#rent for home
How to Save for a House While Renting
There s so much to be said about the benefits of owning a home that nothing, not even the economy, can deter its appeal. Even despite a years-long fallout from the subprime mortgage crisis, most Americans still desire a house of their own; it transcends the American dream of being successful, raising a family and finding pride in a place you can actually call your own. Plus, it s a heck of a lot better financially than renting in the long run.
Saving for a house, on the other hand, is where the challenge comes in for many apartment dwellers. Mortgage rates today are low, but it makes little difference when many renters can t afford to take advantage of them. The truth is, it s nearly impossible to save for a house down payment, especially when a big chunk of your income goes toward rent.
The cost of renting can make the idea of owning a home seem like a passing pipe dream but saving for a house can be well within your reach if you know how to reallocate funds toward that goal.
How to Save for a House While Renting: A Balance
According to U.S. News and World Report, the average renter spends approximately 35 percent of his gross income on rent and rent-related expenses; and after car payments, groceries and other reoccurring bills have been paid, saving money can seem impossible. The trick is to master the balance of paying your rent and saving money at the same time.
Follow these tips for how to save up for a house while renting:
1. Stick to your savings. Buying a house is like buying a car the larger the down payment, the lower the monthly payment. Real estate blog Apartment Ratings recommends creating a budget and determining how much you can afford to spend on a monthly mortgage by taking all your bills into account in addition to the new ones you ll pay when buying a home, like property taxes. Experts advise having 20 percent of a home s value saved for the down payment. Determining housing costs in the area you d like to live can help you determine the amount you ll need.
Housing blog Apartment Ratings suggests dedicating 10 percent or more of each paycheck to your savings account. Though it might seem small, over time your savings can add up. A weekly savings account contribution of $50 adds up to $2,600 after a year. After five years, you ve got $13,000 for a down payment. Double your savings, double your down payment. And don t forget interest a higher APY means more money in your account. Does it bring you closer to that 20 percent? Some simple math can give you the answer.
2. Invest. Follow up your savings account with investments like a Roth IRA. According to the blog, this type of IRA allows you to withdraw both contributions and earnings for a house down payment, without penalty fees or taxes charged.
3. Downsize or start negotiating. Move to a cheaper apartment for a few years. You ll save money on rent that could be put to better use, like your house down payment fund. A $500 to $1,000 savings per month goes a long way in giving your housing fund room to grow.
Consider negotiating rent with your landlord or property manager. Emphasize to them your high value as a reliable tenant who pays his rent ahead or on time, and that it might be hard to find a new tenant of the same quality.
4. Roommates. Find a roommate through CraigsList or Roommates.com, recommends Wisebread, to make the rent for your $1,000 one-bedroom apartment half that. Put your money saved toward your housing fund. Wisebread recommends sharing costs of groceries and other apartment expenses, or signing up for memberships at stores like Costco to save even more money.
5. Get creative with couponing. Keep a watchful eye out for sales and make judicious use of coupons, especially when food shopping. ABC News recommended additionally, if you shop for groceries once a week, to cut out one in every four trips to save 25 percent of your spending.
6. Bundle it up and turn it off. Canceling or downgrading amenities you don t need, like cable TV, can help you save (and many shows are available for free online, too). Does your apartment building have an onsite gym? Cancel that expensive health club membership if you have access to another for free. And use frugal common sense at home don t forget to turn off lights when leaving a room, or the water when brushing your teeth. Opt for energy efficient lightbulbs. Reducing your utilities reduces your bills, effectively expanding your housing fund.
Photo credit: BestHomePro
Other Savings Options to Save for a Down Payment
Many individuals qualify for federal assistance mortgage loans from the Federal Housing Administration or Housing and Urban Development, government groups that help lower-income home buyers raise money for down payments and mortgages.
Another option is to go with a rent-to-own home. In this case, instead of buying a new home, a potential buyer rents it and puts his monthly payments, along with an option fee (typically 1 to 3 percent of the home s value) toward the home s eventual sale. It s a helpful alternative because it allows people who can t afford a down payment to essentially work toward buying their house while living there at the same time. Rent-to-own homes aren t without their drawbacks, however.
Like an auto lease, if the renter decides not to purchase the house, his monthly rental payments go toward nothing, and his option fee disappears, too. Tenants undecided about rent-to-own homes should stick with their apartments and a disciplined savings plan.
Saving for a house is just like saving for other big expenses all it takes is some creative financial discipline. Buying, according to the New York Times, is better than renting after five years; use that as a timeline for how long you ll need to save, and work that into your budget. Soon, you ll find that getting your foot in the door of your dream home was worth all the effort.
Photo credit: Quicken Loans