The following is a guest post from Wayne at Young Family Finance, where he writes about the financial challenges for young couples and families, like choosing between daycare or stay at home parenting.

Are you at the point where you want to buy your first home? The middle class strive to own their own homes. Building wealth in real estate is one of the easiest ways to set up an easy retirement. I know that my parents followed this route and will retire in 5 years with a mortgage that is paid off. Think about how much less your expenses will be in retirement with a paid-off mortgage. It all starts with getting into a house at an early age.

When you are considering buying a house, many people will point out to you the hidden fees that come when purchasing your new home. It is great to know what you are getting yourself into, but without a down payment, buying a house isn’t an option. So, how should one save up a down payment? Here are some creative ways to save the 20% required for a home.

Set Your Goal

Before you set about the task of saving for your down payment on your house, you first need to establish your goal. How much do you need to save? Traditional advice recommends that you save 20% down when purchasing a home. You may be able to qualify for a loan that requires less, but the more you save means a lower mortgage payment. Figure out how much you are wanting to spend on a house and calculate what that means for your down payment. Having this concrete figure in mind when you start saving will help speed up the process. It keeps you moving towards this goal.

Reduce Your Spending

One of the first things that you can do to actually start working towards this goal is to reduce your spending. Many people often fail to save up for a house because they do not want to make any sacrifices. They want to have the benefits of home ownership without putting in the hard work to save extra money. If owning a home means that much to you, you should be willing to give up certain things. Can you give up eating out for a couple years to save for that down payment? Or perhaps you can give up cable and going to the movie theaters for a certain time. If you cut your spending, you will be surprised at how much faster your down payment builds up.

Increase Your Income

If you are looking to speed up the process even more, why not work to earn extra money? A few extra dollars here and there may not seem like a lot, but it adds up in the same way that cutting back on your expenses does. Try to think of ways that you can bring in a few extra dollars. Can you sell unused items or perhaps help out your neighbors in some way (for example: baby/pet sitting)?

If home ownership is your ultimate goal, starting with these three steps will help anyone reach this goal. Find creative ways to reach your goal and celebrate your progress as you go along. Before you know it, you will be living in your own house.

What things can you do to save for your down payment? Or what did you do to save for your first down payment?

This guest post was written by Henry Truc from Go Banking Rates, a website that brings you informative personal finance content and helpful tools, as well as the best interest rates on financial services nationwide. Follow them on Twitter at @GoBankingRates.

For most homeowners, paying down their mortgage loan is akin to fighting off the plague, but the dream of one day owning their home in full keeps them going. Unless you’re flush with cash, buying a house usually means taking on a sizable amount of mortgage debt, and with that, forking over a fortune in interest payments.

Conventional wisdom suggests that owning your home outright is the smarter financial strategy. You don’t owe lenders anything, you save money on interest payments and you’re one major step closer to financial independence.

That said, there are some disadvantages to owning 100 percent of your home equity that should be considered.

Disadvantages of Owning Your Home in Full

Though it’s debatable whether or not there is such a thing as good debt, paying off your mortgage in full does reduce certain opportunities for better use of your money. Home loan debt isn’t necessarily a bad thing and here are a few reasons why:

• Tax Deductions: One of the most popular reasons for maintaining mortgage debt is the tax advantages that you enjoy on interest payments. It doesn’t necessarily make sense on its own because owing money just to save money on interest defeats any economic purpose. It does, however, effectively reduce the cost of that debt.
• Greater Financial Flexibility: Instead of having no cash in the bank and a mortgage paid in full, it may be a good idea to tap into that equity just to ensure that you have some access to cash if an emergency arises. If you pour every dollar into paying down your mortgage and don’t have anything left over for home repairs or one-off incidents, you could be positioning yourself in a tough spot to handle any costs of unforeseen events.
• Cheaper Debt: If you can get a good mortgage rate, chances are it’s multiple times less than your credit card, personal loan or auto loan interest rate. Consolidating your debts with a HELOC or home loan refinance can provide you some debt relief and help you save money on interest payments. Plus, mortgage interest payments are tax deductible, unlike credit cards or other personal loans.
• Property Value: Since your property value isn’t affected by your mortgage balance, you can put your equity to better use than just having it sit around idly by, waiting for you to sell your house. You may want to consider taking out a loan against your home for value-added investments like remodeling your home or adding another bedroom that will increase its market value.
• Return On Investments: By the same token, you can probably do better with your home equity than having it sit around earning a zero percent return. Depending on your risk tolerance and the potential return on investment, you may be able to outpace a low fixed mortgage rate. Granted, no investment is guaranteed and you’d be hard pressed to find a CD rate that trumps your mortgage rate. So for practical purposes, putting your home equity at risk to pursue any investment may not be a shrewd idea.

