Renting an apartment or house has a lot of perks: you’re not responsible for most repairs and you can leave with just a few months’ notice without having to find a buyer for your home. But with the continued rising cost of rent (especially in cities like San Francisco and Los Angeles) combined with incredibly low interest rates on home mortgages, many people consider buying a home a great investment these days. While the average rent in many cities exceeds 30% of an individual’s income, the thought of scrounging up enough cash for a down payment may seem daunting. But even if you can’t come up with the established 20% down payment, some programs like FHA loans require significantly smaller amounts. So without any further adieu, here are our top 7 tips for renters saving to buy a home.
1. Figure out how much you need to save.
When saving up for any goal, it’s helpful to have a clear amount in mind so you know how much you need to put away each month to reach your goal by a certain time. Use a mortgage calculator to determine what your monthly mortgage could look like at different price points with different down payment amounts.
2. Create a monthly budget.
Like any savings plan, you need a monthly budget so that you consistently put away cash to reach your goal on time. First determine your fixed expenses and from there, decide how much discretionary spending you want to curb in order to save more. Consider opening a savings account just for your mortgage down payment – don’t forget to see if your financial institution offers a bonus for opening a new account! Check out our tips on how to trick yourself into saving more cash.
3. Boost your credit score.
Don’t forget that you need more than a down payment to buy a house – you also need good credit. Find out what your estimated credit score by using a free service like Credit Karma. Then, check out our tips on how to boost your credit score to get the best possible interest rate on your loan.
4. Consider cashing out some of your IRA.
For first-time home buyers, think about cashing out some of your IRA to put towards your down payment. You can take out up to $10,000 penalty-free for this occasion. You’ll have to pay taxes on money taken from a traditional IRA, but you will not be penalized for withdrawing from a Roth IRA fund if it has been open at least 5 years. You’re considered a first-time home buyer if you haven’t owned a home in two years or more. As always, be sure to consult your tax adviser before making this step.
5. Downsize your current apartment.
If you want to save up for your dream home, you may need to make a short-term sacrifice to make those dreams come true. Consider moving into a cheaper apartment for a year or two to increase your savings. This will also motivate you to reach your goal so you can move into the home you want.
6. Negotiate your current rent.
If moving isn’t an option, consider negotiating your rent with your landlord. Remind him or her that you’ve been a reliable, long-term tenant and even offer to sign a longer term lease. You may also be able to save money by referring a new tenant to any vacant properties your landlord owns.
7. Get a roommate.
This may not be ideal if you’re used to living alone, but getting a roommate to share the rent is a quick and easy way to dramatically increase your savings. Just imagine cutting your rent in half each month and funneling all of that extra cash into your down payment fund. Can you hear the jingle of your new keys yet?
If you’re ready to see what type of loan you qualify for, contact us today to find out the best type of loan for you.
What are your favorite savings techniques? Let us know in the comments below.