How do renters make the leap to home ownership? While the answer depends on each individual person, you can use these general tips to create a plan that can work for your situation.
Determine how much you need to save
The first step to saving is knowing what your target number is. There are a lot of costs involved in buying home, one of the largest being the down payment. You may have heard that you need a 20% down payment but that isn’t required. Depending on the type of mortgage you receive, you may be able to buy a home with as little as 3.5%*.
Explore our mortgage calculator to play with some numbers and figure out how much of a down payment you may want to save. Mortgage calculators are a great way to estimate how much your monthly mortgage payments can be and how your down payment can affect the amount.
Review your budget
You can’t plan for the future without knowing where you’re at now. Once you’ve set your target savings amount, its time to review your budget to see where your money is currently going and identify areas you can cut back.
It can sometimes feel impossible to save money without feeling deprived but by looking at your budget, you may be able to find ways to save money while still enjoying your daily coffee shop visit. If you’ve never created a budget before, the 50/30/20 budget plan is an easy place to start.
Set a realistic savings goal
Keep your ambition in check when creating a savings goal. You may want to fast track your nest egg and set aside a large amount each month, but if you find it difficult to consistently set aside that large amount, you may end up more discouraged. Instead, choose a sustainable savings amount you know you can meet each month. It may mean being a renter a little longer but your finances and well-being will be in a much better state.
Find realistic ways to cut back on spending and discretionary purchases. While going without heat during the winter may save you plenty of money, trying to survive a Northwestern winter without heat is miserable! Instead, consider opting out of cable to a streaming service. You can look for an affordable apartment or take on a roommate to help with the costs. Take a close look at your expenses and see if you’re paying for services you no longer use. Cancel the service and reroute that money towards your savings!
Pay down debt
One of the best ways to free up money for savings is dealing with high-interest debt like credit cards. Find a repayment plan that helps you tackle your debt as quickly as possible. Not only does paying debt increase cash flow, it also raises your credit score and balances your debt-to-income ratio, two things mortgage lenders use to determine your loan eligibility.
Unexpected money is always a treat so funnel those windfalls like tax returns, bonuses, or cash gifts towards your down payment fund instead of spending it. Every little bit helps and shortens your waiting time. If you get a raise, stomp out lifestyle creep by depositing the extra money into your savings and continue to live off your old income level.
Automate your savings
Make saving easy by setting up automatic transfers into your savings account so you’re not tempted to spend your hard-saved money.
Scale back on large expenses
It may be necessary to scale back on large expenses while saving for a home. Instead of taking big vacations or giving elaborate holiday gifts, find ways to cut back on those expenses. Depending on how much you spend on vacations, consider either taking shorter and more affordable trips or skipping one for the cause. Likewise, instead of giving extravagant and expensive gifts, stick to a budget.
Research down payment assistance programs
Down payment assistance programs are available to help first-time home buyers secure grants or low-interest loans. These programs are available at the federal, state, and city level so program qualifications and requirements vary. Check with the state housing authority to find out more.
Start saving for a down payment today!
Creating a solid savings plan will make home ownership is possible and within reach, even when you’re renting. These tips will allow you to successfully save money while still enjoying life.
Once you’ve hit your down payment savings goal, visit us to learn more about our homes. Hayden Homes builds new single-family homes in Idaho, Oregon, and Washington for every stage of life. We can’t wait to welcome you home!