Many millennials spend a decade or longer struggling to assemble the down payment they need to buy a first home. Meanwhile, home prices continue to rise and mortgage rates are on the upswing.
But many aspiring homebuyers make it harder on themselves than necessary, says Rob Chrane, the founder and CEO of Down Payment Resource, an Atlanta-based company.
All too many would-be homeowners believe they must amass a 20 percent down payment before they can make a purchase. But in a still-recovering economy, spending years trying to save that much can be like chasing a moving train.
“The costs of waiting so long outweigh the advantages of a larger down payment,” Chrane says.
Many people are unaware they could access one of many down payment plans that are available to help prospective buyers. These include grants, loans and tax credits.
Indeed, the mission of Chrane’s company is to connect buyers with a host of these programs — many of them offered by state and local governments seeking to encourage homeownership in their areas.
“Low down payment options will play a central role in the revival of first-time buyers in the months to come,” he says.
Although the homeownership rate for Americans under 35 improved slightly in 2017, it still trails the rate of five years ago. One issue is that salaries for young adults have been rising more slowly than home prices.
Here are a few pointers for those pursuing ownership without a family assist:
1) Start by analyzing your current financial picture.
One huge obstacle to saving for a house is unmanaged day-to-day spending, says Tom Early, a real estate broker and former president of the National Association of Exclusive Buyer Agents.
Before deciding how to reallocate your income, Early recommends you review where your money has gone — category by category — over a recent three-month period. This can be done either with paper and pencil or with such software as Quicken. Alternatively, there are free personal finance apps available online.
Doing this preliminary inventory can absorb many hours as you sift through bank and credit card statements. Done properly, this process might consume a full weekend, but is well worth the time invested, Early says.
2) Craft a spending plan with home-buying in mind.
Once you know where your money is going, it’s time to create a new budget that allows you to meet your basic needs while letting you build savings for your home purchase.
“People who develop a serious spending plan derive enormous long-term payoffs,” says Eric Tyson, a personal finance expert and author of “Mind Over Money: Your Path to Wealth and Happiness.”
He encourages you to closely evaluate every category of your spending in search of possible reductions.
“Some areas, like restaurant bills, will probably have more fat than others. But every area should be fair game for cutting,” according to Tyson.
For instance, don’t accept the rent on your apartment as a given, especially if you live in a luxury complex with upscale amenities you rarely use. When your lease is up, are you willing to move to a more modest building to reduce your rental costs?
Likewise, you’ll want to carefully examine your transportation spending. If gas and insurance costs are hitting you harder than they have to, what about switching to public transit or getting by with one car instead of two? You can also cut energy costs by reducing utility bills, particularly air conditioning, during the warmer months.
Financial planners often point to food expenditures as an area ripe for reductions. Many people are shocked when they realize how much they’re spending on carry-out food and restaurant meals.
“Why not start packing a lunch for work and learn to cook basic meals at home rather than going out to eat once or twice a week? Anyone can acquire these money-saving habits if they realize the benefits of doing so,” Tyson says.
As you create your new spending plan, don’t overlook seemingly small or relatively infrequent expenditures that can add up.
For instance, Tyson suggests you ask your doctors if they would prescribe generic drugs rather than more expensive brand name ones. Question your dentist on whether you need X-rays every six months to a year. And closely analyze your telephone bills.
3) Try to conquer your credit card debt.
It’s bad enough that many young people continue to pay student loans years after they’ve left their schooling years. But many also acquire substantial credit card debt during college.
“When people are serious about saving for a house, they try to zero out as much toxic debt as possible,” Tyson says.