childcare, and private education. Evaluate how these expenses will impact your financial situation, including your ability to achieve other financial goals and save for retirement. If you plan to live on one income, ensure that the new home and its associated costs fit within your budget.

2. Financial Issues: Examine your debt ratios, qualification for favorable mortgage terms, and special lending programs such as VA loans. Explore different mortgage options, including fixed and variable rates, FHA loans, and reverse mortgages. It's crucial to be aware of competitive interest rates and to consult multiple lenders or brokers to find the best deal. Keep in mind that lenders may offer you more money than you should spend on a house, so be cautious about becoming "house poor" and living beyond your means.

3. Income Tax and Estate Planning Issues: Understand the implications of mortgage interest deductibility, tracking basis for tax purposes, and determining the proper title for your home. If property and state income taxes exceed $10,000, you may not be able to deduct the excess amount. Consider if part of your home will be used for business purposes, as it may qualify for home office deductions. Review your estate plan and update it accordingly to reflect the new home purchase.

4. Insurance Issues: Evaluate your insurance needs, including property and casualty policies and life insurance coverage. Explore bundling options to potentially reduce costs and consider obtaining an umbrella policy for added protection. Be aware of any state-specific tax benefits for homeowners and ensure your coverage is aligned with your new home's requirements.

5. Additional Considerations: If you plan to buy a second home or rental property, understand how it should be titled and consider using an LLC to protect yourself from personal liability. Assess whether your need for life insurance has changed due to the increased debt from homeownership. Review your home and auto policies for potential cost savings through bundling or increasing coverage limits. Finally, if the home purchase is the result of an employment change, check if you are eligible for relocation assistance from your employer.

Buying and owning a home requires careful financial planning and consideration of various factors. The checklist provided in this blog post offers a comprehensive guide to help you navigate the financial aspects of homeownership. It is crucial to consult with a financial advisor or professional to ensure you make well-informed decisions that align with your long-term financial goals. By addressing these financial considerations, you can confidently embark on the journey of homeownership and enjoy its benefits while maintaining your overall financial well-being.