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You have the dream of homeownership but have no idea how to make this dream a reality.
It’s a common struggle that many renters face.
But you don’t have to struggle any longer.
In this post, I share with you the steps for how to save for a house while renting.
If you follow these tips, you will set yourself up for not only owning a home, but making sure you are in the best financial position to afford it.
So here are the tips you need to follow to make owning a home your reality.
Table of Contents
How To Save For A House While Renting
#1. Research The Process
Buying a home consists of far more than just getting the money you need for a down payment.
You need to have a clear vision for the future and a comprehensive understanding of the process of buying a house.
Here’s what you should be doing right now.
#1. Understand The Requirements Of Home Buying
The first thing you need to do is research the various prerequisites of the homebuying process and the unexpected issues that new homeowners encounter.
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For example, learning about the various types of mortgages that you might be able to take advantage of and the credit score that you need in order to get the lowest possible interest rates is a good start.
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But you want to dive deeper than this.
Find out if there are hidden costs of home ownership or learn of the ways you can possibly lower the cost of owning a home.
Finally, try to learn from others mistakes and successes.
What didn’t someone else know before buying that they wish they did know?
You want to make sure that you’re not blindsided by anything when you finally have the money you need to pay for a house.
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#2. Determine The Ideal Stage Of Life
Next, you need to figure out where you should be in life by the time you want to be a homeowner.
Becoming a homeowner means that you have the stability that you need to invest in such a major asset and maintain it until it’s finally paid off.
You don’t want to be struggling or paying off high interest debt in other areas of your life because a house is too much for you to handle.
What type of lifestyle do you need to have to comfortably afford a house and manage other areas of your life?
What does your income need to look like?
How much do you need to make to afford your monthly expenses on top of mortgage payments and still save money each month?
Don’t just think about buying a home in terms of the bare minimum required to do so.
Think about what you need to do to get a future home and be financially free and stable while doing so.
While your goals may change moving forward, this will guarantee that you’re actively working towards realistic homeownership and prevent you from making a home purchase that you can’t afford.
After all, having a home is great.
But it won’t be so fun if it comes at the cost of your financial health and ends with you not being able to afford other expenses or finding yourself in other situations that would’ve otherwise been avoided with proper planning.
Or even worse, losing your home because you cannot make the monthly mortgage payment.
#2. Create A Strict Budget
Learning how to save for a house while renting requires you to be financially savvy.
Fortunately, with the right strategies, working towards the home you want won’t be as difficult as it sounds.
The first and most important thing to do is to create a monthly budget.
If you don’t already have a monthly budget, now’s the time to sit down and take inventory of all of your expenses.
Whether you have variable or regular income, you’re going to need this as well.
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Evaluate all of your expenses to see which ones you might be able to reduce or eliminate.
Once you’re sure you have all of your income and bills in one place, subtract your bills from your income, figure out how much you have left, and allocate a small amount of that towards your home savings.
Of course, this is just one half of the battle.
Once you know how much you can put away, you’ll want to figure out how long it will take you until you can realistically pay for a house.
What should you be saving for?
The amount you end up paying for a home in the future will vary depending on the market.
One great way to get started is to find a home you might want and create a savings plan as if you were going to buy that home specifically.
You should be saving enough for a substantial down payment, closing costs, including application fees, credit check fees, title insurance, property taxes and HOA fees, homeowners insurance and mortgage insurance.
You will also want to have a sizable sum for any unexpected repairs that you might need to take care of once you own your home.
If that seems like a lot of money, it is.
However, it’s much better to save until you can afford your home with ease rather than going in unprepared and being unable to afford your home.
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#3. Make Sure You Have A Stable Income
If you want a house in the future, you’re going to need a reliable income stream that will help you afford your monthly mortgage payments as well as other bills, necessary expenses, and still save money.
Now’s the time to consider your future in terms of your career.
What do you need to do in order to make more money?
Can you get a college degree or find a certification program that will enhance your skills and make you more valuable to employers?
Will you need to switch career paths entirely?
If you work for yourself or you work in an area where income fluctuates, what can you do to ensure that you have the money you need to pay for a home and support yourself moving forward?
While there is no such thing as a guaranteed paycheck, you want to make sure you are at least able to have a steady paycheck every month.
This will remove some of the stress that comes along with having bills to pay.
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#4. Use A Side Hustle To Earn Extra Cash
When you create a realistic budget, you might realize that you don’t have a lot of extra money to put towards your down payment.
Learning how to save for a house while renting often means finding a side hustle and other ways to make money that can help you build your savings faster.
