If you're a renter, buying a house may seem like a daunting task, especially when housing costs in the U.S. are soaring1 and inflation has eroded the purchasing power of your dollar.2 The thought of juggling rent and everyday living expenses with saving for a down payment may feel like climbing Everest.
However, there are some tricks of the trade to make the dream of homeownership a reality. Various options and programs are available, and chances are you won't need to save as much as you might think. On average, buyers put 13% down for a primary residence, with a median down payment of $24,100.3 Here are eight tips to help you save for a home while renting.
1. Move to a Smaller Place
If you want to save a few hundred (or even a few thousand!) dollars, it might be time to look for a cheaper place. That can mean moving to a different area, finding a smaller apartment to rent or even moving back in with your parents.
In fact, one in three U.S. adults ages 18 to 34 live with their parents, according to U.S. Census Bureau data.4 Moving in with your parents or downsizing your living quarters can help you save money on rent, which means extra cash you can put toward a down payment.
2. Find a Roommate
If moving back home isn't an option, consider getting a roommate. Not only will it help save on rent, but household items are also cheaper when split between two people. Two-bedroom apartments may not be that much more expensive than one-bedroom apartments, so the savings can be huge if you have someone who can split the rent with you.
3. Pay off High-interest Debt
One way to free up money to put toward a down payment on a house is to reduce your debt, especially high-interest debt like credit cards.
Paying off your debt can also help you qualify for a mortgage later on, as it decreases your debt-to-income ratio (how much you owe each month compared to how much you earn). The lower the ratio, the more likely you are to get a favorable mortgage rate from the bank.
4. Open a High Yield Savings Account
Once you have a bit of money saved up, it's a good idea to put it somewhere safe, like an interest-bearing account.
Opening a high yield savings account can help you earn some extra cash. Typically, this type of savings account offers better-than-average interest rates on deposits. Plus, it allows you to grow your money risk-free, making it an ideal savings vehicle for achieving short-term financial goals.
If you want to turbocharge your savings, create an automatic deposit to your high yield savings account. If you get a bonus, tax refund or cash gift, you can store it in your account to give your savings an extra boost. Synchrony Bank offers a high yield savings account that is FDIC-insured, charges no monthly account fees and offers competitive interest on deposits—all of which can help you get closer to your goal of homeownership.
If you're not planning to buy a home anytime soon, you might want to consider putting your savings into a certificate of deposit (CD). This is a savings product that earns interest on a lump sum over a set period of time, usually a year or longer. Synchrony Bank has a few CDs with competitive interest rates and no minimum balance requirements.
5. Get a Side Gig
Another way to increase your savings is to get a side gig or part-time job. Gig economy jobs—like making deliveries or driving people around—may be in high demand in some areas.
These types of jobs are flexible, so you can earn extra money whenever you have a few hours to spare. You can also consider selling used items or even sign up to be a pet sitter or dog walker.
6. Follow a Budget
If you don't follow a budget already, now is a good time to start! There are several types of budgets that can help you monitor your spending and ensure you're setting aside money each month toward a down payment.
One budget that's great for nearly any type of financial situation is the 50/30/20 budget. This is when you split your income after tax into three categories: 50% goes to your needs (like rent and food), 30% is spent on your wants (like subscriptions or eating out) and 20% is spent on savings and/or debt. You can always adjust the percentages to fit your needs, such as setting aside 10% for savings and debt and 10% specifically for a down payment.
7. Apply for First-time Buyer Assistance Programs
If you're buying a home for the first time, you might be able to get assistance from a lender. There are a few federal and state programs that help by covering a portion of the down payment.
For example, the federal government offers homeownership vouchers for low-income, first-time buyers, while the Federal Housing Administration loan program can help lower your down payment on your first home. If you're a veteran, you can also get home loan assistance. Many states offer various types of first-time buyer assistance as well.5
In some cases, you may need to stay in your home for a few years, or complete homebuyer education courses. You may also qualify for assistance if you have a specific occupation, such as a teacher or first responder.
8. Explore Rent-to-own Options
A rent-to-own home is when you rent a home for a few years before buying it. With a rent-to-own home, you generally have two agreements: a lease, whereby you commit to renting the property for a set period of time; and an option to buy the property before the lease runs out.
While rent-to-own is one way to lock in a house you can't yet afford, it can be more expensive in the long run. Still, it could offer an avenue to buying real estate if you lack the means to put up a down payment or you can't qualify for a mortgage due to a low credit score.
Saving for a Down Payment is Possible
While saving thousands of dollars for a down payment might seem overwhelming if you're also renting, it is possible. By creating a budget, applying for assistance programs, using the right savings vehicle and finding ways to supplement your income, you can slowly start to work toward saving for a down payment.
Moriah Costa is a personal finance and investing writer. Her work has appeared in Thomson Reuters, S&P Global, the Washington Business Journal and others.
READ MORE: What Should I Know Before I Take Out My First Mortgage?
Sources/references
1. https://www.cnbc.com/2023/07/08/us-cities-where-rent-has-increased-the-most.html
2. https://www.usinflationcalculator.com/inflation/current-inflation-rates/
3. https://www.realtor.com/research/down-payment-report-2023
5. https://www.nerdwallet.com/article/mortgages/first-time-home-buyer-programs-by-state
