How can a young couple save a home down payment?


Q. How can a young couple save for a first home? They pay rent of $3,000 a month in Manhattan. They have $200,000 in education loans, save the max to their IRAs and have good credit. They earn too much for first-time homebuyer programs — $150,000 to $200,000 between them — but can’t save enough for a down payment. Other than voting for Elizabeth Warren, any suggestions on how they can get their foot in the door as homeowners? All of their professional friends are in the same boat which seems crazy.
— Trying to advise

A. It’s going to be hard, but it’s not impossible.

As you said, this couple is not alone when it comes to young professionals living in and around Manhattan. A combination of high rents and hefty student loan payments can make it difficult to save any kind of substantial money.

Without knowing all the particulars of their situation, it’s hard to say exactly what they can do, but we’ve got some ideas.

They should first look at what they are spending money on and what their monthly fixed and discretionary expenses, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

He said with a joint gross income of between $150,000 and $200,000, there should be some wiggle room in their budget even with loan payments and the $3,000 monthly rent.

It’s time to take a hard look at what kind of lifestyle they are leading.

“To be sure, they won’t be able to come up with a down payment simply by cutting out the $5 Starbucks each day,” DeFelice said. “However, young professionals living in Manhattan tend to spend more simply because so many things are accessible.”

How often do they go out for dinner and drinks with colleagues or use GrubHub for takeout instead of cooking at home? How much do they spend on Uber each month?

“Technology has made it frighteningly easy for people to spend money today,” DeFelice said.

Another option would be to consider moving out of the city. DeFelice said there are plenty of places just outside of Manhattan with cheaper rents where they can still be within an hour of their jobs via public transportation. He said living outside of the city would likely curtail their social spending as well.

“While I am always a big believer in starting to fund your retirement accounts as early as possible, maybe that can be a source of funds until they are able to save up enough for a down payment on a home,” DeFelice said. “The fact that they already have money set aside in their retirement accounts at such a young age will work in their favor, since it will have plenty of time to grow even if they stop contributing for a few years.”

He said they just need to remember to shift the savings back into their retirement accounts once they have saved enough for a home.

No matter how you slice it, the fact is they won’t get there without making some sacrifices.

DeFelice recommends they meet with a certified financial planner who can take the time to review their income, expenses and run a proper cash flow analysis.

“If they find the right planner, going through this process at a young age can provide them so much more than simply a realistic budget,” he said. “It will help them articulate and realize what their true goals are – most young folks don’t even know – and develop a strategic plan on how to efficiently use their resources to achieve them.”

That move may cost them some money in the short term to hire a professional to help them, but in the long run it will be money well spent, he said.

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This story was originally published on Dec. 3, 2019. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.