Preparation is a Small Price to Pay
Article published in Northampton Living
(July 2023)
EXPERT CONTRIBUTOR
LOU DAVIS
Financial Planner
Davis Financial Group 413 584 3098 ldavis@davisfinancialgrp.com davisfinancialgrp.com
The couple wanted desperately to buy a house in the Valley. They were tired of renting. Or perhaps they wanted to move closer to their parents, or to better schools for their kids.
But like many prospective buyers, they were priced out of the Valley’s housing market, with its sky-rocketing prices, limited inventory, and rising interest rates. They couldn’t come up with a down payment and they wondered whether they could afford the monthly mortgage. And so they decided to give up the dream of home-ownership, at least for the time being.
It’s a sad story, but it could have a happier ending. For that to happen, however, this couple first needs to do the painstaking—and, for many people, excruciatingly dull—work of detailing their monthly and yearly finances. It must include not just big-ticket expenditures like housing, groceries, and healthcare, but less visible and often discretionary ones such as gift-giving, eating out, online shopping, and vacations. Only by capturing all your expenditures and income can you get a clear picture of the inflows and outflows of your money. This becomes your personal financial statement, which you can create on your own or by working with a financial planning professional, which can help you get motivated and over the hump. You can also estimate your net worth by subtracting your total liabilities from your total assets. It’s often eye-opening.
Try not to think of it as bookkeeping. By replacing vague impressions with hard numbers, you’re taking the first step towards a kind of financial liberation. It’s actually empowering to see, more clearly than ever before, exactly what’s going on. With that knowledge, you can begin exploring the creative possibilities for home-buying or achieving other financial priorities that might seem out of reach.
Creative Strategies
In the past, a financial planner might have advised the cash-strapped couple to continue renting. But the growing demand has made Valley rentals pricier. If your heart’s set on living in one specific community, you may be even more limited.
But you may still have options for buying a house.
Think of homeownership not just as an expense. It’s also a financial asset. As part of your long-term financial plan, it may be an investment worth fighting for.
If you are in your 40s or early 50s with many income-earning years ahead of you, a financial planner can suggest alternative ways you might pay for a home by evaluating your retirement planning for options to increase current cash flow so that you can afford a larger mortgage. (You may possibly have the option to lower those payments later, should interest rates come down again by refinancing.)
Once you’ve completed your financial statement and estimated your net worth, talk to lenders― both banks and mortgage brokers―about what you can afford. You might consider buying a less ideal house now, to renovate later, when your finances improve. If you’re a first-time home-buyer or a veteran, you may be eligible for enhanced home-buying programs. Yet another option, which we focused on in a previous article, is to explore the possibility of receiving part of an anticipated inheritance now, rather than after your benefactor’s death, to put towards a down payment.
Don’t be defeated by the Valley’s housing market, if you can help it. Homeownership is an important vehicle for building long-term financial well-being. Before you opt out, make sure you’ve explored all the possibilities for realizing your hopes for a house of your own.
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