When my wife Rene and I were first married one of our goals was to buy a home as quickly as possible.  This was in the late 80's in San Jose, California and there were a few challenges in front of us.  We had no money (we spent Rene's on the wedding & honeymoon and I had none), we had low wage jobs, interest rates were very high at around 10% and homes were appreciating quickly.  On top of that, unlike recent years, you typically had to have a 10% down payment and funds to cover your closing costs in order to buy a home.

We had determined that there were homes available that met our basic needs priced from $100,000 to $130,000, that we'd likely go with an adjustable rate mortgage around 9.5% and have a monthly payment of around $1,200 per month.  We felt as though we could afford this payment, though it would be tough. 

In order to get comfortable with this monthly payment, we decided to start living as though we already had a $1,200 house payment.  So every month we'd pay our rent of $400 and put the remaining $800 of our ‘imaginary house payment' into a savings account.  When we got a little extra money, such as Christmas bonuses, we'd put a portion of it in our housing fund.  After a while, the interest started to grow nicely as well.  Over the course of 16 months, we saved more than $15,000 and did buy our first home for $128,000 with a 10% down payment and covered our closing costs.  (Now I wish we'd bought 10 homes in this price range, but at the time it felt like we were taking on the national debt.)

I encourage first time buyers to pretend that they own a home immediately by living the budget of owning a home by saving the difference of their projected house payment and their current housing costs.  When done successfully over a period of time, a couple of great things will happen.  They will prove to themselves that they can afford a home payment. 

In addition, they will save money extremely quickly which can be used towards their closing costs and down payment.  Buyers who have accumulated funds to use towards the purchase a home are very desirable and thus they can make more aggressive offers resulting in a better purchase price or other terms.

An additional bonus:  Once they buy a home, they will likely find that making the actual house payment is even easier than making the ‘imaginary house payment' due to the tax benefits of owning a home.  Ask your tax professional how home ownership would affect your taxes.  If you do not have a tax professional, contact me and I'll give you my CPA's name & number.