Keep in mind that these options should only be considered if you own a majority of your home equity or own your property outright. Mortgage debt is still debt. Whether you owe a balance on your first mortgage, are refinancing to consolidate other debt with higher interest rates or using it to fund a home improvement project, you’re still taking out debt on your home. Before agreeing to any home loan, use a mortgage calculator to ensure that you can afford the monthly payments first.

Advantages of Home Equity

Owning your home, whether outright or just a majority of the equity, has undeniable advantages. The more equity you own in your home, the more stable your financial situation may be. The peace of mind and stability of not having to worry about meeting mortgage payments is hard to put a price on.

You shouldn’t consider taking on more mortgage debt against a home you have little or no equity in. In addition, if you are fortunate enough to be in a financial situation where you can own your home outright, be debt free and have a surplus of savings to invest wisely, you may not need to access your home equity at all. The key, as always, is to find the right balance that fits your financial strategy and maximizes the efficiency of your money.

Do you think it’s better to own your home outright or to owe a small mortgage balance?

• Selling the American Dream
• Who are the real “Joneses”?
• Rent vs. Buy; The Guilt, the Guilt

A couple of days ago I mentioned a comment I overhead. The one about how “everybody” is having to short sale their homes so “everybody’s” credit will be affected by the housing market. I also mentioned at the very end of the post (if anyone actually read to the very end) how I predicted 4 years ago that the housing market wouldn’t keep rising. My main reason for this prediction was that the houses in my area were selling for astronomical prices. Prices that didn’t match salaries. I knew that something wasn’t right. When a couple grosses $75,000 but is able to purchase a house for $550,000 there’s something fishy going on. (That’s over 7 times their income!)

However, our mortgage broker friends tried to convince us that prices would keep rising because there were all these new kinds of loans available for buyers that would make the monthly affordable. Still, I didn’t buy it. Though the monthly was affordable, as little as I knew about finances and real estate, the payment wasn’t even covering the interest.

Now my initial prediction wasn’t that the market was going to tank (though secretly I sort of hoped it would as someone sitting on the sidelines realizing I couldn’t afford a house. -No harm meant to those in this situation – I just wanted to purchase an affordable house.) I thought it would level off for many, many years until salaries caught up with the tremendous housing prices.

Now that I’ve seen the housing market crash and the outcomes thus far, I have a few new predictions to make. Just to protect my ass-ets; I’m not a financial analyst, genius, true psychic or real estate agent. Just a very realistic, hard-working person who is still renting!

• The housing market will continue to scrape along the bottom for at least another 18 months.
• Some areas that weren’t hit as hard will do just fine and may see a market more similar to a “historic norm”. Others, like the Southwest will see even more foreclosures.
• The government will try again to boost home ownership by offering incentives, perhaps in the form of taxes or some other incentives in conjunction with banks, within the next 18 months.
• The housing market will not be the industry to kick start our economy. (If I were a real psychic, I could predict what will!)

Obviously none of these predictions require Mensa abilities. They are just realistic statements given the current facts. I don’t want to predict farther than a couple of years, since I do think that the market will eventually stabilize and get back to a more normal flow. Well, I guess I can say that this is my prediction for 5-years out – a more normal housing cycle (smaller increases and decreases over time. Click here for a historical housing graph – it appears that an 8-9% increase over 20 years is “normal”.) I don’t think we’ll see this roller coaster housing market again for a very long time; it left too many people with an ill-taste in their mouth.

