This is a guest post from Erika at Newlyweds on a Budget. She writes about managing finances, being a newlywed, and frugal living.

I am currently 27 and live in a shack with my husband of a year and a half. We have paid off credit card debt, paid off our car loan, have survived living on one income for four months, and are planning on starting 2012 with a bang to save up for a house down payment.

We hope to own a home in five years. This is our plan.

1. Pay off remaining $2,000 credit card debt.

We paid off our car last month, which brought down our total debt down to a $2,000 credit card, and a little under $20,000 left in student loans. We plan on paying off the card within the first few months of 2012 (which is currently at 0% interest until April 2012). We will continue to tackle the student loans by increasing our payments.

2. Save, save, save

This past year, with both of us working, we were able to save $8,000 in eight months as a back-up/survival fund for when my husband would stop working for four months to enter the fire academy full-time. Now that he is going to start working again at the end of December and we’ve managed to live fine off my income, we hope to save all of his income for as long as possible.

3. Upgrade

When we found out that Eric wouldn’t be working for four months, we downsized from a one-bedroom apartment to a guesthouse/loft in someone’s backyard. It’s not the ideal living space, but it’s managed to save us a ton of money (and probably is the reason we were able to stay afloat these past four months on one income). I think we’ve paid our dues though–and while we would love to continue saving a ton of money, the reality is that our sanity is more important. And so is a nicer place. I’m thinking one with a dishwasher, a bedroom door, and heating that doesn’t come out of a portable heater? Is that too much to ask?

4. Get a raise, contribute toward down payment

Within the next five years, I definitely plan on getting a promotion with a substantial raise at work. We will probably increase our means of living a bit with this new raise, but I also hope we can contribute a good chunk to our down payment. I know my husband expects to be hired as a full-time firefighter within the next five years as well (it’s tough competition for firefighter positions in southern California), and that will increase our income substantially.

5. Still manage to have fun

I want to own our own home. I still plan on living frugally. But I don’t want to forget to have fun, and that includes traveling. I want to travel as much as possible before we have kids. And even though we’ve been married a year and a half and we still haven’t gone on our honeymoon, we will one day. I also want to go to Europe. I want to try and fund our travels through a separate โ€œextraโ€ fund. Meaning, any extra income we earn that doesnโ€™t come from our immediate income, such as mileage reimbursement checks from work, mystery shopping money, blog advertising, and tax returns.

What are your steps to buying a home? Any tips for us?

*Little House says: This is an awesome plan. I really like how you downsized when your income situation changed. I think people can learn from this. Thanks so much for sharing!

17 Comments

  1. Well Heeled Blog Reply

    I’d like to own a home, but I guess for now my “plan” is to save as much as I can and hope for the best. I do have a separate ING account that I plan to dedicate to a dowwn payment, even if it’s for 5+ years away.

    • @Well Heeled Blog – Getting started sooner than later is a great idea, especially if you live in a state where property values are expensive!

  2. Well Heeled Blog Reply

    Also, I believe you can take out $10,000 in contributions from your Roth IRA to fund a down payment without penalties.

  3. Hunter - Financially Consumed Reply

    I can appreciate your focus on the housing goal. We too saved like crazy and scraped together just about everything to buy our current home. It was totally worth it, and will be even better when property values come back.

    • @Hunter -As long as you look at the long term, your property values will come back. Looking at historical averages, most people make money somewhere around 10-15 years (I think.) I’m hoping that when I do buy a house, that’s it! I’ll live there until I’m dead (or in a nursing home. ๐Ÿ˜‰ )

  4. You’re on a great track to buy your first home! When we purchased ours, we maxed out out loan-to-value to 95% (in the time before the mortgage crisis made this impossible). Looking back, I wish we’d simply saved more, but it all worked out in the end. We’ve been making 15 year payments, and our LTV is now less than 80%.

    • @Christa – For those who obtained mortgages with little down and are still able to afford their properties, that’s great. Especially since you’re beating the 30-year mortgage.

  5. Aaron Hung Reply

    We’re in the same boat here, just got married about a month and living in a one bedroom apt. We’re putting 100 every week into the ING to save and the rest of the money we make goes into paying credit cards

  6. Kris @ Everyday Tips Reply

    I believe you can flat out withdraw what you contributed to your Roth IRA without penalty. It is withdrawing any earnings that you run into penalties with a Roth as I understand it.

    I would keep an eye on the housing market and almost pretend that you are looking right now. The more educated you are on the market, the better able you will be to recognize any screaming deals that are out there.

    Keep on saving!

  7. retirebyforty Reply

    Definitely save enough for 20% down payment so you don’t have to pay PMI. You probably should start looking seriously soon. If the market heats up again, it will be very difficult to find a good deal. Houses are expensive in CA.

    • @Retire by 40 – I definitely agree with you. However, I’m really hoping that prices won’t increase in CA for a while. Prices have definitely come down since the bubble burst, but not as much as you’d think. It’s still difficult to find a house in the $300K range, or at least a decent one in a decent neighborhood. I know that my plan is about 3-5 years out and as long as the housing market stagnates, I’ll be fine. ๐Ÿ˜‰

  8. My University Money Reply

    I admire your level-headedness when it comes to purchasing a house the old fashioned way – saving up for a down payment. If only more people (including the banks) could figure out that this is how it should be done in a lot of cases, it would solve many problems.

  9. Admirable that you are focused on goals at a young age (yes, I can say “young” from my lofty perch of near-50). If your dream is to afford a house, is it feasible to relocate to a state where real estate prices are more affordable than California?

  10. I admire your tenacity. I would not, personally, withdraw from retirement funds to buy a house. You need those seeds to grow for your retirement years.

    I am near 50, been married 3 times, and have never been on a honeymoon either. Such things are not affordable for many people.

    I am old enough to remember life before a dishwasher. I survived to near 30 without one. There are not that many dishes when cooking for two! A bedroom door? You two live alone, this is doable….Now for heat, you live in S. CA, so this shouldn’t be much of a problem wither. I was born and raised in southern CA.

    Now that our kids are grown, I sure wish I could sell my house and downsize like you have…

    Keep on doing what you are doing, and you’ll be a millionaire, with a paid for house, sooner than you think!

    Spedie

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