Are you wondering how to save for a house while renting?
Maybe you are tired of having to think about making rent every month?
Maybe you want to achieve the freedom of being a homeowner, owning the place you live.
According to policyadvice.net, Data from the US Census Bureau indicates the current home ownership rate in the US is 64.8% That means there is a staggering 88 million Americans who are yet to own their first home!
I am here to show you the most effective steps and strategies that you can use to save for a house while renting.
It is amazing how little changes can balloon your savings!
Is it possible to save Money while renting?
Yes! It is possible to save money while renting. If you can learn to live within your means.
Try not to spend a lot of money on stuff you don’t need, Focus on the long term.
We all love our streaming subscriptions, fine liquor, pampering ourselves at the salon, in reality these are luxuries that make you happy.
Though they seem small, they can take up a huge chunk of your budget If you’re not careful.
Assess the things in your life that aren’t a necessity and see what things you could live without while you are building your nest of savings.
What you need to know about saving for a down payment while renting
Deciding that you want to buy a home is a big first step!
You will need to start thinking about a plan on how you are going to save for a down payment and qualify for a mortgage.
The rule is simple (in theory at least)
The more money you can provide upfront to a lender, the more money you save on your monthly payments in the long run and let’s not forget about interest!
So, how much should you save for a down payment on a house while renting?
Well, there are a variety of different options out there, the general theory is that you need to have at least 20% of the price of the house ready when you close the deal (don’t forget about closing costs!)
Whereas there are lenders that will grant you a mortgage even if you have a minimal amount saved, as low as 3% at times!
But keep in mind that that if you provide less than 20% upfront your lender will inform you to purchase a PMI (Private Mortgage Insurance).
A PMI is a separate insurance that your lender will get for you, it will be included in your monthly mortgage payment.
As soon as you get up to 20% of the price of the home you can refinance your mortgage and get the PMI taken off.
Review your Debt
Reviewing and eliminating as much debt as you can is critical to qualifying for a mortgage and saving money for a house while renting.
Look at your current debt and find areas to cut as many costs as you can.
You might be thinking, How Can I Pay Off Debt Fast?
If you currently have a balance on a high interest rate credit card, consider getting that paid off as soon as possible.
Given the Covid-19 pandemic, it could be a good idea to talk to any lenders you’ve borrowed from, they might be willing to reduce your interest rate on your credit cards or student loans.
One of the first things that most lenders do is look at your debt-to-income ratio (DTI).
You can easily calculate your DTI by taking your monthly minimum debt payments and divide it by your monthly pre-tax income.
Different lenders will have varying DTI requirements.
At all costs, avoid adding more debt to your name.
The less debt you have relative to your income the better.
Generally, you’ll want to keep your DTI less than 50% (although some loans allow for a SLIGHTLY higher percentage).
Save more on your Current Rent
With rents going up every single year, if you want your goal of saving for a house while renting to turn into reality, you will have to find a way to cut back on your existing rent.
Getting a roommate is one of the most obvious solutions for saving on rent.
According to worldpopulationreview.com, The average American renter pays $1,326 a month, divide that by 2 and you have saved $663!!
You can use this extra money to place in a high yield savings account, pay back student loan debts, not let your credit card debt become a problem, etc.
If your lease is up for renewal, try negotiating a lower rent.
IF you are a good tenant there is a good chance that your landlord wants to keep you, it costs them more money to move you out and bring another tenant in which gives you some leverage.
You could also offer to work for your landlord, if you have a special set of skills or if you know your way around plumbing, you can offer to be an in-house repairman for your landlord.
Anytime something goes wrong, they must pay someone to fix it so why don’t they just pay you instead?
Live below your means and do not increase your expenses, while you might be compromising in the short term, don’t forget that the end goal is to buy a home!
Open A High Interest Savings Account
Opening a High Interest Savings account is a great tool for saving money for a house while renting.
To start this process, have a chunk of your pay automatically sent to your savings account, this can be automated with ease through your bank.
Avoid the temptation of dipping your hands into your savings for recurring or unnecessary expenses.
If you recently got a pay raise, bonus or just a gift which contained cash, make sure to send it straight into your savings, this will help accelerate your savings to help you get your dream home just that bit quicker!
Look around for the highest interest rates you can find,
Something I have noticed is that a lot of online bank accounts tend to offer higher interest rates than regular brick and mortar banks.
Living a Frugal lifestyle can help you better factor in all your necessary expenses while making sure you live below you means.
This will give you a much better idea of how long it might take you to reach your goal of buying a house while renting.