Do you think my predictions are out of whack? Do you have any predictions about the housing market? What pattern did you see in your area that signaled a “red flag”?

Lemmings Falling Off a Cliff - by Eric Allie

I’ve been battling bronchitis for the last two weeks and haven’t been my peppy self. Hopefully this new dose of antibiotics I’m taking will kick its butt. However, I’m still dragging myself into work….of course that might be my problem. But I overheard the most irresponsible comment today at lunch, and I just had to post on it.

“Their accountant told them that everybody’s credit will be effected by the housing market since so many people are walking away from their homes and that they’ll be in the same boat as everyone else. So, they might as well short sale their house. They haven’t paid their mortgage in 8 months.”

This was a comment I heard of others discussing buying and selling their homes. One lady made this comment, quite lightly, about her son (I think) with the impression that it was fine since “everybody else was doing it.” She even went on to say that [her son] had a good job and could afford the mortgage payments, but because their property was no longer worth what they purchased it for, it was in their best interest to short sale it.

I also know someone very close to me that has decided to “strategically” default because they are no longer happy with the price they paid for their home. They hemmed and hawed over the decision. And, since a mortgage broker wouldn’t talk to them until they defaulted, they decided to take that initial step and default. I don’t know if they will eventually follow through or not; they are under the impression that they’ll be able to buy another house in a couple of years for half the price. (Oh yeah! Let’s reward irresponsibility! Oh, wait. That’s me being snarky.) Once they find out how long it will take to repair their credit, they may decide otherwise.

In my opinion, this sounds like the exact reason we’re in this mortgage mess and one of the reasons our economy is so pitiful. It’s the “everybody else is doing it” syndrome. It’s hard for me to believe that walking away from a home is a good thing. Especially if the owner can afford the payments!

What do you think? Is this just fine and dandy? Should defaulting homeowners suffer any consequences? They knew when they signed the dotted line how much the total cost of the house/townhouse/condo was. Are they predicting a future where they’ll be able to easily land a brand new house as easily as they did the first time around?

P.S. I predicted 4 years ago that home prices wouldn’t keep going up. I’m not a psychic, I’m just a realist….tune in later for my psychic predictions of where this market is going.

One part of my 3-step plan is definitely on track; and I dare say complete! I’ve finally increased my credit score to a whopping 758 and that’s put me in the ‘Excellent’ category. Of course, I should probably slow down and back track a bit since this is really just my Transunion score.

If I look back at the beginning of last year, my score was a pitiful 581. Yikes! I was not at all considered a good credit risk. Luckily, many of my negative items from yesteryear dropped off (with some help by me filling out forms and disputing old items) and my payment history began to kick in. Almost 20 months later, my score reflects my diligence of keeping my bills paid on time and reducing my debt.

I think I can cross this step off my list and now focus on my other two goals: pay down the remainder of my debt and save for a house. I really like to think in 3′s, so adding retirement savings is now coming to the front and center of my goals for this year.

3-Step Update:

• Pay down debt: total to date $21,843 (including a line of credit from a few years ago: $3,500, car loan: $8,000, and student loan: $10,000 -rounded amounts)
• Save for down payment on a house: Goal $25,000 (over 3 years or $700 a month approx.)
• Put 5-8% away for retirement: Realistically I think I’ll be able to start with 5% and work my way up to 8% once my line of credit is paid to $0 and the car loan is paid down a bit more.

Obviously, I still need to work on paying down my debt. However, I’m close to paying off the line of credit and am shooting for having it paid in full by July or August of 2011. I’d like to pay down the car loan a little more, then tackle the student loan debt last. The student loan interest rate is low, so once I get all of my other debt paid off, I can begin focusing on these loans and get it paid down faster.

Have you pulled your score lately? Are you making progress toward your annual goals?