If you’re dreaming of becoming a homeowner soon, the first step to buying a house is saving enough money for a down payment. And while you may qualify for a low down payment, there are other costs associated with purchasing a home (inspection costs, closing costs, furnishing a house, etc.), so it’s a good idea to have a bit of a nest egg saved up.
Here are tips on saving money while renting so you can achieve your homeownership goal sooner rather than later!
1. Set a realistic savings goal
First of all, you’ll need to know just how much to save for a down payment on a house. Generally, financial advisors agree that a 20 percent down payment on a home is ideal, although some lenders may allow you to qualify for a mortgage with as little as 3 to 5 percent down.
So now you’ll need to determine approximately how much house you can afford. If, according to your calculations, you can afford a home worth $250,000, then — on the low end, you would need to save 3 percent of that, or $7,500. On the high end, you might save 20 percent of $250,000, or $50,000.
2. Make a budget
The next step is to know how much money you make and where it’s going every month. As a good rule of thumb, consider the 50/30/20 budget. This method earmarks 50 percent of your income toward necessities, such as rent, groceries and utilities. The following 30 percent is reserved for things you want, but don’t need to survive. For instance, hobbies, vacations, and dining out would fall into this category. The last 20 percent should be saved for financial goals — this includes debt payments, saving for retirement, and in your case, saving for the down payment on a home.
As an example, say you bring home $3,000 a month after taxes. In this scenario, you would lay out your budget as follows:
- 50% needs: $1,500
- 30% wants: $900
- 20% savings: $600
3. Find ways to save
The 50/30/30 budget is, of course, just a guide. If you want to speed up your path to homeownership, you might consider finding ways to save a little extra every month for your down payment.
The big-ticket items will have the most impact on your savings journey. If your rent is eating up 50 percent or more of your income every month, consider finding a new apartment in a less expensive area. Alternatively, you might search for a roommate who could shoulder some of the cost.
Then there are the smaller daily luxuries that can seriously cut into your savings rate over time — those that fall into the “wants” category. Do you really need that $5 latté every morning? Could you cut back on the number of streaming services you subscribe to every month? Does it make more sense to cook during the week rather than dining out?
4. Open a down payment savings account
Once you’ve figured out a few ways to save every month, you want to make sure that money will be there when the time comes to buy a house. Rather than keeping this extra cash in your checking account, it’s a good idea to create an entirely separate savings account, since it makes tracking progress toward your goal much easier. As you see that number grow every month, you’re more likely to stay motivated and on track toward homeownership.
5. Make some extra cash
Finally, if you want to speed up your savings journey, think of ways to make some additional money every month. You could sell things around the apartment that you don’t need anymore (this will also make the eventual move to your very own home much easier). You might look for part-time gigs where you can work from home, or flexible jobs such as babysitting and dog walking. The possibilities are endless.
If rent and utilities leave little room in your budget for savings, moving to a more affordable apartment may be a smart move! Use ApartmentSearch’s rental lookup tool to sort and filter apartment options by size, amenities, and price!