Today’s renters are saving up to purchase a home more than in recent times. It can be a challenge to save up for a down payment, especially for those facing financial hardship and having a hard enough time just paying rent.
According to Apartment Guide, the average one-bedroom rent is $1,617—just a few dollars more compared to last year, but enough to prevent progress on the savings front. Meanwhile, the median existing-home price rose roughly 15 percent from September 2019 to September 2020, the National Association of Realtors reports.
Homeownership “has always been the American Dream, but it kind of feels out of reach for a lot of people,” explains Jennifer Fraser, director of stakeholder engagement and contact center operations for GreenPath Financial Wellness, headquartered in Farmington Hills, Michigan.
While this sounds stressful, there are still ways to save money or get assistance for a down payment—and with mortgage rates so low, now may be a great time to explore these strategies.
How Much Down Payment Do You Need?
Your first step is to determine how much house you can afford, which will help you estimate how much you need for a down payment. Check out GOLD’s blog post and budget worksheet to walk through it step-by-step.
Your down payment depends on the kind of loan you’re seeking and where you’re looking to buy. GOLD’s Jump-Start Mortgage offers a 10% down payment minimum and the ability to finance half of it via a GOLD Personal Loan, so you may be able to save up over a shorter timeframe.
Consider whether you want to avoid the additional cost of private mortgage insurance (PMI)—if so, most lenders will require 20 percent down. GOLD’s Jump-Start Mortgage is an exceptional mortgage program because it doesn’t have PMI.
If you’re not sure which mortgage is right for you, talking to a housing counselor can help you narrow down your options.
How to Save for a House While Renting
1. Open a down payment savings account
Once you have a down payment amount in mind, open a savings account to help yourself keep track of how much you’re saving and your progress. Automate savings each month with a realistic amount.
If you recently got a pay raise, tax refund, work bonus or cash gift, stash it in your savings account, Fraser says. This can be a smart way to boost your savings from the outset.
2. Look at where you can cut back
It’s also important to examine your discretionary spending and see where you can make cuts, such as Netflix and cable bills or morning lattes. Think of creating a spending plan to examine monthly expenses for ways to cut back.
3. Go outside of your day job
If you don’t have much wiggle room in your budget as a renter, you can try bolstering your savings by earning more money. Check out gig economy jobs that are in demand, such as delivering for GrubHub or DoorDash, Mitchell suggests.
Look into what you own that you can sell, too.
“Everybody’s selling stuff on local websites,” Fraser says. “Little side hustles are a fabulous way to bring in a little bit of extra cash.”
4. Make bigger changes
If you’re eager to save up for a home, and fast, you may want to take more sweeping measures. You might consider getting a roommate, for example, to help split the rent and other expenses, or even moving into a smaller, less expensive rental altogether.
If a move is out of the question, you can try renegotiating your lease with your landlord. This can work well if you’ve been a great tenant or can guarantee you’ll be in the rental for a longer period of time.
GreenPath offers renters resources as well as homebuyer education programs to help build strategies to meet your goals. They’re here to support you and have financial counselors available to talk. They can help you figure out a plan and will walk through your whole financial picture to help you get options to move forward.
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