How to Save Money for a House While Renting
Are you renting right now and wondering if there are efficient and proven ways of saving money for your dream house? Well, you’re on the right page!
To give context, renting in the UK alone rose to 4.4% for 12 months until January 2023, 0.2% higher than the previous 12 months before December 2022.
It implies that the price of renting gets higher yearly, and there couldn’t be a more perfect time to save for your dream house than now.
With that said, I’ve had friends and relatives who seek my advice when buying a house while renting. I always tell them things like having a savings account for a down payment to cutting non-essential expenses.
I’d like to share in this blog what I’ve shared with them so that it can help you, too.
Importance of Saving Money for a House
First, you need to know why you need to save for a house and have a separate savings account.
Usually, people are divided into two categories regarding properties: those who just like to rent and those who want to have their own house through mortgage lenders.
You see, some only rent since they don’t plan on staying in one particular place. This is especially true for those who frequently move from one place to another.
However, many individuals dream of owning a home, and saving money for it is necessary since they’re quite expensive. Ask certified mortgage lenders how much house loans are for you to know.
Nonetheless, when you buy a home, you begin to accumulate equity, which is the difference between the value of your house and the remaining balance on your mortgage.
Your equity builds as you pay down your mortgage payments, and your home’s value rises, giving you a significant financial asset.
In short, a home is an asset in the long run; it’s just a long-term investment.
Of course, there’s also the obvious reason for just wanting to have a house to live in without worrying about monthly rent costs.
Challenges Faced by Renters in Saving for a House
Renters who want to save for a home encounter some challenges.
Due to these, saving the required money for a down payment your mortgage lender can approve may be challenging.
So, what are these challenges? Here are the common ones:
- High prices. Renters find it challenging to save for a down payment due to the rising cost of rent in many places. A renter’s income can be significantly reduced by high rent costs, leaving little money for savings.
- Lack of Affordable Housing. Renters are often forced to choose between living in a more costly neighborhood or settling for a less attractive location due to a lack of affordable housing alternatives in desirable places.
- Student Loan Debt. Student loan debt is a common burden for renters, making saving for a down payment challenging. It’s challenging since monthly student loan payments might take up a significant percentage of their income.
- Credit History. It may be challenging for renters to be approved for a mortgage because of their limited or bad credit histories.
- Lifestyle Factors. Most renters place a higher value on lifestyle choices, like dining out or traveling, than saving for a down payment. Due to this, it can be challenging to save up the required money for a down payment.
Create a Budget and Set Goals
It’s important to create a budget and set goals to adjust your lifestyle accordingly and save for a house. This includes assessing your debt-to-income ratio as well.
Steps to Creating an Effective Budget
Here are some effective steps in creating an effective budget to save for a house while you’re renting:
- Identify your financial goals. Start by establishing specific, reasonable, and attainable financial objectives. Decide your desired monthly mortgage payment and how much you can afford to put down as a down payment.
- Set aside money for a down payment. Calculate how much you’ll need to put aside for a down payment and open a special savings account. To avoid private mortgage insurance (PMI), save at least 20% of the cost of your ideal property.
- Check your current financial situation. Analyze your current savings, spending, and income. This can assist you in better understanding your spending patterns and locating points where you can make savings for your home.
- Create a detailed budget. Include your rent, closing costs, utilities, groceries, transportation, insurance, and any other costs on a list of all your monthly spending.
- Spend less on non-essentials. Reduce spending on non-essential items like entertainment, shopping, and dining out. Save the money you use on them for a down payment.
- Monitor and adjust your budget accordingly. Review your budget frequently, and make any modifications when necessary. Keep tabs on your progress toward your financial objectives and recognize accomplishments along the way.
You may consult a financial adviser for assistance in creating a tailored budget and savings plan, as well as information on mortgage alternatives and other elements of the home-buying process.
Cut Down on Expenses
In order to achieve your goal of homeownership, it’s essential to pinpoint areas where you can save cash. If you’re entitled to a tax refund, it may also help in financing your down payment.
When needed, cut down some of your expenses, especially the non-essentials, to have enough down payment savings for a house.
One example is car loans. If you think you can’t afford to get a car loan with your goal of owning a home, try commuting for now.
With that said, here are other areas where you can easily save money for your dream home.
Reducing Utility Bills
Here are some effective ways of reducing your utility bills
- Monitor your energy usage. Monitor your utility bills frequently to keep track of your energy consumption. You may use this to identify patterns where you can reduce your usage.
- Unplug electronics that are not used. Electronics that are plugged in might still use energy even when they’re off. When a gadget is not in use, unplug it. Alternatively, buy a smart power strip that turns off the power of inactive devices.
- Use energy-efficient appliances. Energy-efficient appliances can help you save money on your power costs by consuming less energy than older versions. Look for those that are labeled with ENERGY STAR.
- Use LED light bulbs. Traditional incandescent light bulbs use more energy than LED bulbs, which may last up to 25 times longer and save you money on energy and replacement expenses.
- Monitor your water usage. To reduce water usage, install low-flow showerheads and faucets, address leaks, and only run full loads through the dishwasher and washer.
- Plant trees or install shades. Your rental home can use less air conditioning by planting trees or installing blinds around it to help from exposure to more sunlight.
Cutting Back on Subscription Services and Memberships
Can you live without Netflix or Amazon Prime? If so, you’re a step ahead in saving for your dream house while renting.
