Housing markets across the country are gearing up for busy spring and summer homebuying seasons, which are often the most hectic throughout the year.
Cities and neighborhoods across the country are booming, with new homes being built while sellers are looking to unload their property on eager buyers. Individuals and families who have previously bought a home know how the process works, but for those who are still renting, it is very likely they may find some parts of the buying process overwhelming.
Buying a home is often a defining moment of the American Dream, but for many individuals in their 20s or 30s, the purchase has become a bit more difficult to achieve due to a variety of factors. Student debt is at an all-time high and rents seemingly increase every year. Combined with other life necessities, you may find it difficult to save for that 20 percent down payment.
During these times, it's important to remember that not all hope is lost. It is entirely possible to save up for a house while renting. You will have to make concessions in some areas, but with enough determination and strict budgeting, you can become a homeowner sooner than you think.
Know How Much You Need to Save
Best practice dictates that you should save for at least a 20 percent down payment. You can determine the exact figure by first settling on a price range that reflects your current annual income. You don't want to buy a house that is more expensive than you can afford, because you then risk falling behind on your monthly mortgage payments.
However, today's housing market is different from the one older generations remember, and as such, a 20 percent down payment isn't always needed. Different loan programs may help you secure financing, even though you only have saved enough for a down payment of as low as 3 to 5 percent. Just remember that a low down payment will likely result in your having to pay primary mortgage insurance, or PMI, which is a way for lenders to protect themselves in case you can no longer afford the loan payments.
From there, you can move on to creating a budget and deciding exactly how much you need to save.
Save Your Refund
With the April deadline for filing tax returns quickly approaching, you may be looking forward to a likely tax refund. According to Time Money, in recent years the average tax return has been around $2,800 [1]. Instead of using that money on a vacation or to buy a new television, put it in a savings account, a Roth Individual Retirement Account or long-term Certificate of Deposit and use it toward a down payment.
"Put your tax refund in a savings account."
A tax refund can either serve as a good starting point for saving, or it could give you that extra push needed to hit the 20 percent benchmark.
Live Smartly
If you're currently renting an apartment, you may want to consider moving out to a new place and picking up a roommate or two. A three- or four-bedroom place generally means more affordable monthly rent for everyone, and the potential to save hundreds.
For example, assume you currently pay the average rent of $586 for a one bedroom in Columbia, Missouri, per Rent Jungle [2]. Add in monthly utilities and you're looking at somewhere around $650 to $700 to live on your own. When you move in with a roommate or two, your share of the rent and bills will decrease, and the money saved can be put toward an eventual down payment.
Similarly, if you have a spare room or travel frequently for work, rent out your apartment through popular home share services.
These are only two of the ways you can save for a future home. You may be surprised with how much money can be saved through various methods that are worth trying out.
Sources:
[1]. 20 Ways to Save for a New Home While Renting
[2]. Rent trend data in Columbia, Missouri
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