This can mean spending small amounts of time doing activities like taking surveys, taking on gigs like dog walking or grocery deliveries when you’re not working your full-time job.
It could mean finding more lucrative freelance work that you can easily manage on the side of your main job.
If you have the extra time and you want something more stable that will allow you to save consistent amounts of money each month, you could also consider getting a second job working nights or on the weekend.
The extra money you earn will go a long way towards reaching your down payment savings goal.
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#5. Pay Off Debt
If you have high interest debt from credit cards or even an auto loan or student loans, you want to work on paying these off.
And while you don’t need to be completely debt free, you want to eliminate as many of your debts as possible.
The reason for this is simple.
The less monthly bills you have to pay, the more money you have to put towards living expenses, savings, and your mortgage.
I recommend using the debt snowball.
This plan helps you to organize your debts from smallest to largest and quickly pay off your debt.
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You should be able to quickly get rid of some or all of your credit card debt using this plan, freeing up money to put towards your down payment savings.
#6. Review Your Spending
Setting up a budget is a great step, but you should also take the time to review all of you spending as well.
Are there things you pay for that you don’t really need?
Can you reduce some of your bills?
As with debt, the lower your expenses, the more money you can use to put towards other things.
And in the long term, the more comfortable you can live on less, the sooner you will be able to retire because you don’t have to save an extraordinary amount of money to afford your golden years.
To help with this area, I suggest you try Rocket Money.
This AI assistant will review your spending and make suggestions on where to cut back and what to cancel, like subscriptions and your gym membership among others.
You can even have it negotiate some bills too.
Rocket Money is your assistant to help you find and cancel subscriptions, track your spending, create a budget, and more. Join the other 80% of people saving money thanks to Rocket Money.
On a related note, make sure you are saving any windfalls of money you come into.
This includes tax refund, inheritance, or lottery winnings.
Take a big chunk or all of this cash and use it boost your savings.
By looking for ways to save in your budget, you can speed up the process to owning your home.
#7. Set Up A Down Payment Fund
Earlier I told you how you need to start saving for a down payment.
A good rule of thumb is to have 20% of the purchase price saved to help you avoid private mortgage insurance or PMI.
But where should you put the money?
You need to put it somewhere you can get it quickly and a place where it won’t lose value.
The first solution most people think of is a savings account.
With a high-yield savings account, you will earn interest on your money and it will grow.
Below are some recommendations for you to consider.
The drawback to savings accounts is the interest rate isn’t ideal right now.
So what are some other options?
You could consider investing in I Bonds.
These bonds keep up with inflation so you know your money is growing over time.
But if you need the money in less than one year, they are not a good choice.
Another option is certificates of deposits, or bank CDs.
These pay a little more interest than a savings account, but not much.
A final option is Worthy Bonds.
They pay a fixed 5% interest rate and are relatively safe.
#8. Get A Roommate
If you have followed all the steps above and still find it is tough to save for a down payment, you might want to consider getting a roommate.
Doing this will allow you to cut your monthly rent in half as will as most of your utility bills too.
And depending where you live, this could be a significant savings.
The key here is that you need to put the money into your savings account so you aren’t tempted to spend it.
This can easily be accomplished by setting up an automatic transfer to your savings every month.
Some reading this might be hesitant to bring in a roommate, but you have to remember it is only for the short term.
#9. Pretend You Are A Homeowner
Another great trick to help you become comfortable with owning a home is to pretend to be one now.
This means do the math on the house value you think you will buy and pretend you have this monthly mortgage amount.
Then save the difference.
So if your mortgage payment would be $1,200 and your rent is $1,000 you want to put $200 into savings for your down payment.
Then do the same for your utilities.
Add 20% to all your bills and put the difference in a savings account too.
This will get you comfortable with the higher bills and as a result, it won’t be a shock when you do have a house.
Plus it might show you that buying that large of a house doesn’t make financial sense for you.
#10. Get Creative With Home Buying
If all else fails and you just don’t see a path to home ownership, don’t give up hope.
There are all sorts of ways to own a home other than using the traditional financing option.
A few ideas include being able to find a rent to own agreement, using personal loans, or buying a tiny house.
The reality is, there are many ways to go about buying a home these days.
Don’t lose hope if the common path doesn’t make sense for your financial situation.
At the end of the day, there is how to save for a house while renting.
The most important part in all of this is to make sure buying a house makes sense for you.
Don’t fall for the idea that you have to be a homeowner and that renting is a waste of money.
There are many valid reasons for either case.
The key is making sure you buy the right house that you can afford.
Because going in over your head is going to lead to a lot more than just financial struggles.
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I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.