Buying A House While Renting: Managing Your Budget
Mar 14, 2023
Buying A House While Renting: Managing Your Budget
Saving up money for a down payment on a home can feel like a daunting or overwhelming task while you're paying rent, especially if rents are rising.
But saving for a down payment is quite doable if you manage your budget and take some other steps. The difficulty will depend partly on your habits and history, as well as how motivated you are by your desire to become a homeowner.
Regularly saving part of your income is always smart, even as a young adult while your habits are still forming. But saving for an immediate, known goal is different and should come in addition to your typical saving. Achieving this goal, depending on how urgently you want to buy, likely will warrant more sacrifices as you tighten up your spending to create these savings.
Following these tips while renting will help you save money faster:
SET YOUR SAVINGS GOAL
Historically, the conventional wisdom was for homebuyers to pay 20% of a home's price as a down payment. That standard has become increasingly difficult to meet in recent years as home prices have risen. In reality, the average down payment by all home buyers is around 10%, but it's still a good goal to shoot for 20% -- and more could be needed if the market supply remains tight or you get into a bidding war.
Once you determine the size of your goal and when you want to buy, start having money automatically transferred from your checking account to a savings account periodically.
GET SOME HELP
It might not sound like rocket science to say that the more people who are helping to pay rent, the less each tenant will have to pay. But there can be even bigger savings on rent, not to mention sharing utility and other costs, from adding a roommate, depending on where you live.
Each year SmartAsset publishes results from its study of cities where it's significantly cheaper for two people to share a two-bedroom apartment than it is for one person to rent a one-bedroom unit. These savings tend to be greatest in the nation's largest cities ($1,334 saved monthly in New York city), but savings are still substantial in smaller Midwest markets, averaging $441 monthly in 2022 in nearby Indianapolis, for example.
GET LEAN
The fastest way to save for a down payment, especially without increasing your income, is to reduce your spending, but this doesn't mean you have to live a bleak life of austerity. Think of it as a few short-term sacrifices in exchange for an asset that will allow you to start building long-term wealth.
We won't tell you whether to skip that doubleshot mocha latte at the drive-thru for store-bought coffee brewed at home, or to reduce your number of TV streaming options, or to eat at home more often. But we do recommend taking a close look at how you spent money from your checking account recently.
Crunch the numbers in the deposits and expenses. Consider running them through a personal finance budgeting tool, which will show you how much you're spending on different categories such as utilities, entertainment and restaurants. With that information in hand, you will start to see areas where you can trim spending.
Set a budget that allocates a limited amount of money for each type of spending and stick to those limits.
TAKE ON A SIDE HUSTLE
If it's possible with your full-time job, consider beefing up your income with a side gig, such as rideshare driving, food or package delivery, or non-medical home caregiving. These are services in high demand that you can do without training or experience, allowing you to generate quick cash.
Some carry costs to be aware of, such as depreciation of your vehicle, but their beauty lies in their flexibility. These gigs let you choose when to work and they can be a lucrative form of supplemental income.
ASSISTANCE MIGHT BE AVAILABLE
You might have to save less for your down payment, depending on your profession. Some homebuyers could qualify for down payment assistance programs if they have a disability or are military veterans, educators, law enforcement, firefighters or work in health care.
If you are a first-time homebuyer, there are programs in Indiana designed to make becoming a homeowner more accessible.
Speak with a realtor or mortgage lender to find out more information.
ORIZON CAN HELP YOU FIND YOUR HOME
Once you've got your down payment saved up, it's time to start searching for the perfect home.
Our knowledgeable team is ready to help you find a home in just the right spot in northern Indiana. Call us today at 260-248-8961 to connect with an Orizon Real Estate agent.