If you are currently trying to Save Money for a House While Renting, saving and buying a house may seem like an impossible task. Rising housing costs do not make this any easier. The idea of trying to save money and pray that the market does not keep going up may seem like you are climbing a mountain. It is a daunting task, one of which that many people today face. I myself am currently facing this situation.
There is good news! Do not let that mountain define you or the task ahead. There are many options available for homebuyers, especially first time homebuyers and some tips and tricks as well. The mountain may seem high, but it can be an easy one to climb if you do it right and with patience.
Table of Contents
1. Move to a Smaller Place
Depending on your situation, moving to a smaller apartment or house (renting) can save you a lot of money. By downsizing your place of residence, you can save hundreds, even thousands, of dollars. It might be worth considering if buying a home is a serious goal of yours.
Another option is moving in with your parents. I am currently doing this right now to save money for my home. Being with my parents has saved me roughly $2,000 per month in bills. I plan to live with my parents for a year, maybe two and buy a house. If you think, living with your parents is a bad thing, according to the U.S. Census Bureau, one in three U.S. adults’ ages 18 to 34 live with their parents. I am 33 years old right now and my wife I plan to take advantage of this and save up a lot of money.
2. Find a Roommate
If downsizing or moving back home were not an option for you, I would consider getting a roommate to help share some of the costs per month. Having a roommate to help split rent, utilities and even groceries can save you and your roommate a lot of money.
Depending on where you live, a one-bedroom apartment compared to a two-bedroom apartment is usually not much different in terms of price. This can mean huge savings! For example, let us say you have a two-bedroom apartment and it is $1,400 per month in rent. Alone this would be a lot, but with a roommate you now only pay $700 per month. You save $700 per month that can go towards saving for a house.
3. Pay off High-interest Debt
This one might seem obvious, but many people fall into the trap of paying only the minimum balance on their debt. This can lead to hundreds and even thousands of dollars in added costs over the lifetime of the debt.
Before saving for a house, use all the extra money you can find to pay off debts. Begin with the lowest interest debt and pay that off first. If you are near the end of a debt with high interest, pay that first. Whichever debt is closer and easier to finish, that should be your priority.
Paying off your debt can help improve your credit score, which will help when getting a loan. Having a low utilization rate and a good credit score will help you secure a favorable bank loan.
4. Open a High Yield Savings Account
Having a high yield savings account is a great way to save money. The more you put in the account, the more interest you will earn. These types of accounts provide better-than-average interests compared to a regular savings account. In addition, it will allow you to grow your money risk-free, making this a solid choice for saving money.
5. Get a Side Gig
This option is not a popular one, but having a second job would benefit you greatly. Your current income pays for everything and you might have a little each month to save. If you have the time, having a part-time job to compliment your full-time one could add $1,000 to $2,000 extra per month after taxes. Imagine being able to save $2,000 per month. If you hustle for two years, you could have $48,000 saved up for a house. Put $20,000 down for the loan, (or do an FHA loan for 5% down), and use the rest for renovating the house to suit your needs.
6. Follow a Budget
Budgeting, like a side job, is not popular. It means you need to hold yourself accountable and in today’s world that is a hard thing to do. It is easier to live in the moment, have fun, and not think about the future. Being diligent now, will save you a lot later.
Managing a budget is not a hard concept and is quite easy once you figure out your finances. A popular way to budget is to follow the 50/30/20 rule. With this rule, you will split your income after taxes have been paid and your money will fall into three categories:
- 50% will go towards your needs, (Rent, food, clothes, etc…)
- 30% will go towards your wants, (Netflix, movies, eating out, etc…)
- 20% will go towards savings or debt.
You can always adjust these percentages to suit your income and needs. For example, you might not need 50% for needs and 30% for wants might be too high. You can divert those percentages to savings and debt, or even an emergency fund. By the way, everyone should have an emergency fund. At least 6 months of your income saved. Never know when a situation will arise and you will need it.
7. Apply for First-time Buyer Assistance Programs
Depending on your state, there are programs that will help you with lender assistance, first time homebuyer, down payment assistance or even reducing your down payment requirements. Some programs will give you money for renovations if the house requires it. This could be helpful if you can only afford a house that needs some work.
A good example of one of these programs is a FHA loan. The government will help you with closing costs and down payment and you only need to provide 5% down payment. The amount will vary depending on the house you choose, but generally, you will only need to provide $5,000 to $10,000 for the loan. Only requirement is you live in the house for at least a year. If not, you could pay a penalty.
8. Explore Rent-to-own Options
You might have seen advertisements for rent-to-own furniture where you can use the furniture or appliance and pay it off monthly. You pay for 12 months or however long the loan is and at the end, the appliance or furniture is yours to keep. Well, some homes offer this type of arrangement.
Some firms or homeowners will offer a rent-to-own option. Many property owners will offer this as a way to sell a property or help someone out. A benefit to the property owner is if the tenant changes their mind, all the money paid in rent (loan) is theirs to keep. Sort of like leasing a car. However, if you decide to stick with the home, and pay off the loan, it is yours to keep.
However, rent-to-own does come with a drawback. Utilizing this option could mean that you will pay more for the home than it is worth since the property owner is setting the price and you are agreeing to pay it.
As mentioned before, the mountain may seem high but it is an easy climb. It will require work on your part to make it worth though. You will need to create a budget, eliminate or improve on expenses and most importantly, save! Only you can make this work, put in the work and I promise you that in the end you will love the results. Rome was not built in a day but when it was complete, it was a beautiful sight to see, a marvel to the world. Diligence and patience will be your allies here.