Smart Moves by Ellen James Martin

Meeting the Down Payment Challenge

Home sales have dipped recently in what the National Association of Realtors calls the "tightening grip" of rising prices due to limited inventories of available property.

To keep sales buoyant going forward, the real estate industry is counting on homebuyers now in their 20s and 30s, known as millennials. But many in this cohort are living paycheck to paycheck and find it tough to save for a down payment.

To make matters worse for young buyers, the supply of "starter homes" has fallen drastically, even as prices for such properties have risen, according to Ralph McLaughlin, chief economist for Trulia, the online real estate site for buyers and sellers.

Sophia Bera, a certified financial planner, encourages young buyers to think seriously about taking a second job until they can reach their down payment goal.

"Try to earn an extra $500 to $1,000 per month with a 'side hustle.' This could be freelance writing, driving (for) Uber, walking dogs or doing two shifts a week at a restaurant. Look at the skills and interests you have and go from there," says Bera, the author of a new ebook titled "What You Should Have Learned About Money But Never Did."

She also recommends that young buyers consider slashing their spending on non-essentials and letting go of the expenses of car ownership by reengineering their daily commutes to involve carpooling or biking to work.

Eric Roberge, who heads a millennial-focused financial planning firm, recommends that wannabe first-time buyers consider moving back into their parents' home to cut their rental expenses, a step he took temporarily to generate the cash he needed to start his small business.

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 Tom Early, a real estate broker and past president of the National Association of Exclusive Buyer Agents.

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, Early's favorite. Alternatively, you can turn to such free online money management tools as Mint (

A full inventory of all your spending can consume many hours as you comb through credit card and checking account statements. Indeed, Early 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.

Eric Tyson, a personal finance expert and co-author of "Homebuying For Dummies," allows that many young adults strongly resist the notion of micro-managing their money. But he says it's worth the temporary constraints involved.

-- Create a spending plan with home-buying in mind.

Once you know where your money is going, you're in a good position to build a budget that ideally should both allow for 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.

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 cable TV bill.

"I'm always astonished at the large sums people spend for cable, which can cost more than $200 per month," Tyson says.

-- Face 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 through a book on the subject. One that he recommends is "Deal With Your Debt: Free Yourself From What You Owe," by Liz Pulliam Weston.

-- Beware of 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 young, it's not a cool thing to be saving money to buy a house. 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.

"One of the great things about owning a house is that it makes you less vulnerable to unexpected increases in your rental costs," Tyson says.

(To contact Ellen James Martin, email her at