Buying your first home? Save and save some more

Ask the Expert Buying Spring House Hunt
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NEW YORK — One couple in Queens pulled thousands out of their retirement savings. The parents of a Manhattan couple offered up their home equity line of credit. And a mother on Long Island chose to work seven days a week.

As housing prices continue to outpace wage growth, it has become harder for first-time buyers to save up for the biggest purchase of their lives — especially those who want to buy in New York City, where the down payment alone can amount to hundreds of thousands of dollars.

“People will go to extreme measures to buy here,’’ said Jason Haber, a broker at Warburg Realty, a luxury agency in Manhattan.

There are the cutbacks. Eating out? Nope. Shopping? Definitely not.

Student loan debt needs to be paid down first or refinanced.

Sometimes a couple will set aside one person’s entire income for the down payment, Haber said. Other buyers can manage it only with multiple gifts from family members. “It’s almost like a GoFundMe,’’ he said.

According to an analysis by Social Explorer, a research company, first-time buyers in New York City — much like those in other large metropolitan areas — differ markedly from buyers in the rest of the country.

Many are well-educated, six-figure earners: 21 percent of first-time homeowners in New York City surveyed by the census in 2013 had earned a master’s degree or higher compared with 11 percent nationwide, and 40 percent earned more than $100,000, nearly double the percentage nationally.

And once they buy, they tend to stay put. More than 70 percent of the homeowners surveyed in New York City were living in the first home they ever bought, and more than half those moved in before 2000.

But for many New Yorkers, regardless of income or education, saving enough to buy a home requires discipline and more than a little creativity.

Heather Gallagher, 36, a fund-raiser at a performing arts center in Manhattan, and her husband, Will Gallagher, 34, who provides technical support and on-boarding at an education software company, started hunting in 2016 for a one-bedroom in Jackson Heights, the Queens neighborhood where they had rented for 10 years.

After being outbid on four properties, they found an estate sale in a co-op outside the neighborhood’s historic district, for $185,000.

The kitchen was in its original condition from the 1950s, including the oven, Heather Gallagher said: “I was pretty sure it was going to kill us both.’’

They also discovered that the refrigerator was missing. But the price was right.

They found a first-time home buyer program that offered to pay up to $7,000 in closing costs, and pieced together a down payment using their savings and $5,000 from a Roth IRA, withdrawn without penalties.

Their bid of $187,000 was accepted, but when the appraisal came in at just $178,000, they negotiated the price down to $185,000.

“So at that point, our parents gave us a gift,’’ Heather Gallagher said, which they used to pump up their savings account ahead of the co-op board application. They repaid their parents after closing in March 2017.

The kitchen needed a gut renovation, but the Gallaghers couldn’t afford the $30,000 price tag. After moving in, they did what they could, replacing the refrigerator and oven, painting the cabinets and covering the floor with vinyl tiles.

By summer 2018 they had saved $15,000 for a new kitchen. The couple charged the rest to a Home Depot credit card that would remain interest free for two years, at which point they plan to have paid off the balance. This month, the work was finally completed.

“We have a dishwasher for the first time in our adult lives,’’ Heather Gallagher said.

Queens has long been a more affordable option for first-time buyers, although the borough is starting to catch up to Manhattan and Brooklyn. In the past year, prices there grew 3 percent, said Nancy Wu, a data analyst at StreetEasy.

About 70 percent of New York City’s residents are renters. And a recent StreetEasy survey of 2,550 New Yorkers across all five boroughs found that 66 percent of renters plan to continue renting. One of the top reasons: They can’t afford to buy.

First-time buyers nationwide face similar hurdles.

“If you look at the housing market seven years ago, or eight years ago, qualifying for a mortgage was something more top of mind, because credit was so tight,’’ said Cheryl Young, a senior economist at Trulia. But recently, saving for a down payment has become a more primary concern.

According to a recent national survey by Trulia, 56 percent of people between the ages of 18 and 34 said saving enough for a down payment was the biggest barrier to homeownership, followed by rising home prices. Other top concerns included poor credit history and student loan debt, both of which can make it difficult to get a mortgage.

These problems have helped push the median age of home buyers to 46, the oldest age ever recorded by the National Association of Realtors. When the organization started collecting this data in 1981, the median age was 31. But millennials ranging in age from 25 to 34 make up the largest share of home buyers, and the median age for first-time buyers has remained around 30 to 32 for more than 20 years.

“The best advice I give younger New York City residents is to try and make money like a New York City professional, but spend like you’re still a college student,’’ said Robert Stromberg, who works with six-figure earners in their 30s and 40s at his financial planning firm, Mountain River Financial, near Philadelphia. “If you don’t want to adjust your spending, well, then you’re left with just earning more.’’

For first-time buyers Mark Hildreth, a construction manager, and his wife, Caitlin Saloka, a global account supervisor for an advertising firm, both 28, their debt made it difficult to save for a home.

“We blew most of what we had on a wedding in 2014,’’ Hildreth said. They spent the next year paying it off while also trying to pay down student debt.

Hildreth’s parents used their home equity line of credit to help Saloka refinance her loans, reducing her interest rate to 3.5 percent from 12. Hildreth, who recently began pursuing a master’s degree at Columbia, had several school bills of his own.

He found a better paying job in 2017 and skipped retirement savings to save for a down payment. Saloka also got a raise that year, and they continued to live in the $1,350-a-month rent-stabilized apartment in the Fort George neighborhood of Washington Heights in Manhattan that Saloka found about seven years ago.

“Anytime we would get money that we weren’t expecting, whether it’s a $100 birthday gift or a relative passing away or a bonus at work, we would invest that money,’’ Hildreth said. By the time they were ready to buy, they had paid down about $70,000 of their $100,000 in loans and graduate school expenses.

Their broker showed them a renovated one-bedroom apartment, with an open floor plan, that hadn’t yet hit the market, right across the street from where they had been renting.

“This place kind of fell in our lap,’’ Saloka said.

They negotiated the $409,000 asking price down to $400,000.

Hildreth’s parents agreed to cover half the 20 percent down payment. For the other half, “we were grabbing every bit of money that we had lying around,’’ Hildreth said, including a stack of savings bonds from his grandparents worth just under $3,000.

They closed in February of last year.

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