Saving For A Home On Your Own: Learning From Those Who Did It Successfuly

How about some helpful investigative reporting from the media this time? The New York Times article Every Penny Counts profiles six New-Yorks who managed to buy their home without the benefit of rich relatives or Wall Street bonuses. While the stories weren’t surprising, I still found them to be very reassuring and even inspiring. In addition, I tried to pick out a few useful themes:

Make The Home A Priority
There’s saying you want a home, and then there’s taking action to get that home. One of the new homeowners put it bluntly:

?If you want to own a place, you have to do everything to own a place and everything else comes second.?

Along those lines, every single person profiled changed their lifestyles to make saving up over $20,000-$100,000 a reality. While it wasn’t easy, each person did it their own way. Take Pablo Ag?ero and wife Janey Lee:

They gave up smoking to cut costs, they stopped meeting friends after work for beers, they didn?t buy new clothes, and they stashed away tax refunds and as much of their earnings as possible. Whenever they wanted to buy drinks, gadgets or cookware, they asked each other: ?Do I want an iPod or a house? Do I want a latte or a house??

Or Amy Wegenaar:

So she went into savings overdrive: she went grocery shopping only with a list and cut out luxuries like expensive juices. When she went out with friends, she ordered the happy-hour drink specials and often chose Mexican food so they could munch on free chips and split a cheap entree. She shopped the sales racks at Urban Outfitters and sewed dresses from discounted fabric she bought on the Lower East Side.

Getting Support From Your Family and Friends
Obi Onyejekwe actually made friends with co-workers who also wanted apartments of their own:

They chose to eat out at places with entrees that never cost more than $15 and went to events like the Warm Up dance parties at P.S. 1, where the only thing they bought was beer. ?A lot of pressure to spend and splurge wasn?t around because everybody was saving to buy real estate,? he said.

It worked: He and 8 friends now own homes that cost $320,000 to $550,000.

On top of this, I say share your goals with your friends. Tell them why you’d rather watch the game at home, or why you can’t fly out to Vegas. They should understand, and might even share the same dreams or at least wouldn’t mind saving a few bucks themselves.

Don’t forget your family either, all I ever hear is “Did you find a house yet?” I think being in this together with my wife has made the process a hundred times easier than if it was just me.

I discovered this article at Well-Heeled, a fellow blogger who’s new focus is also saving up for a home in a pricey area. (She was way too hard on herself over a creme brulee.)

Comments

  1. I considered myself very lucky because I bought my house in 1998 right before the recent big boom. Normally, it’s hard to save for a house in the first place, but now it’s even harder.

    I think it’s great that you share these stories, because they give people hope. One thing to consider for new home buyers (especially young singles) is that it may be easier to find a new job in a different city where houses are still affordable.

  2. We bought our house in 1999. It took my wife and I years of scrimping and pinching and saving with 2 children (who shared a bedroom while we slept in the living room of our 1 bedroom apartment) so that we could save enough for the down payment and closing costs.

    Then it took us 2 years to find the house and close on it after we started seriously looking. The reality for us was pretending we were paying a mortgage already even though we didn’t have a house. It made it easier for us to transition from our apartment to owning our own house. We also saved more than we spent.

    We worked out the realistic numbers for ownership which also includes escrow payments for taxes and insurance, gas, electricity and general emergency maintenance. The real monthly cost of ownership can be staggering for some people when they finally get their new home.

    Some people use their homes like a piggy bank. We use our house as a home. It’s not the prettiest or newest place, but it’s ours and we can sell it at a profit anytime we want.

  3. While this topic is interesting and somewhat inspiring, I can’t help but notice that most if not all of the feaatured “savers” in the NY Times article neglected retirement savings in order to afford housing. In addition most had to drain their savings to the point that they likely had little if any emergency reserves after downpayments. Kudos to Jonathan for trying to balance all of these aspects as he moves toward his mid AND long-term goals.

  4. SavingDiva says:

    Reading about the people in the article, I just wonder how they have such resolve. While I am trying to save for a house, I also want to enjoy myself. I guess I’m going to choose creme brulee like well-heeled.

  5. When I bought (in the bay area) I had about 10% saved up, but no furniture at all. I ended up putting down 5% getting a 5/1 interest only for 80% and a HELOC for 15% (at prime + 1% due to high LTV) Back then the HELOC rates were very low, so being able to furnish the place and have some emergency cash instead of putting 10% down was beneficial. HELOCs are easy to redo for no cost, so when I was able to get the LTV down to 90% I refied it to get prime – 1/4% A few years later I eventually refied everything into one loan at 80% LTV 30 Year Fixed at 5.25% with the first 15 years interest only (paid some points).

