Smart Moves by Ellen James Martin

How to Save For Your First House

The U.S. economy is still expanding, and more people have jobs. But relatively fewer young adults who aspire to homeownership are now reaching that goal, according to a newly released survey from the National Association of Realtors.

Lawrence Yun, the association's chief economist, points to high levels of personal debt, including student loans, as the main culprit.

"It's likely some younger households ... can't save for an adequate down payment or have decided to delay buying until their debt is at more comfortable levels," Yun says.

On top of that, the government's latest consumer price index shows that rents rose 3.7 percent during the past 12 months. But in some popular urban neighborhoods, rents are now increasing at double-digit levels, according to the real estate website Zillow.

But those rising prices are also spurring young people into the home ownership market.

"Many people want to get into homeownership before they're priced out of the market," says Charles Carroll, a financial planner affiliated with the Garrett Planning Network.

Unless they receive financial help from family members, he says, many young wannabe buyers have to tighten their belts to generate sufficient savings to meet the challenge.

Celia Brugge, a certified financial planner, says many Americans are still less spendthrift than they were before the last recession. But they continue to slip easily into temptation when it comes to discretionary purchases.

She urges anyone trying to embark on a major savings program to first go through what she calls "the boot camp period."

During this initial phase, she suggests you do an inventory of where your money has gone during a recent three-to-12-month period. You can do this by reviewing the entries on your checking or credit card statements and then by using paper and pencil to summarize your outlays.

Another handy tool for tracking spending is available through the Mint website. Through it's free software, Mint lets you expedite the budgeting process by easily identifying and organizing your transactions.

Once you know where your money is going, it's time to start making cuts in low-priority categories. To help exercise willpower against out-of-plan expenditures, Brugge urges would-be homebuyers to give up shopping as a recreational activity.

In addition, Brugge says many would-be homebuyers can find savings by cutting off their cable TV and instead tuning into free TV options now available through the Internet.

To stay on track and accountable for their spending, Brugge advises couples to set regular times -- as often as weekly -- to allocate 15 minutes or so reporting to each other on their recent spending.

"It's a huge problem when couples don't tell each other what they're spending. It sabotages trust," Brugge says.

Here are a few more pointers for those scrambling to save a down payment:

-- Ponder your commuting costs and how they could change.

Gerri Detweiler, a personal finance expert and author, says many people take their need for a late-model luxury car as a given. But to save for a home of your own, you may need to downscale your expectations in this category.

In the ideal world, those with a big savings goal will consider selling a vehicle they own and commuting by rail or bus until they reach their savings goal, she says. Another option is to carpool with a spouse or coworker.

-- Attempt to cut your insurance costs.

Insurance brokers and salespeople can be persuasive when encouraging clients to maximize their coverage. But Detweiler says would-be homebuyers should examine their spending in this domain. For instance, you might find a way to reduce the cost of your auto insurance policy without compromising your core coverage.

"Shop around for insurance and also look into how much you could save by increasing your deductibles," she says.

-- Keep your eye on the prize of homeownership.

Researchers in the field of behavioral economics say people save more if they have a concrete objective in mind. But how can you make your home-buying goal more tangible?

Detweiler says one approach is to visit a mortgage lender to determine how much you could afford to spend for a property and how large a down payment you'll need.

"Since the economic downturn, finding a no-money-down mortgage has gotten harder and harder," she says.

Once you've established your borrowing ceiling, Detweiler recommends you embark on a very limited property search by attending a few open houses in the neighborhood you've targeted.

"Getting a quick overview of the market can really motivate you to save for your house," she says.

(To contact Ellen James Martin, email her at