Home values are ascending in many areas. Meanwhile, the future trajectory of mortgage rates now seems increasingly uncertain.
These two factors have combined to create a sense of urgency for many would-be homebuyers in their 20s who fear they'll be priced out of the market. Yet few in this age group have sufficient funds to make an immediate move. To qualify, most must slash spending, cut debt and amass a savings fund.
"More people are graduating from college with substantial student loans. That's a drain than means they have less discretionary income left to fund a down payment and closing costs," says Eric Tyson, a personal finance expert and author of "Let's Get Real About Money!"
Even now, it's not impossible for some first-time homebuyers to obtain a low or no-down-payment mortgage. However, as Tyson says, those who can assemble a respectable down payment can often obtain a slightly better mortgage rate or qualify for a larger home or both.
"For all buyers, I'm strongly in favor of the traditional 20-percent-down mortgage. I've been preaching the positives of bigger down payments for years," says Tyson, co-author of "Home Buying for Dummies."
For most young homebuyers, he says the challenges involved in doing a crash savings program are well worth the short-term deprivations required by tight budgeting.
Here are a few pointers for first-time buyers:
-- First get a grasp on your current financial picture.
One major barrier to saving for a home is uncontrolled day-to-day spending, says Leo Berard, charter president of the National Association of Exclusive Buyer Agents (www.naeba.org).
As a prelude to cutting your spending, he recommends you review all your expenditures for the most recent three-month period. You can do this with pencil and paper or with such personal finance software as Quicken, Berard's favorite. Alternatively, you can turn to such free online tools as Mint Money Management (www.mint.com).
"Until they do a comprehensive review, most people have no idea where their money is going. For example, they're unaware of how much they're spending for lunches every day they're at work. And they don't know how much they're spending for weekend entertainment," Berard says.
A full inventory of all your spending can consume many hours -- indeed, Berard says the process might take up to an entire weekend. Nevertheless, he insists it's a crucial first step for any individual or couple determined to reduce spending to buy a home.
-- Develop a budget with your home-buying intentions in mind.
Once you know where your money is going, you're in a good position to build a budget that -- ideally -- should allow for both your core needs and let you start assembling enough savings for your home purchase.
In some categories -- such as restaurant tabs -- you're likely to find a good deal of low-hanging fruit for pruning. But he says wannabe budget cutters should examine every area in search of potential cuts.
For example, you'll want to review your transportation spending and ask if your household could get by with one car instead of two. Maybe you could also reduce your utility bills by using less air conditioning during the warmer months.
As you move forward with your budget, don't overlook seemingly small or relatively infrequent expenditures that can add up quickly— -- like popcorn at the movies or hot dogs at a baseball game.
Another fertile area for cutbacks: your cellphone bill.
-- Confront your credit card debt.
It's not only student loans that hold back some potential homeowners. It's also credit card debt -- much of which may have been acquired during the college years.
"Credit card debt -- especially high interest-rate debt -- is toxic to a savings plan. You've got to zero it out. I strongly recommend that people get out of all their double-digit credit card debt," Tyson says.
Of course, it's not easy to pay off large credit card balances. But doing so will help you in two ways. You'll free up capital for your down payment and, over time, you could improve your credit score.
Most people don't need a financial adviser to help them dig out from credit card debt, Tyson says, though you can find useful guidance from a book on the subject. One that he recommends: "Deal With Your Debt: Free Yourself From What You Owe," by Liz Weston.
-- Watch out for friends trying to talk you out of buying a home.
If you're a relatively recent college graduate with many friends who have busy weekend social schedules and expensive hobbies, you could confront a major psychological barrier to progressing with your own home-buying plans.
"When you're in your 20s, it's not a cool thing to be saving money to buy a house in the suburbs. Your friends may view this as fuddy-duddy and try to talk you out of it," Tyson says.
But he says those who allow their friends to dissuade them from pursuing homeownership in the next year or two might one day live to regret it -- especially if home prices continue to rise during that period.
"Anyone with a stable job who has about a five-year time horizon for staying in the same area would do well to consider buying a home in the near future," Tyson says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)