    My real estate agent lined me up with a mortgage broker for the first loans – our offer was based on AS-IS with 15 days closing (which not all mortgage brokers can swing) and my Debt to Income was at the limit or slightly over. My offer wasn’t the highest but was the winner due to those conditions. A coworker became a mortgage broker and I did all my refis through her. I definitely recommend finding a real estate agent that you trust and after you get into the house a good mortgage broker.

    To save for the house I 1) lived at home with mom coming out of college (I paid rent but it was cheap) 2) opened every checking account I could find that offered free money for signing up.

  6. To save for my house, I stayed at home with my parents until I had enough for a down payment. I told my parents I didn’t want to rent because I felt it was a waste of money so they let me stay at home with them. Bought my house shortly after turning 25.

  7. Well, I don’t think they sat at home eating gruel with one bare light bulb, it was more “less expensive alcohol”, so I don’t think a creme brulee is breaking the spirit of the article :)

    In addition to not saving for retirement, I’m surprised that nobody pointed out the shaky market. Overall, I think the main idea is this:

    - They wanted something
    - They didn’t make excuses
    - They sacrificed, worked hard, and made it happen

    Thanks for sharing your stories as well, Pinyo, Paul, JT, Robert. I should start looking for a good mortgage broker.

  8. Joseph Sangl says:

    Anything that is worth something is worth sacrificing for …

    There is nothing more satisfying than recognizing a dream, putting together a plan to reach it, executing the plan, and then making the dream become reality.

    Awesome!

  9. Wow, I’m definitely not cut out to own a place in NY. I like having money in the bank, not draining all of my assets to buy 1000 sq ft of floor.

    And what about some of these savings methods? I mean kudos to Janey and Pable (web developers, who paid off a bunch of debt before accumulating a down payment), but ?It would be absurd for me to buy things when I wanted a place rather than a frying pan,?

    What? Do you want or need that frying pan… ’cause if I don’t own a frying pan, I think I’m going to take that before the house. If I already have a frying pan (and it works), then why am I even considering buying another?

    And Pablo: ?If you want to own a place, you have to do everything to own a place and everything else comes second.?

    Yeah, ’cause things like emergency funds and retirement savings and clothes are secondary, especially for freelance web designers! (freelance!)

    And I like the sound of Amy: her Spiderman collection and her collection of Jack Skellington dolls in coffins , but c’mon, she’s making 85k/year and worried about paying 1550/month for rent in NY? She’s grossing ~7k month or about 4250 after tax (40%), so even after rent and taxes (the two biggest expenses) she has 2700/month all to herself. If she can feed/clothe/entertain/transport herself for 1350/month, she can still save 16k/year. And it’s NY, so it’s not like she needs a car.

    End of the day, she actually does less than this and saves about 17k in (what sounds like) about 18 months. And that includes bonuses and raises! So cute but not really stellar.

    End of the day, the whole thing sounds like an advertisement for the Corcoran Group who have their name splashed over each of the “success stories”.

  10. Great article. I’m new to your blog and really like what I see. My wife and I are both 29 years old and balancing saving for retirement and saving for our first house. We’re very frugal and highly motivated towards our financial goals. It’s great to hear experiences from people with similar goals. Keep up the good work,
    Tim

  11. My wife and I closed escrow on our first house last week. We’d been saving diligently for about 18 months. While all our friends and family knew we were saving, there was still a lot of temptation to go out, take trips, and spend money on otherwise unnecessary things.

    Now that we’re in the house, I think it’ll actually be a lot easier to maintain our frugal lifestyle. “Sorry, can’t go out, got to make the mortgage and taxes on this great house” is a much more forceful excuse than “sorry, the fifty bucks we’d spend on dinner would look better in the savings account.”

    As an added bonus, we can just have our friends over, since our house is in a better location than a lot of their apartments. I foresee a lot of BYOW-ALABFTHPH parties (that’s Bring Your Own Wine, and Leave a Bottle for the House-Poor Hosts).

