Buying a home has many advantages over renting. But When you're a first-time homebuyer, the idea of saving thousands of dollars for a house can be a little overwhelming. The good news? As a renter, you aren’t responsible for additional fees like mortgage insurance, HOA fees, or home repairs, so it’s a great time to save for a house.
To start saving for a house, become familiar with your monthly expenses, determine how much you are able to save each month while renting, and decide what type of home you’re saving for. Once you have this information, you can come up with a savings plan and look for additional ways to save money while you rent.
Follow these 12 steps to get started.
Before you can set a specific savings goal for your future home, you need to have a well-rounded understanding of your current financial situation. Get started by making a list of your income and expenses. Write down how much you spend each month on essentials (including rent, utilities, and groceries) as well as non-essentials (like eating out and shopping for non-essential items). Write down what loans you are paying off (including student loans, car loans, and credit card loans), and check your credit score. If you have poor credit, you can use this time to improve it before you buy a home.
A budget will help you determine how much money you can save each month while you’re renting.
Take a look at your list of monthly expenses. Determine how much money you are willing to continue spending in each area. Write down those amounts. Are there any non-essential areas you can cut down on? If so, remove excess amounts from those sections of your budget.
Determine how much money is left for you to save. This is the money you have to put toward all of your savings goals each month (including retirement, a home, and any other milestones you’re working toward).
Decide how much money you will contribute to any non-home related goals. The remainder is what you will save each month toward your down payment.
Learn how much money you need to save to buy a house
As you save for a home, it’s helpful to keep in mind exactly what you’re saving for. To do this, get familiar with the housing market in the area you plan to buy a house in. Look at house prices in different neighborhoods and what styles of homes are available.
Once you have an idea of what’s available, make a list of the features you’re looking for in a house. This includes the number of bedrooms and bathrooms, square footage, and other features (like a basement, garage, or backyard). Compare your wishlist with available home prices and determine roughly how much your dream home will cost.
Related: Should you buy a house now?
Once you’ve determined your ideal home price you can calculate the amount you will need to save for a down payment and closing costs. (Remember that if you decide to pay less than 20% down, you need to get mortgage insurance.)
The best way to understand how much house you can afford is by using a mortgage calculator.
For example, if your goal is to save enough money for a 20% down payment on a $300,000 home, your savings goal is $60,000. If you are able to save $1,000 per month based on your budget, your savings time frame is 60 months (5 years).
Open a savings account just for the money you’re saving for your house. This is a fun and easy way to watch your money grow and keep track of your progress. Consider opening a high-yield savings account (HYSA) to earn interest on your savings.
If you don’t plan to buy a home for several years, consider investing your money instead of putting it in a savings account. Over time, money is likely to grow at a faster rate in the stock market, so investing is a great option if you don’t have any short-term plans to buy.
Now that your goals are set and your budget is created, it’s time to start saving. Set up automatic transfers to your savings account to make it easy to hit your monthly savings goal. You can even have a portion of paycheck sent to your savings account through direct deposit.
Adding a new income stream is a great way to improve your savings timeline. If it’s realistic for your lifestyle, consider turning your hobby into a side-hustle. There are many free website platforms and social media accounts you can use to advertise your business and get started! Save your earnings in your home savings account.
As a renter, your living situation is flexible. If you have additional bedrooms in your current home, look for roommates to move in. Alternatively, consider finding a new house or apartment to rent with roommates in order to save.
Look for small ways to create income each quarter, like hosting a garage sale or selling items online. This is a great way to refresh your home and wardrobe while working toward your savings goal.
Practice making more meals at home to save on dining expenses. Try new recipes, invest in new spices and sauces, and light candles when you make meals at home. All of these things will help make cooking at home feel exciting and novel. Each time you eat at home when you normally would have eaten out, transfer a small amount of money to your savings account.
Review your expenses and cancel subscriptions you no longer use or need. It’s easy to forget about subscriptions after a long period of time, so routinely check your subscriptions and cancel accounts you don’t need.
Call your utility providers and renegotiate your monthly payments. If your utility companies aren’t willing to renegotiate, you may be able to switch providers in order to save.
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