Apply for various assistance programs
There are many lenders that offer first-time home buyer programs. These programs can help you with a percentage of your down payment.
Keep in mind that they might ask you to occupy your new home for a set period otherwise the money will have to be repaid.
Depending on your work, there might be other programs that aid home buyers, if you’re a teacher, police officer, Firemen etc.
There are also lenders that look to aid diverse communities to improve their chances of home ownership. If you are in any of these roles, there may be support available for you.
My Top 5 tips to save for a house while renting
1) Eat at home more often
This is an underrated aspect of saving money while renting. How often do you go out to eat or order in?
A dinner for two at your average restaurant can cost you more than $50 if you both order an appetizer, a main and a drink each!
If you are the type of person who goes to a coffee shop every morning, consider making and serving your own coffee at home.
This could save you upwards of $10 a day. Multiply that by 30 and its $300 saved over the course of a month!
2) Take on Side Hustles
Little Side hustles are a great way to bring in a little bit of cash as well!
Look around your place for stuff you might not need and see if they’re in a sellable condition.
There are a variety of online marketplaces where you can sell your unwanted stuff.
There are various Work from Home Jobs that are available to you if you find commuting a problem.
Just be cautious to not spend the extra money that you are receiving thinking it’s a bonus! It should be going towards cutting back on your rent or paying off any debts you have.
3) Reduce Your Bills
You might be thinking, how can I save money on bills while renting?
You can save money on your cable bill and cell phone bill by simply changing what plan you’re on.
Make sure to keep your phone’s Wi-Fi on and connect to nearby Wi-Fi whenever it is available to you.
Additionally, you can make sure that your air conditioning or heat is turned down whenever you aren’t home or at night.
Don’t leave your chargers plugged in to the outlet when you are not using them because they continue to use power.
4) Reduce your Grocery Spend
For groceries, instead of buying name branded products, try going for the store branded ones. They should be just as good but for a fraction of the cost.
Even which store you look to shop at plays a role, instead of shopping at Whole Foods consider making the switch to Aldi’s.
Try meal prepping or making cheap meals to reduce the number of times you visit the grocery store.
Avoid convenience food, foods like chopped carrots or diced onions.
While they might mean you have to do less work in the kitchen, you almost always end up paying a higher premium for these products.
5) Know what you’re spending on
You need to check what you are spending each day, each week, each month.
Check your bank statement every week and try and find any unnecessary expenses.
When you keep track of what you’re spending your money on it automatically makes you think twice before making an unnecessary purchase.
You could also try doing a No Spend Challenge.
A No Spend Challenge is where you try as hard as you can to not spend any money for a specific period of time.
Check out my other article on 45 creative ways to save money and enjoy it!
How much can I afford to save for a house while renting?
This is a bit of a tricky one!
While in the end it comes down to personal choice you do not want to be saving for a goal that is not sustainable.
Ideally, your monthly mortgage payments should not be more than 30% of your income but everybody’s situation is different.
Remember, your goal at the end is to live Mortgage Free! Read about how we achieved it.
Apart from at least a 3% down payment, there will be additional closing costs which include costs like the appraisal, the mortgage fees, and any other additional fees.
According to themortgagereports.com, closing costs can range from 2-5% of the mortgage amount for both home purchase and refinance loans.
A few more things to think about are expenses that will be incurred for repairs to your new property as well as packers and movers.
Let’s not forget about furnishing your new house that you have worked so hard to save up for!
According to homeadvisor.com, the average cost to furnish a house is around $16,000.
Of course, that number will vary wildly depending on the type of house you get, how many square feet the house is as well as how many bedrooms it has.
Let’s also not forget about what type of furniture you buy, that is entirely up to your personal taste.
If you are moving into a larger house, keep in mind that more money will need to be spent on furnishings.
While the prospect of saving for a house while renting can be a difficult decision to make, it is likely one that will pay off.
Learning to Live More Cheaply, as well as getting a lot smarter with how you manage your money will help you save money.
So, Should you save for a house While renting?
In the long run, owning your own home is cheaper than renting. The suggestions above could help you reach your goal faster.
As hard as it may be to cut back on things, you have to remember that it is only temporary, the little sacrifices you make today will be worth it soon!
But in the end, it is a journey that is worth the destination.
The freedom of owning your own home and having everything set up to your preferences is the best feeling ever!
Start taking back control of your money by grabbing your copy of the Money Saving Starter Guide today.
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Last Updated on 8th August 2022 by Emma