Financial Analysis Guide

Financial Analysis is a large part of housing counseling. This guide is designed to give counselors the information they need to perform an effective financial analysis for your clients. For more instruction on how to perform a financial analysis, counselors are encouraged to seek formal training from HUD training providers.

 

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Overview

Housing counseling is more than collecting and documenting income and expenses; it must have a financial analysis that includes a household budget. The household budget review illustrates how client spending impacts their financial and housing situation. The financial analysis, which often includes an affordability analysis, may lead to recommendations within the client action plan.

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Financial Analysis of Client

Every housing counseling session requires an analysis of the client’s unique financial situation. This includes but is not limited to:

  1. A review of the client's income, expenses, spending habits, home values and use of credit.
  2. A comparative analysis of the client’s spending habits to determine if the client’s habits are more suitable for renting than owning.
  3. The establishment of a household budget that the client can afford.
 

Elements

Definitions and Components

This section outlines the important elements that are included in an effective financial analysis of a client.

Term Description
Financial Analysis

For a client to be classified as having received counseling every client must receive a financial analysis that includes, but is not limited to:

  1. A review of the client's income, expenses, spending habits, home values and use of credit (also known as a Budget Review).
  2. A comparative analysis of the client's spending habits to determine if the client's habits are more suitable for renting than owning.
  3. The establishment of a household budget that the client can afford.
Budget Review

A budget review is a subsection of a financial analysis that includes an assessment of the client's monthly income, expenses, assets, debts, and spending habits. This also includes working with the client to develop a sustainable household budget which typically includes obtaining information on the household's income, monthly expenses, assets, and debts.

Term Description
Clients Financial Situation

The financial analysis provides a snapshot of the client's current financial situation and opens a dialogue on how to proceed. The financial analysis begins, after the client states their housing goals and describes their current housing situation. The financial analysis may include reviewing a credit report.

Comparative Analysis

The financial analysis may also include a discussion of the local housing market and consider: What is a reasonable rent to pay for in the area? What are local rental prices? What are the current mortgage rates and housing prices and how do they translate into monthly mortgage payments? This assessment may include a comparative analysis, comparing the costs of renting to those of owning, particularly if the client's housing goal includes purchasing a home and if the client's spending habits support homeownership.

Household Budget Review

The core of the financial analysis is the clients budget review, during which the counselor and the client go through monthly expenses, income, and spending habits. The review includes discussions on:

  • Budgets: The development of a sustainable household budget may involve creating two or more budgets. The first is the current budget that includes income, expenses and other information. The second budget adjusts the first budget that will demonstrate ways to help the client meet their housing goals, such as decreasing certain expenses and increasing the amount going to savings. The counselor should cross-reference the two budgets to show the client the specific differences in spending habits. Additional budgets may be used to show how different housing scenarios (e.g., homeownership vs. rental), loan products, and client actions include strategies such as paying off debt to increase savings.
  • Monthly Income and Expenses: The household budget review must determine how much income the household can expect each month. Counselors should examine documents such as pay stubs and take notes on other sources of income to get a complete picture of monthly income. Turning what may be weekly or bi-weekly pay checks into monthly income is important because housing costs are allocated by the month and the analysis needs to be able to compare income to expenses. Monthly expenses will include the amount paid for rent or mortgage, as well as monthly debt payments. Counselors should note the minimum debt payment and what the client has been paying historically.
  • Debts and Assets: The budget review should also include all other expenses, such as commuting, childcare, and groceries. As expenses may change month-to-month, it is best practice for the counselor to examine as many bills as the client can provide to get the most accurate estimate possible. The counselor should also look for places where expenses can be cut, such as non-essential items such as recreational activities. Clients may also have savings that should be included in the budget review.
Credit and Financial Products

Along with the client's internal financial situation, the client should be knowledgeable of:

  • Credit usage and credit score
  • Available financial products, terms, and rates

A credit report may also be useful.

 

Quality Control

Intermediary Roles and Responsibilities

The roles and responsibilities of intermediaries include:

  • Assist in ensuring financial analyses are complete
    • May provide checklists and instructions on financial analysis and budget reviews to help agencies
  • Include guidance on financial analysis, budget reviews and recommended actions in grant agreement
  • Promote training through HUD Housing Counseling Training Partners

Local Housing Counseling Agency Roles and Responsibilities

Supervisory monitoring includes:

  • Checking for the financial analysis in each file
  • Ensuring there is a clear relationship between housing goals, analysis, and plan
  • Reviewing evidence of budget work
  • Confirming documents from client are organized in file (i.e., W-2s, credit cards, bills, etc.)

Procedures for reviewing financial analysis in files should be included in the quality control plan.

 

Monitoring

Intermediary Roles and Responsibilities

Intermediaries should ensure subgrantees and affiliates are conducting proper financial analyses by:

  • Checking grant documents to ensure written agreements are being followed
  • Conducting periodic file reviews
  • Making sure supervisory oversight is taking place and all outcomes are being reported in the 9902