If you can’t, just think of your future home. It’ll help you cut back on some of these subscription services to help you save money and have a down payment fund.
If that doesn’t help much, try these steps:
- Identify what you need. Assess your subscription needs and determine which ones you can live without. It could be time to let go of a service if you haven’t utilized it in a few months.
- Look for alternatives. Explore less expensive options for the subscriptions you wish to maintain. For instance, you might be able to switch to a less expensive live TV service with comparable content options.
- Share subscriptions with friends or family. Consider splitting the monthly expenses with friends or family; many subscription services permit multiple users to access their services.
Saving on Groceries and Dining Out
You can significantly increase your savings goal by modifying your groceries and eating out.
Start by creating a meal plan and shopping list. Make it a habit to have a weekly routine of what ingredients you need to buy for groceries to efficiently monitor your expenses.
Additionally, have a weekly or monthly budget. It can help prioritize the important ones that will help you spend less on unnecessary groceries and save more on your credit card bills.
If possible, try buying in bulk to save tons of extra cash in the long run.
Of course, as much as possible, cook and eat at home to avoid spending more money on services and tips.
Increase Your Income
Suppose you find it difficult to sacrifice the subscriptions that you think are important to keep your sanity while living (yes, there are people like that) or simply don’t have the right debt-to-income ratio. In that case, it might be wiser to find ways of increasing your income.
Pursuing a Higher-Paying Job or Promotion
Getting a promotion isn’t a walk in the park; in fact, you might not be eligible for promotion in the first place.
In that case, it might be time to seek another job with higher pay than your current one.
Side Hustles and Freelance Opportunities
If you can’t leave your current job, try going for side hustles or gigs. Who knows, you might find one that will work out better somehow.
Regarding side gigs, it’s undeniable that they’re helpful when earning extra cash.
Here are some side hustle ideas that can help you earn some cash for your down payment savings, according to Forbes:
- Money-Making Blog
- Freelancing
- Virtual Assistant
- Tutorials and Coaching
- Pet-Sitting and Doggie Daycare
Renting Out a Room or Shared Living Space
If you rented a big space or two-room apartment, consider sharing your home with others to split the rent, closing costs, and other monthly expenses.
You can even earn more money from it by renting some of your space out to others. Just ensure that it doesn’t violate any policies or terms you have with the landlord.
However, this might not work as intended if you’re the type who doesn’t want to share living spaces with others. Otherwise, it’s a great opportunity to increase your income.
Selling Unused Items or Offering Services
Do you like hoarding items? Maybe it’s time to let go of some of them to earn extra money.
By doing so, you can also reduce clutter in your house and make it tidier by selling any objects that are no longer needed.
Start by organizing your belongings into groups, like clothing, gadgets, and household things. This will simplify deciding which items should be given or thrown away and which are worth selling.
Once done, look up similar items online to know their worth. From there, you can assign prices to the things you intend to sell.
Then, research the right platform from which you can sell your things. Some popular ones are Amazon, eBay, and Facebook Marketplace.
You can also rely on local online platforms to sell your items and receive money on the same day.
Save on Rent
You may try saving on rent and reducing your monthly payment in different ways.
Negotiating Rent with Your Landlord
If your landlord is someone you personally know, maybe you can try negotiating with them.
Try persuading them into a more affordable deal by giving some service as well.
You can promise them to clean some part of the building or maybe tend to the gardening in exchange for much affordable rent.
It’s give and take, so find ways to bring your landlord to the negotiating table for more economical rent costs.
Automate Your Savings Account
Automating your savings can help you budget your money.
Say, for example, you put at least 30% of your income aside for your savings accounts. You can make automatic deposits so that you’ll never have a problem spending it.
Remember, it’s better to plan ahead the percentage of your income you intend to save for your dream house while renting.
This also works out to any of your current savings, like retirement savings.
Frequently Asked Questions on How to Save Money for a House While Renting
How much should I aim to save for a down payment on a house?
The recommended down payment for a house is typically 20% of the home’s purchase price. However, some mortgage programs allow for lower down payments, so it’s important to explore your options.
Should I prioritize paying off debt or saving for a house first?
It depends on your specific financial situation. Generally, it’s advisable to pay off high-interest debt before aggressively saving for a house, as this can free up more funds for your down payment.
How can I increase my income to save for a house?
You can increase your income by exploring opportunities for a side job, freelance work, or starting a small business. Additionally, seeking career advancement or additional education/training may lead to higher-paying positions.
Are there government programs or incentives for first-time homebuyers that I should be aware of?
Yes, many countries offer programs or incentives for first-time homebuyers, such as lower interest rates, down payment assistance, or tax credits. It’s important to research what is available in your specific location.
What common mistakes do people make when saving for a house while renting?
Common mistakes include not creating a detailed budget, not prioritizing saving, and not exploring all available options for increasing income or reducing expenses.
How long does it typically take to save for a down payment on a house while renting?
The time it takes to save for a down payment can vary widely depending on your income, expenses, and the local real estate market. It’s essential to set realistic goals and track your progress over time.
Final Thoughts on How to Save Money for a House While Renting
Although saving money for a house while renting may seem difficult, it’s completely possible with the right attitude to saving and earning more money.
Remember, you’ll soon be on the road to having your own house if you keep your goal in mind and remain focused.
