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Your first step is to determine how much house you can afford, which will help you estimate how much you need for a down payment. You can use Bankrate’s to help you figure out a realistic budget. Your down payment depends on the kind of loan you’re seeking and where you’re looking to buy. Many mortgages come with a 3 percent down payment minimum, so you may be able to save up over a shorter timeframe. Consider whether you want to avoid the additional cost of private mortgage insurance — if so, you’ll need to put down 20 percent. Here are the for different types of mortgages. If you’re not sure , talking to a loan officer can help you narrow down your options, says Juan Carlos Cruz, founder of Britewater Financial Group in Brooklyn, New York. Other costs to consider
Aside from at least a 3 percent down payment, you’ll need to have savings to cover additional expenses in the home-buying process. These expenses include , which encompass fees related to the property, such as an appraisal, and mortgage fees. According to , the average set of closing costs in the first half of 2021 was roughly $6,800. Another expense to save for: moving. Hiring a professional mover runs about $1,500 on average, reports. (Here’s more on the .) Once you move into your new home, you might also need to address repairs (either known or unexpected). A major roof repair, for example, can cost $2,500, according to , or more depending on the scope of the project. If you’re moving into a larger space, you might need to spend some money on additional furnishings, as well. How to save for a house while renting
1 Open a down payment savings account
Once you have a down payment amount in mind, open a to “help you keep track of how much you’re saving and your progress,” Cruz says. Otherwise, you might be tempted to dip into your down payment fund to pay for recurring, or even unnecessary, expenses. Keep in mind the type of account you’re putting your money in. Many online banks offer higher interest rates on savings accounts than brick-and-mortar banks do, so your savings may have more opportunity to grow with an online account. To start building your savings, have a portion of your pay automatically deposited into the account, or set up an automatic transfer from your checking to your savings account, recommends Michele Hammond, vice president of Lending and New Development Relations with in New York. You can also use an app to “round up purchases to the nearest dollar and put the change into a linked savings account, so you can save without it being a heavy burden,” Hammond says. If you recently got a pay raise, tax refund, work bonus or cash gift, stash it in your savings account, Fraser says. This can be a smart way to boost your savings from the outset. 2 Look at where you can cut back
It’s also important to examine your discretionary spending and see what you can make cuts, such as Netflix and cable bills or morning lattes, says Miriam Mitchell, senior vice president of lending at Addition Financial Credit Union in Lake Mary, Florida. It’s likely “you can find a lot of savings in there to build a down payment fund,” Mitchell says. Consider shopping for cheaper or a less expensive cell phone plan, as well. You may find you’re able to cut costs on these seemingly “fixed” bills, and can put the difference toward savings. 3 Address your debt
Take a look at your debt to find areas to cut costs, too. If you have a balance on a high interest rate credit card, consider doing a , Mitchell says. Many cards offer zero-percent interest on balance transfers for a set period of time, such as 12 or 18 months, although they typically charge a fee between 3 percent and 5 percent of the amount transferred. Given the pandemic, it may be a good idea to talk to your card issuer or other lenders you’ve borrowed from, adds Cruz. They might be willing to reduce your interest rate on your credit cards or student loans, for instance. Similarly, avoid adding more debt to your name. To qualify for a mortgage, you’ll need to meet the lender’s requirement, and the less debt you have relative to your income, the better. You can use Bankrate’s to estimate where you stand. Generally, you’ll want to keep your DTI ratio below 43 percent. 4 Go outside of your day job
If you don’t have much wiggle room in your budget as a renter, you can try bolstering your savings by earning more money. Check out gig economy jobs that are in demand, such as delivering for GrubHub or DoorDash, Mitchell suggests. Look into what you own that you can sell, too. “Everybody’s selling stuff on local websites,” Fraser says. “Little side hustles are a fabulous way to bring in a little bit of extra cash.” 5 Make bigger changes
If you’re eager to save up for a home, and fast, you may want to take more sweeping measures. You might consider getting a roommate, for example, to help split the rent and other expenses, or even moving into a smaller, less expensive rental altogether. If a move is out of the question, you can try renegotiating your lease with your landlord. This can work well if you’ve been a great tenant or can guarantee you’ll be in the rental for a longer period of time. In some larger cities, rents are actually decreasing, according to Apartment Guide, so your landlord may be more willing to negotiate now if it means they can lock you in as a tenant. 6 Apply for assistance programs
Many mortgage lenders have that can help cover a portion of your down payment. Such programs might require you to occupy your home for a certain period of time or else you’ll have to repay the money, Cruz notes. Others, such as , may require you to complete a before receiving the help. Your field of work might be in your favor, too. Some programs provide assistance to homebuyers in certain occupations, such as teachers or first responders. According to Fraser, “a lot of lenders are looking to reach out to underserved and diverse communities to improve opportunities for homeownership.” If you’re in one of these roles, there may be assistance available specifically for you. Fraser recommends checking out DownPaymentResource.com, which can help you find assistance programs in your area. Bottom line
Setting aside savings toward a down payment for a home can feel like a rite of passage, and a difficult one at that. Although saving for a home while renting is challenging, the suggestions above could help put you closer to your goal. Learn more
SHARE: Susan Ladika spent more than three decades working as a journalist, reporting everywhere from Bali to Bosnia to Tampa Bay. Susan began writing about the fascinating field of personal finance for CreditCards.com and Bankrate during the heart of the Great Recession, when everyone wanted to learn how to save money and spend what they had more wisely. Over the years she’s written about a wide range of personal finance topics, including credit cards and debit cards, financial scams and frauds, savings and checking accounts, real estate and insurance. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Related Articles