A conversation with financial planner Joel A. Larsen, CFP, AIF

A conversation with financial planner Joel A. Larsen, CFP, AIF

Image Credit: Navion Financial Advisors

Hearth spoke with Joel Larsen, a Certified Financial Planner who specializes in helping individuals with personal financial planning.

Larsen began his career by serving in the United States Marine Corps until 1983. He has worked in the financial services and planning industry since 1990. To date, Larsen has been featured in MSNBC, USA Today, the Journal of Financial Planning, and several other prominent publications.

We were lucky to speak with Larsen about advice for homeowners looking to complete home renovations. We’ve edited the transcript below for clarity:

Hearth: Thank you for taking the time to talk today. Let’s start with a topic that’s been on the news recently. Thousands of people have recently sustained damage to their homes through a natural disaster. How can disaster victims repair their homes without falling into unmanageable debt?

JL: These homeowners should turn to the government once they know what their insurance will cover and not cover. The government has resources, such as FEMA and DisasterAssistance.gov, designed to ensure that homeowners can responsibly recover from a natural disaster. People may be able to find low interest loans with long repayment periods. And if your area is under a disaster zone declaration, you may qualify for tax advantages. Of course, insurance companies may be able to help repair some of the damage.

Hearth: What about people who aren’t natural disaster victims but who still need to renovate quickly? What should they do?

JL: When helping someone figure out how to finance a renovation, I almost always suggest cash because you don’t have to pay interest. But if your roof is leaking and you have to get something done now, you may have to turn to financing.

Hearth: Which options would you recommend?

JL: If you can get one, your least expensive route is a home equity line because the rates tend to be low and the interest is tax deductible. Your bank probably wants to help you repair your home because, remember, your bank likely still owns part of it.

Hearth: Not every homeowner can qualify for a loan secured by home equity. What would you suggest if a home equity loan or line of credit is off the table?

JL: If you can’t get approved for a home equity line, that likely means you’ve already borrowed against your home’s equity or you haven’t paid off enough of your mortgage. If you can’t get a home equity line but have to remodel now, I would recommend someone consider a personal loan, which is not secured against your home equity. The rates will be higher than on a secured line of credit, but this may be your only option.

Hearth: Would you ever recommend a credit card?

JL: Only as an absolute last resort.

Hearth: That makes a lot of sense. Let’s take a step back. If you were advising someone how to pay for a renovation, what factors would you consider?

JL: There are two broad factors I’d consider when advising someone: time-sensitivity and debt load. The time point is straightforward: you should use cash unless your remodel is urgent.

The debt factor is a bit more nuanced. At a high-level, we like to make sure people don’t carry too much debt. When recommending whether someone should finance a renovation, we look at two types of debt.

The first is what we call home debt. This refers to the cost of living in a house. Things like your mortgage or rent, utilities, insurance, taxes, etc. would fall in this category. If your home debt is above 30% of your adjusted gross income, then your home debt is too high.

There’s also consumer debt, which is not a home equity line. Consumer debt should not be more than 15% of your after tax income.  These are things like credit cards, auto loans, and personal (unsecured) loans.

Looking at both of these numbers helps us determine whether someone should finance a remodel. We want to make sure their debt load isn’t too high, even with the addition of new financing. We also check to make sure that the homeowner has a plan to save even with new payments.

Hearth: That’s great advice. A lot of our discussion so far has been reactive; if you want to remodel, then what is the best way to pay for it? What would you tell homeowners who want to be proactive about their financial success?

JL: I would suggest a creating comprehensive financial plan. It helps you live with intention, so you aren’t just reacting to life. Financial planning coordinates all of your financial affairs. If you need to put on a $30,000 roof, that should be a piece of your financial plan.

Imagine all of your financial affairs on a scale of 1-10 where 1 is a disaster and 10 is shining example. Financial planning can take you to 8-9.

Hearth: You make a living helping people get to an 8 or a 9. Why do you do it?

JL: Financial planning is the best job in the world. I can make a real difference in peoples’ lives and earn a decent living.

Hearth: Thank you very much for taking the time to speak with us today.

JL: Thank you.

Joel A. Larsen, CFP®, AIF®, is the principal of Navion Financial Advisors. Navion has client in 22 states and Europe. www.nfadvisors.com info@nfadvisors.com.