For many renters, saving up for a down payment on a home is a huge challenge. For some, it’s hard enough just paying for rent. The pressure to buy a home right now is real, especially as rent prices continue to rise year over year. Plus, no time is better than now to start putting your money into buying a home. Knowing how to save up for a house will go a long way towards homeownership.
Depending on what state you live in, the median price could be as low as $190,000 for a three- bedroom, one-bathroom home in Wyoming, or as much as $389,000 for a two bedroom home in Hawaii. That’s a lot of Piggy Banks!
Owning a home can be expensive, it’s not surprising that 36.6% of households are renters. However, renters have seen an increase in rent over the past few years, and in some areas, it may be cheaper to buy than it is to rent. If you’re struggling to save for a house while renting and aren’t sure how you can save up for a down payment, we have a few ideas that can help.
Things You Can Do To Save Up For A House
1. Cut Down On Rent
One of the first things renters can do to start saving money for a house is to reduce how much you’re paying for rent. Here are a few ways to try and do this:
- Downsize or move to a cheaper place
By moving to a new place, you could save hundreds of dollars each month. Not only will you save on rent, but there are other things that could become cheaper, too. For example, you could save on your energy bill if you move into a smaller place.
You could save on gas if you move closer to work. You might be able to save on water and trash if it’s not already included in your rent. All those savings will add up and put you that much closer to your goal!
- Get A Roommate
If you don’t want to find a different place to rent for the time being, consider finding a roommate to help share the bills. You could ask friends and family if they need a place to stay, put out an ad in your local Facebook group or newspaper.
- Rent A Room Out On Airbnb
If it’s not against your lease agreement to sublet. Then, renting out a room or the entire place out for the weekend can make you a good side income and get you that much closer to home ownership.
2. Cut Down On Unnecessary Spending To Save For A New House
You’ll be amazed at how much money you can find when you pay attention to your spending. Here are some ideas to help you tighten your spending temporarily while you work on making that home ownership dream a reality:
- Skip the daily coffee: $100 per month
- Take a break from the gym: $50 per month
- Save the eating out only for special occasions: $200 per month
- Look for the sales and shop around on groceries: $100 per month
- Cut the cable: $100 per month
These tips could save you $550 every month! That adds up to $19,800 over the course of 36 months. If you can think of even more ways you can save, even better!
3. Take Care Of Your Existing Debt
Taking care of existing debt will help your chances of getting approved for a home loan with better terms. But most of all, it will allow you to truly save up money. Any extra monthly income you have after monthly expenses can all be put towards your savings account. So look to get out of debt.
Use the Snowball or Avalanche method of debt payment to pay off debt faster and save money on interest. I cover these methods in an article a wrote called How To Pay Off Debt Fast And Build Wealth. Check it out to learn more about debt.
4. Hold Off On Your Retirement Savings
If you’re planning on buying a house in the near future, hold off on your retirement savings and redirect those funds toward your down payment savings effort. It’s only temporary, so don’t worry. Once you’re sipping coffee in your new kitchen, you can get right back to that 10% towards your retirement goal. Just make sure this is only a two-to-three-year postponement!
Think of it this way. If you’re currently investing $500 a month into a 401(k) and IRA plan, and instead, put that towards your down payment savings, you could save around $12,000 in two years. That’s a big boost to your home savings timeline especially with the added savings possible, discussed earlier!
However, don’t cash out your retirement accounts to save up for a down payment. You’ll not only get hit with taxes and early withdrawal penalty fees, but also damage the long-term growth of your retirement savings. It’s a mistake that could cost you thousands of dollars at retirement. That’s not worth it at all.
5. Start A Side Hustle And Save Faster For A New House
If you’re looking for another way to turbocharge your income, there’s nothing like picking up a side gig or a side job. Your side hustle can be anything that will earn you a second income or three! When you’re thinking up ideas, start with the stuff you love doing. Here are some ideas:
- Drive for Uber Or Lyft
- Restaurant delivery
- Know any special skills. Be a Tutor or Teacher
- Know how to fix cars. Get a second job as a Mechanic
- Buy and sell
If you make an extra $150 a week. That’s $600 more a month and $7,200 a year. In 2 years time, you’ll have another $14,400 saved up for your new home purchase.
6. Dig Deep For More Savings
- Extra stuff lying around the house or in storage. Why not sell them if you’re not using it?
- Got a raise or bonus at work. Save the extra money
- Take yearly vacations? Put those off for a couple years
Potential savings in 2 years, $10,000+
The biggest hurdle people struggle with is sticking to the plan once they know how to save for a house while renting. They may stay on course for a little while, but something comes along that throws them off track. Once you make a decision and learn how to save for a house. Stick to the plan to make it happen.
Using these money saving tips can help you save around $49,600 or more over two years time! Just two years. If your plan is to save for three years then you’re looking in excess of $74,000 of savings for your new home purchase. You’ll most likely have enough for a down payment and then some. Or depending on where you’re buying, you might have enough money to buy your new home with a one time cash payment!