  12. When we got out of college we saved our entire raise for a year. On top of the $10k my husband had already saved, that was all we needed to do to put 20% down. This was in the BAY where it was extremely expensive. We went from making $20k combined to $60k out of school, so saved about $40k in a year. We then went to $100k and saved for the down payment on our next home. Yes it is insanely expensive out there BUT I have no idea why you had to use your entire paycheck after being used to living on minimum wage. Most of the people I know felt they “deserved more” and jumped into a higher lifestyle. I found it very easy to hold that off for simply ONE YEAR so we could get into a house. 2 years would have been okay too. We were “lucky” we bought in 1999 but it was pretty INSANE back then. At least these days you can save faster than the market is going up. IT was frustrating to save $40k in a year and see prices go up $150k in that same time… Then again we paid $300k for a house that is selling for $600k today. (Oh we moved out of the area for our second home). I guess though looking back as frustrating as that was, it sure as hell beat paying $600k for this house or $500k for our little condo back home. Things are just crazy all the way around.

    I guess we get the added bonus because we locked in our housing expenses when we were 23 or so, which few people do. People always come to our house and are impressed like we have so much money. Most of the time their rent or mortgage for an apartment is more than for our large house. So I guess timing REALLY helped. But brings the point that getting in a house ASAP is a worthy goal. Then when you are 30 you are well on the way to early retirement and at least your single biggest expense isn’t getting any bigger! I guess it is interesting how frustrating it was for us to get into a home, and now looking back maybe how easy we had it compared to people trying to get in today. We could do it again if we had to though, just takes a little patience.

  13. saladdin says:

    Teri, I inderstand your story is not a blanket for all and not intended to be, so do not take this as criticism. Getting in a house “ASAP” is not possible for everyone. I applaud your choices made for achieving your goal and you are right, the luck factor such as timing helps many. I’m glad for you starting out at 23 as you did, but in my circle of friends not one person fits that mold.

    From my first semester of college to my final took 10 years with a 5 year stop in the military. The money I saved in the USAF (never making more than 15-17k) helped me finish school as a full time student after seperating. I paid my own way and left home at 17 so there was no “staying with mommy” as an adult to save money.

    To keep with the saving theme for a house:
    I am single with no kids and am saving on a 35K salary. I save 150 each week into ING after funding 6 months EF, maxing 401K and IRA. My taxes are adjusted so I will break even with the IRS come filing time. I own no cell phones, have no car payments, no CC debt, no student loans and really no expensive habits. I set my thermostat to 80 in summer and have cut my electricity bill by $75-100. I shop around everytime car insurance is due (saved $300 bucks last year).

    All the savings from these choices go into the bank.

    I do have the option of using the VA Home Loan but, as you now Terri, 20% down for a house is only the beginning of the expenses, taxes, insurance etc.. I will keep saving until I can pay everything out of pocket (down payment etc) and still have 12 months of EF saved up including my new mortage payment.

    saladdin

  14. Hey Teri and Saladdin;

    Good stories both ways, but there are definitely a couple of choice lines.

    I have no idea why you had to use your entire paycheck after being used to living on minimum wage.

    B/c living on minimum wage is not actually healthy. Congrats on biting the bullet and pushing forward, but making 60k at 22 is not a given and making 50k each already puts you way ahead of the national average. In 2005 the national median household income was 44,389.

    By age what, 25, you had blown that number out of the water. So saving lots of money was a tough but good decision. However the real good decisions were “get jobs that can pay us 50k/year” and find a partner that can also make that much.

    And looking at a guy like saladdin kind of proves the point. He doesn’t have a partner making good money and his chosen career path didn’t push him up to 50k all that quickly. No measure of frugality will enable him to save 40k/year. But look at the numbers, no measure of frugality will let the average household save 40k/year.

    You guys were socking away the annual median household income! 66% of the population are incapable of doing this, and of the remaining 33%, most of them are definitely past their 30s. At 100k/year, you’re in the top 15% of income earners and and you’re 30.

    Teri: People always come to our house and are impressed like we have so much money. For a 30-year old couple, you do have a lot of money. Each of you makes more than the median California household.

    looking back maybe how easy we had it compared to people trying to get in today Time is irrelevant here, you made two key decisions: find high-paying job and partner with high-paying job. Those decisions allowed you to save gobs of money which then allowed you to purchase a home.

    Saladdin is making a retail manager or entry-level skilled trade salary. If he can find a way to make 50 or 60k/year (soon, not in 2015), then he’ll be in a range for both a down payment and a mortgage. His only other “out” is to find a partner making a good salary and to start sharing the savings.

    But right now saladdin simply doesn’t have any of the options that Teri has. If saladdin wants a house, then “ASAP” is 5-10 years unless something big changes. And the truth is, that’s how it’s going to be for most people.

