In today’s economy it's harder than ever for Millennials and even Gen Xers to save up a down payment for their first home.
But Jake Hawkins*, a 39-year-old media production company owner, did just that. Here, as part of the LearnVest Personal Stories series, he explains how he hatched a long-term plan to sock away money and shelve lifestyle upgrades to buy his dream home.
When I moved to Manhattan in the early 2000s after graduating from college, my financial plans were basic: to pay off my student loans as well as my credit card debt. My entry-level salary at a photo production company was about $40,000, which doesn’t go very far in New York. I struggled to make it work, sharing a two-bedroom apartment in the East Village with a roommate.
After a few years, my salary was up to $65,000. I was meeting my goals, and the paycheck bump also allowed me to start putting a little money away for retirement and into an emergency fund.
Get started with a free financial assessment.
Get started with a free financial assessment.
With my finances in a better place, I began dreaming of the future I wanted, which included a home of my own. I clearly wasn’t in a place to purchase anything just yet. But I realized that to make it happen someday, I had to start planning.
Forging a Plan
In 2007 I launched my own media production company, putting all of my energy into building the business. At first I paid myself $90,000 as a yearly salary, and that nixed my remaining balance of $20,000 in credit card debt.
I was finally debt free, which felt great. Yet the more I thought about my goal to be a homeowner (so I had a place to live as well as a long-term investment), I determined that I had to be more aggressive about stashing away money.
To help do that, I scaled my salary down to $60,000 a year, enough to cover my minimal cost of living expenses, and I dumped any yearly bonus I would have paid myself into a basic savings plan. After I hit $50,000 in savings in 2009, I researched other investment vehicles that would make my money grow faster, with more competitive interest rates. I settled on a mutual fund.
Scrimping and Saving
The one thing I didn’t change during those years was my lifestyle. I spent my 30s living like someone in their 20s. I still bought groceries instead of going out to eat all the time. I didn’t blow money on expensive clothes.
I saved in other ways too. After my roommate left in 2008, I paid the $2,800 monthly rent by myself for five months. Then I decided it would be wiser to transfer to a one-bedroom apartment for $2,200—in the same building, so I could avoid paying upwards of $1,000 for movers.
I also got smarter about planning vacations. I traveled a lot for work, so I’d build in a vacation at the end of a job. When I went to London for a gig, I stayed with my best friend, who lives there, so I could avoid hotel costs. The first time I worked in Argentina, I tacked on a four-day trip to Brazil. Traveling to Brazil from New York can cost $700—but a flight from Rio de Janeiro to Buenos Aires was only $200.
RELATED: 8 Money-Saving Summer Travel Secrets
Starting the House Search
Seven years later, in late 2014, I was up to $150,000 in savings—enough for a down payment on a place in the $750K range. I went to my bank and was preapproved for a mortgage on a home costing up to $1.2 million. That was way out of my range, but it was good to get approval quickly. Though I had debt in my 20s, I always made the minimum payments to build my credit rating, which seemed to have paid off.
Now I was ready to finally look at real estate. I scrolled Zillow like it was Tinder, swiping left and right. If I saw something interesting, I’d hit ‘favorite,’ and then I’d filter my preference for price.
At first I looked only in Manhattan. But I then realized that, everywhere in New York City, apartment prices had skyrocketed so much that what I wanted—at least 800 square feet and some kind of outdoor space—would be unaffordable.
I adjusted my wish list. Now my plan was to buy a place just outside the city, which would be significantly less expensive. I'd never considered leaving New York before; as a single guy I loved the social aspect of city life. But by now I was in a serious relationship. Settling down in a home became a much more exciting vision than sharing space in either of our respective city apartments.
Making an Offer
After looking at taxes and how quickly home values increased in different parts of the New York area, I decided that Westchester County, New York, just north of New York City, would give me the space I craved, the property value I wanted and a not-too-far proximity to the city, which I needed for work purposes.
I found a home I loved for $850K on Zillow, a midcentury modern with four bedrooms on two and a half acres. Though it’s close to the city, the house and property have a rural feel and border a water reserve.
RELATED: Your Taxes: If You're a Homeowner
The only thing was, the house cost a little more than what I’d budgeted for, but I was able to get the price down to $830K. With no more negotiating room, I had to really look at my finances and see if I could afford it. I ended up dipping into my emergency fund to come up with the extra $16K I needed for a down payment. At first I was reluctant to use the funds, but I was confident I would build it back up quickly. The closing costs added another $10K to the total.
I moved into my new home in September 2015. My boyfriend and I didn't purchase the house together; when we met he already owned his apartment, and he didn’t want two mortgages to worry about. He soon sold his place and moved in with me, and he and I split the mortgage 50-50. We both contribute to upkeep costs and home improvement projects.
For the first time in years, I’m no longer saving for a home. I’m enjoying spending some of the money I would have immediately put in the bank on furniture and home upgrades. Of course, I also have to adjust to a house's unforeseen expenses. I’m leasing a car, which I wouldn’t need if I stayed in the city. And maintaining the house's ancient plumbing and electricity systems adds up.
Still, I'm in the habit of saving, and I've managed to sock away 10% to 20% of my income toward a retirement and emergency fund. I’m not living like a 20-something in the East Village anymore; luckily, I’m still very conscious about spending, which is what allowed me to save and become a homeowner in the first place.
I also can't emphasize enough how glad I was that I was responsible with credit, didn't live beyond my means and made the minimum payments every month. Without good credit I'm sure I would never have been able to build my business ... or buy my home.
* Name has been changed.