How to Save for Your First Home

So you managed to squirrel away enough to buy your first car. But how do you even begin to save for a house that costs—gulp—in the six figures? Some millennials find it so overwhelming, they’re not even bothering. And that’s okay, if you’re down to live the renter life. However, rest assured that moving out of your apartment, or your parents’ basement, is possible. Giant paycheck not required.

“I know that saving for your first home isn’t the first thing on anyone’s mind; however, it’s important to get started,” says David Rosell, a Bend, OR financial planner. “If you dawdle, as so many people do, and keep telling yourself it can wait until later, you’ll wake up one day when you’re 55 and find yourself scrambling.” Here are his tips to get moving.

Change the Way You Think

We always pay our essential expenses first: Rent, car payments, utilities. “Now it’s time to make a payment to you and your future-home down payment,” Rosell says. “Systematically deduct a specific amount from each paycheck.” Put it in a savings account and don’t touch it.

Spruce up Your Credit Score

Your score will determine what rate you get on your loan when the time comes and can save you tens of thousands of dollars. Shoot for a score of at least 700 to get the best rates. One way to do that is to make at least the minimum payment to your credit cards and loans each month, and make them on time. A high debt-to-income ratio will also drag your score down, so try and keep your credit balance at 25 percent of your credit limit.

Do the Math

Your monthly mortgage payment should not exceed 28 percent of your gross monthly income. Don’t forget to include extra costs like homeowner’s insurance, property taxes, and homeowner’s association (HOA) fees if you’re considering a condo. Once you determine how much of a mortgage payment you can afford, you will know what price range you can shop in. Now aim to save 20 percent of that price for a down payment. Anything less will tack on more fees.

Look for Deals

The federal housing administration has first-time home buyer assistance programs that will let you put down as little as 3.5 percent (if you qualify). Other federal loan programs help first-time buyers who live in rural areas, or have a certain occupation, such as teacher or firefighter.

Give It Up

For a fun (or frightening?) peek at how many lattes, say, you need to give up to buy a house, go to davidrudin.com. Rudin has devised a handy mortgage calculator. You punch in your city (i.e., Los Angeles), your sacrifice (i.e., avocado toast or new shoes) and the frequency you partake (i.e. daily? weekly? monthly?), and the calculator spits out how much time it will take you to buy a house.