  15. I’ll also point out that it’s when you *buy* that you make your money, not when you sell. If you live in a cyclical real estate market, since you cannot diversify your real estate pricing risk (the way you can for equities by dollar cost averaging), then you must look at the historical median salary/housing cost ratio for the region you are interested in, and find a dip in which to buy.

    In other words, *when* you get in matters. Getting is “as soon as possible”, depending on which area of the country you are talking about, may be an excellent way of buying more house than you can truly afford, and then finding yourself trying to sell when the market is soft. Worse, your appraisal may have been overinflated to make the deal, and you may be underwater for a good long time.

    If being underwater doesn’t pinch your cash flow and you can keep making the mortgage payments, then you’re set. But otherwise, I consider buying a house to be part of a wider financial plan, and the emotional drivers to “own your own place” should not derail your overall strategy (have money for retirement, college, etc.)

    Remember, you want to be a home owNer, not a home oWer.

  16. Um, well, I don’t even know where to begin, so let me just point out that a starting wage of $30k in the Bay Area is not exactly a big wage. At the time the average home was $600k. $600k!?! If I lived in Kansas I would see your point. But making more than the average American really means little when you live in such an expensive area.

    We have lived on $40k/year over the last few years and um most of the people impressed with our house make well over six figures. I don’t invite people making minimum wage over and wonder why they are so impressed with our lifestyle… ;) The ironic part is how much these people make who are so “impressed.”

    But whatever, we really though outside the box and did many things to succeed in such an “impossible” situation. I am not interested in hearing all the reasons why this is impossible. I know way too many people who overcame the odds. If you think buying a $300k condo on a $60k combined wage at 23 is easy, you’d be wrong. Saladdin – we live much like you except our electricity bill is lower than yours for a family of 4. It sounds like you are doing it much the same way we did and still do. ;) Maybe our bigger wage sped it up is all. But you have to understand housing expenses (particularly rent) are very insane out here too. For one, the reason we felt such urgency to buy was because it was cheaper on a monthly basis to buy than to rent. It is hard to save up when rents are so insane. I lived with roommates though and house sat for free room (you have to think outside the box to get ahead in these types of situations). (Oh yeah I also laugh at the idea that minimum wage is unhealthy. I lived on probably less than minimum wage for 5 years. Wouldn’t aspire to it for my whole life, but I found it wasn’t so bad to live like that a few years in order to make a better future. By far the easiest year to live on that budget was the year I saved $20k in the bank (built some cushion after not having much for many years). That is what I don’t get – why you get a raise and live up to your income – what I am trying to say. You will never make it if you just spend your entire income – that is my point! I am not so sure what is wrong with living on the means you are used to for an additional year or 2 or 3 – doesn’t mean you can’t use the cash saved to keep yourself healthy if something comes up).

    K says it very well too. IT’s a different world in the land of insanely expensive housing, but it was always key for us not to get in over our heads.

  17. Oh sorry – one more.

    GatesVP – Time is SO relevant. It is everything. I did not pick a high wage job and neither did my spouse – LOL. I could walk in anywhere without a college degree out here and get a $40k-$50k job. (Retail, sales. I could make more as an admin assistant) & my spouse hasn’t worked since we bought our home. But anyway, timing means my mortgage is $1300/month for 30 years on a beautiful 5-bedroom home whereas I know plenty of people just trying to get into houses who make TWICE AS MUCH and can only afford half as much house. That is the whole point. Timing means we have a wonderful leg up on the rest of our life. Phew. It is harder to make it today. Much harder. In the city we live in now you could buy a decent $100k house in 2000 and today you can’t buy a house at all for less than $400k. I don’t envy the non-homeowners today in the least. They will have it much harder than we did. In this particular market anyway.

    I can share what we did, but I am not sure how we would have swung it in this market today. We probably would have moved further away, but that sucks too. Choose financial suicide and crazy mortgage or moving far away from family. Today people have tough choices.

  18. Teri: I did not pick a high wage job and neither did my spouse – LOL.

    Did you even follow the hyperlink? The link states quite clearly that the average household income in California in 2005 was just under 50k. And it’s pretty obvious that 100k combined is well into the top 20%. You may not think that it’s a lot of money, but the numbers don’t agree with you here.

    I lived on probably less than minimum wage for 5 years. Wouldn?t aspire to it for my whole life

    And that’s exactly why it’s unhealthy! Minimum-wage lifestyle is not a long-term sustainable lifestyle.

