As a young couple, Ben and Sara felt like they were throwing their money away on rent. They had been out of college for a few years; both had good careers ahead of them and felt it was time to take a new step in life. They decided to start looking into buying a home, but needed to save money for a down payment. Then, they also learned about the $8,000 tax credit that they could receive as first-time buyers if they bought a home within a year.

Their financial situation did not leave them much room to save for a down payment in a year’s time. They both had car payments, credit cards bills and Sara was paying on student loans. They weren’t sure how to get rid of their debts and get ready to buy a home.

Sara soon hired a realtor to help them start looking at houses. There were many that they liked, but they still were not prepared to purchase. That’s when Ben and Sara’s realtor invited them to a first-time homebuyer’s seminar in their area. They quickly signed up and learned how to prepare and save for their first home:

• Larger payments. Since Ben and Sara still drove their college cars, they started making larger payments and were able to pay off the cars in 5 months, leaving them car payment-free. They paid-off credit cards and Sara lowered her school loan payments to coincide with her income.
• Separate savings account. They learned that they needed at least a 10 to 20 percent down payment for their new home, so they made a separate savings account where contributions were automatically deposited from their normal accounts. That way, they would be saving every month, no matter what.
• Prepare for owning. They learned all the expenses of owning their own home and started cutting back on dining out and going out to save that extra cash for unexpected home improvements.
• IRA funds. Ben and Sara had an IRA account that they had been contributing to since they graduated college. They found out that they could withdraw up to $10,000 for first-time homebuyer’s benefits, without penalties.

A year and a half later (and a tax credit extension later), Ben and Sara bought their first home with a 20 percent down payment. They not only ridded themselves of extra debt in the process, but also were able to save a large down payment because of automatic savings and IRA funds they did not know they could receive. When they received their tax credit, they put most of it back into their IRA fund, but used the rest to furnish their new home.

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