Smart Moves by Ellen James Martin

SAVING FOR YOUR FIRST HOUSE, ON A SERIOUS TIP

Many 20-somethings are understandably fearful about buying a home. After all, everyone seems to know someone who's had a house taken away through foreclosure. Yet despite that scary image, many young adults remain highly motivated to acquire properties of their own.

"As Americans, the desire for homeownership is practically written into our DNA. A house still represents a badge of success -- the trophy you get when you finally grow up," says Jim Blankenship, a veteran financial planner who's advised numerous young clients on their real estate plans.

At a time when mortgage rates are low and home prices are affordable, he says, an increasing number of young people are doing the math and are seeing homeownership as a viable alternative to renting. The steadily rising rents in many metropolitan areas add to their motivation.

"If you plan to stay in the same place for five to seven years, this could be a really good time to buy," says Blankenship, who's affiliated with the Garrett Planning Network, which represents fee-only planners throughout the country (www.garrettplanning.com).

However, as he notes, many young, wannabe homebuyers face financial hurdles. Student debt combined with stringent mortgage standards represent serious barriers that must be overcome. Thus, many 20-somethings must reposition their financial lives to reach homeownership.

"To afford a home and qualify for a mortgage, sacrifice is often necessary," Blankenship says.

Is homeownership your top financial priority? If so, you may wish to consider taking one or more of these steps:

-- Reduce your debts by generating extra income.

As the Federal Reserve reported recently, total consumer debt in America declined slightly in recent months. But student loan debt continues to soar, and now tops $900 billion.

For anyone seeking to make financial progress, cutting debt -- including credit card balances -- is an absolute must.

Unfortunately, many 20-somethings make only enough money to meet their current living costs. They're limited in their capacity to pay off debt or generate savings for a down payment. Given this reality, Blankenship recommends that young people consider augmenting their income.

"Think about taking a second job. Or try to get overtime at your regular job, assuming overtime is available," he says.

He urges clients who've accumulated too much debt to think positively about changing their financial habits rather than dwell on how they ran up so much debt in the past.

-- Give up plans for a big wedding in favor of money for a home.

Kristin Meador, a real estate broker who often works with young buyers, wrote a book designed to help clients save substantial amounts on their wedding costs. It's called "How to Have a Wedding Without Spending a Dime: Or at Least Very Little."

The book grew out of money-saving strategies Meador developed while helping relatives and friends stage their weddings. It provides pointers on how to cut costs for a range of wedding-related expenses -- from invitations to rings to the reception and honeymoon.

"When you're trying to save for a house, it makes no sense to spend $500 or more for a wedding dress," Meador says.

Her book itemizes a number of ways to hold an inexpensive yet tasteful wedding, including having the reception at a lovely local park or community center rather than a swank hotel.

"Buying a home has long-term benefits that last far beyond your wedding day," Meador says.

The expense of an average wedding now tops $25,000 --funds Meador believes would be better spent on a home, assuming the property is carefully selected.

"A lot of parents with money to help their grown kids would rather their funds go toward a home than a fancy wedding," she says.

-- Cut discretionary expenses.

Most 20-somethings who live in rental units are very sensitive to their monthly housing costs. But they're typically less aware of how much money they're spending to eat out at restaurants and on social activities, Blankenship says.

Young professionals may also spend what he calls "shocking sums" on clothes, as well as entertainment. He recommends that would-be homebuyers comb through a recent month's worth of spending to realize where they could cut back.

"I recommend you look closely at your cable bills to see if you really need all those movie channels. Also, look at that fitness club membership you never use and consider taking bag lunches to work," Blankenship says.

-- Sell a car and watch your savings grow.

A new or nearly new car is often the first major purchase for many young adults. And usually the purchase is financed with a hefty loan. But mortgage lenders often frown at the sight of a prospective homebuyer driving up in a late-model vehicle.

"Lenders know that a couple who's financing one or more cars will likely find it tougher to qualify for a home loan," Blankenship says.

Even if you drive an older vehicle and have no car loan, chances are you're paying a substantial amount for car insurance and repairs, not to mention gas.

Blankenship says it's a wise idea for young couples bent on homeownership to ponder the idea of selling one vehicle. Consider public transportation or carpooling as an alternative to commuting alone.

-- Don't rule out a temporary arrangement to share housing.

Moving in with family members for a year or so could help you cut living costs dramatically and save for a down payment.

Beyond family arrangements, another way to find a similar money-saving housing swap is to go through a co-housing service. You can locate such a service in your area through the National Shared Housing Resource Center (www.nationalsharedhousing.org).

Meador says she's worked with many young buyers who've built up substantial savings for a down payment through a housing-for-services swap.

"Shared housing was the ticket that ultimately let them reach the dream of owning their own place," she says.

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