    You’re telling me: You will never make it if you just spend your entire income – that is my point! and I don?t envy the non-homeowners today in the least.

    And you express this sentiment multiple times. You’re clearly very pro-home-ownership, even proudly stating that your 300k house has now “appreciated” to 600k. But you’re on a financial blog with some pretty smart people here. We all understand the “live within your means concept”.

    But your statement of “getting in a house ASAP is a worthy goal” is kind of lost on a bunch of people who can give you arm’s-length lists about the dangers and risks of owning a home (even though they own them).

    Personally, I would argue that throwing all of your money in to home ownership is a dangerous goal, especially when you’re young!

    I mean take a look at the hyperlink again. The chart shows that people with PhDs and Professional degrees are making 50-80% more than their Bachelored brethren. If a 25-year old throws the 40k towards getting their PhD then they’re going to be making 20-30k more per year for the rest of their working life!

    Plus, young people tend to be at a highly mobile stage in their careers. Workers from 25-35 move around alot more than workers aged 45-55 and that’s just the nature of the workforce, the difference between 5 years experience and 10 years experience is much greater than the difference between 25 and 30. Locking in a home very early can be very career limiting, and unless you plan to retire at 45 and sip margaritas on the beach, you’re going to spend a lot of time with your career, so turning down key opportunities b/c you can’t afford to move is really a bummer. And yes it happens, house prices drop, locking in to a home at 25 may mean that you cannot sell that home at 30 and break even.

    And that’s just the short list. Your home ownership costs are in no way “locked” and barring a few outliers, there is a long-term balance between renting and owning. So ASAP is not always a good idea, timing a home purchase can mean thousands of dollars or it can mean not having to lose money by moving again when a better job comes along.

    Look, it’s good to have goals and owning a house is definitely a big one, but it’s not without its pitfalls. You were definitely successful, but you also made some serious financial sacrifices (like retirement savings) and you did it on a salary that may seem small but is actually quite large.

    The people in the article did much of the same thing, but the first step in all cases was definitely to make enough money to actually be able to live sustainably within their means. It’s nice to know that it can be done, but none of the stories involve people making average incomes, so it really has a limited targetted audience.

    Choose financial suicide and crazy mortgage or moving far away from family. Today people have tough choices.

    Not really a tough call, just rent and save the difference. All of your friends who can’t buy houses they like should probably be doing that. (unless for some reason renting is magically more expensive than owning, but that’s really, really rare). Prices will drop or salaries will go up, but your “rich” friends will catch up to house prices one way or the other. If they’re in the top 20% and can’t afford a home then something is going to give.

  19. GatesVP – have you been to California? I don’t care what your statistics show, I know what I see in the Bay Area, which is the most expensive area in the country. When I was first out of school most of my friends working in retail with no degree made as much as me. You can not survive out here without some major sacrifices on $50k. I don’t buy the statistics. $30k was a low wage for the area – a VERY low wage. When I worked in fast food I made $25k/year – that is the “minimum wage” out here – no one pays the minimum age because they would have no workers. A combined $60k is still a pretty freaking low wage for the area. (You can’t even buy a condo today for less than $50k annual payments in mortgage/property taxes/insurance).

    You also missed the point that renting is more than a mortgage in the area – it IS a tough call. Didn’t I already say our first mortgage was $1500 or so but the same place rented closer to $3k/month? There is little choice to live in the Bay Area but be very broke and/or strive for a very high wage. NEither was appealing so we moved, but we sacrifice being close to family. & renting to save money was NOT an option. It may be today, but it certainly wasn’t in any way shape or form in 1999. I doubt it is much of an option today.

    Oh – I see you alluded to it. You are right – it is rare for rents to be more expensive, and what makes this area SO insanely expensive. Renting does little to help you move ahead. Why I mentioned I cut my rents with roommates and by hosue sitting, in order to save our down payment.

    I have the feeling Jonathan will have much more to say on the subject with time. I will be interested to hear his perspective on living here, or see how his house hunting go. At least houses don’t seem to be selling in an hour with 100s of offers anymore. Good Luck.

  20. VPGates:

    “The median income for a household in the city was the highest in the US for any city with more than a quarter million residents with $70,243 annually. The median income for a family was $74,813.”

    This was from the 2000 census

    “the highest housing costs increase in the nation, 936% between 1976 and 2001.”

    http://en.wikipedia.org/wiki/San_Jose,_California

    This is where I grew up. These statistics ring true to my experience and more what I hear locally. FYI.

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