Smart Moves

How to Save for Your First House

Home prices have been steadily rising for months, with more gains ahead. Moreover, mortgage rates are expected to gradually climb through 2018. Yet despite these affordability challenges, this could prove a very strong year for property sales.

That’s according to Frank Nothaft, the chief economist for CoreLogic, a major information and analytics firm with special expertise in real estate. Why the optimism? Nothaft points to strong expectations for the economy in the new year.

“Workers are feeling secure in their jobs, and we’re seeing some real income growth, all of which makes buyers more confident in their economic well-being," Nothaft says.

Another positive: "Millennials" -- adults now in their late 20s to early 30s -- are approaching their prime home-buying years.

It’s true that many millennials are breaking into homeownership later than did their parents, who typically bought their first property in their early 20s. But Nothaft says they are equally driven to own.

“Because the median age for homebuying is now 32, there’s a great tailwind coming with the millennials,” he says.

But a big issue for would-be buyers involves rising property prices, which Nothaft says will increase an average of 5 percent during this year. That translates, he says, “to a further erosion of affordability.”

His key piece of advice for those who wish to become first-time homebuyers: “Get your financial house in order.” That means making sure your credit history is accurate and your credit scores are strong.

“You want to be qualified and ready to pull the trigger when you find the right house,” Nothaft says.

Here are a few other pointers for buyers:

-- Do a thorough review of your current financial situation.

Eric Tyson, a personal finance expert and author of “Mind Over Money: Your Path to Wealth and Happiness,” says one major obstacle to saving for a house is uncontrolled day-to-day spending. But before you can decide how to reallocate your income, he recommends you review where your money has gone, category by category, over a recent three-month period. This can be done either with pen and paper or such personal finance software as Quicken.

“Lots of folks ... fail to realize that small expenditures -- like lattes at Starbucks -- can quickly mount up,” Tyson says.

-- Create a spending plan that lets you save for your home-buying goal.

Once you know where your money is going, it’s time to create a budget that lets you meet your essential needs while still amassing savings for your closing costs and down payment.

“No budget should strip you completely of small indulgences, or you might go off the rails due to a feeling of privation. But when reordering your priorities, always keep your major priorities -- like homeownership -- in mind,” Tyson says.

He recommends you closely evaluate every segment of your spending in search of possible reductions.

For example, if you are renting in a high-end building, perhaps you could move to a more modest apartment when your lease is up.

You may also find fat to trim from your transportation spending. If commuting solo by car is costing you more than necessary, why not switch to public transit or carpooling, if only for a finite period?

Your food expenditures may also be out of line.

“It sounds simple, but people are often shocked at how much they spend eating out,” Tyson says.

-- Tackle your debt aggressively.

For many students, assuming school debt is nearly unavoidable -- particularly for those who attend graduate or professional school.

But even after their schooling is complete, many millennials continue to accumulate credit card debt, and at interest rates much higher than their student loans.

Of course, paying down credit card debt can require severe self-sacrifice. But, you’ll find it much easier to amass your down payment when you’re no longer juggling card payments.

Likely, you won’t need a financial adviser to straighten out your finances, but you can find useful guidance through books on the topic. One that Tyson recommends: “Your Credit Score: How to Improve the 3-Digit Number That Shapes Your Financial Future,” by Liz Pulliam Weston.

-- Realize that timing on home-buying is a personal matter.

At this point in the real estate cycle, with prices rising steadily and loads of competition for entry-level housing in popular metro areas, some frustrated millennials are postponing their homeownership dreams. But others continue to persevere until they achieve their target objective.

If you’re in the stay-with-the-program camp, Tyson says you should be wary of discouraged friends who try to dissuade you from pursuing your plans.

“Only time will tell whether you’re better off buying at this stage of the market. But don’t let disagreements on timing ruin your friendships. As always, reasonable people can disagree,” he says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

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