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Housing

Home Buying

When Moving In With Mom and Dad Is a Wise Choice

Despite the real estate boom and bust and the many Americans who lost their houses or saw the value plummet, most non-homeowners still hope to buy a place one day. Of course, many reasons exist as to why they haven't yet, including bad credit or too much debt, as well as the doozy: a lack of upfront cash. According to a recent Trulia Trends survey, 41% of millennials surveyed said that saving for a down payment is their biggest hurdle to home ownership. Being able to swing the monthly mortgage nugget simply isn't enough.

Here are four ways that home buyers (millennials or any generation) can increase the amount they've got stashed for the down payment, and build their buying power.

1. Find New Ways To Save

Move back in with Mom and Dad: You might be cringing right now, but don’t worry — it’s not forever, and chances are your folks will throw you out before you are ready to move out anyway. Consolidating housing and moving back in with parents for a short period of time is a huge way to save money.

Cut back on significant spending: Sure, you can cut back on the daily latte and lose a few cable channels, but that is not going to get you enough saved before middle age. You need to cut back on the significant spending areas and big ticket items, like a fancy car (with hefty monthly payments) and yearly vacations. You'll likely be surprised at how easily you can adapt to spending less, when you know the money saved will go toward an important goal.

Pay yourself first: Set aside money to be saved automatically every time you receive a paycheck — no matter what. Your bank should be able to help you with this by automatically depositing a specific sum into your savings account when your paycheck clears. This way you'll know when you've hit your spending limit for the month.

2. Seek Out Additional Income Sources.

A little help from Mom and Dad: A great and often overlooked source is … the folks. If they are in a position to help you, each parent can “gift” you money every year, tax-free. Currently the allowed amount is $14,000 per year, per parent. If you are married, you can double that to more than $50,000 a year. If you are smart and plan ahead, two years’ worth totals six figures. A very nice start! In fact, according to Trulia’s survey, 50% of all millennials plan to do just that!

Get a roommate: This one is a no-brainer — if you have an extra room, fill it. Let your apartment or your current home work for you. Just be sure you actually sock away that extra income, so you can watch it grow.

Generate a second income: It’s amazing how a few extra dollars can add up over time. A friend of mine taught high school for years and owned an amazing home. When I asked him how he was able to purchase and afford an expensive home in a wonderful neighborhood, he said he had taken on a part-time job as a copywriter for a local paper. He allocated all of that extra income to the purchase of his house. Over time, that money grew and grew.

3. Get Your Credit and Debt in Check

Clean up your credit: A better credit score equals a better mortgage interest rate, which ultimately equals better buying power. Take the necessary steps to clean up your credit. This usually takes time, so plan way ahead—and at least a year in advance. For more on how to improve your credit, click here.

Less debt gives you more buying power: The lower your debt levels are, the stronger your debt-to-income income ratio, which is a key factor when a bank determines how much house you can afford. To keep that ratio in check, and to look favorable to lenders, begin paying down high-interest, revolving balances on credit cards. Also, avoid any big purchases before a potential home purchase. Any big ticket buys (like a new car) can alter your financial picture and prompt a lender to give your finances a more in-depth look.

Student loans do count: For most millennials, student loans can be very high in those early post-college years. Unfortunately, you need to remember that student loans count as debt when the bank is determining your buying power.

4. Downsize Your Dream Home

The starter home: So many people say, “How could I ever buy a decent house in this town?” Well, start thinking smaller. Instead of a $300,000 house, you need to find the one that fits your budget … today. There will be plenty of time to upgrade that starter home into a bigger dream home later. This is where the term “starter home” came from! As you pay down the loan and hopefully build some equity, it’s possible that you may be able to upgrade in five or more years.

Find the same house in a transitional neighborhood: Buying your first home in a transitional area allows you to get into the market relatively cheaply—if you don't yet have kids, before you have to worry about the local schools—and increase your buying power. It may not be the most sought-after or picturesque community at the moment, but as it improves, your home value will improve with it.

Michael Corbett is Trulia‘s real estate and lifestyle expert. He hosts NBC’s EXTRA’s "Mansions and Millionaires" and has written three books on real estate, including Before You Buy!