193 Branthaven St, Ottawa, ON K4A0H7
193 Branthaven St, Ottawa, ON K4A0H7
Renting isn’t cheap. In fact, recent figures show that the average person renting an apartment in America is paying over $1,700 for it each month! So, saving for a home can be quite challenging in these circumstances.
But isn’t it part of the American dream to own a house?
Of course it is! And while it might seem out of reach, most people can afford a home if they just strategize properly and often the mortgage will cost less than the rent did after you move in.
Here’s what you need to know.
We’ve got a simple 8-step process for you to buy your own home while you’re paying rent to a landlord.
You can’t get anywhere without goals and when it comes to buying a house, you need to work out how much of a house you’re able to afford.
You should be aware though that if you don’t want to pay private mortgage insurance – you will need a big deposit (20%) whereas if you don’t mind the insurance it can be as little as 3% (depending on your credit rating).
We’d recommend talking to your bank to get an idea about what kind of mortgage options you have and how much it might be practical to borrow. Make sure you fully understand the repayments though – you don’t want to find yourself with a mortgage you cannot afford each month.
While you’re going to need 3-20% of the purchase price in cash to get the ball rolling, that’s not the only expense you have to cover when you buy a house.
You will need to cover closing costs (which on average are about $7,000!), the costs of moving in (on average – $1,500!), and an emergency fund (particularly if the house is not brand new and covered by a builder’s warranty) for any unforeseen repairs, etc. you discover after moving.
You might also need to pay for extra furniture, new appliances, etc.
Then it’s time to open a savings account especially for saving for your home. We’d recommend opting for an online only bank for this (though make sure they’re reputable) as they tend to offer better interest than bricks and mortar institutions.
Then set up an automated payment that takes a bit of your pay each week/month and has it paid straight into this account before you even have it. It’s much easier to pretend you have a pay cut than to try and save all week and put in whatever’s left.
Now, get out your budget and look at your “discretionary spending” – that’s a posh term for the things you buy because you want them rather than because you need them.
Items in this category range from trips to Starbucks to gym memberships to vacations to Netflix subscriptions.
The more things you can eliminate, for now, the faster you can get your deposit saved and move in.
You should also shop around for everything you “have to have”. Insurance, cellphones, electricity, etc. can all be bought from a competitive market – find the cheapest options for you.
We know, it’s easier said than done but if you have $10,000 on a credit card, the annual interest could be as much as $3,000! The interest on $10,000 in your savings account, on the other hand, could be as little as $400…
Clearing your debts, particularly those with high interest, first makes it easier to save money in the long run. In fact, avoiding credit cards in particular is a good strategy for life unless you’re one of those super-disciplined people who always clear 100% of their balance each month.
No, not the new home that you haven’t moved into, yet. The one you’re in now. If you get a room mate – you can cut your rent in half. That’s money you can stick straight into your lovely home buying fund.
You can easily find a roommate online now and that means you don’t need to work very hard to get this massive amount of extra cash in your life.
Yes, we know, having two jobs sucks. But it’s a great idea when you’re saving for a new home. That’s because, firstly, you’re bringing in more money and all of that money can go into your house fund.
But also because, secondly, you’re saving money – when you’re working, you’ve got less free time and thus, no time in which to spend money or any need to spend money.
You can quit the day that you have the deposit and moving costs in full. Unless you use the side gig to leverage a bigger mortgage, that is.
Finally, you should be aware that there are often programs from mortgage lenders that offer free assistance with the down payment on your home. Though you may have to agree to stay in that home for a few years to get the benefit without repaying it.
There are also grants available for home ownership – though you may need to complete a homebuying course (which is fine) to qualify for them.
Some occupations (such as health workers, firefighters, teachers, etc.) also get special programs to help with deposits and mortgages.
So, there you have it, a simpe and practical strategy for saving money for a house while you’re paying rent to someone else. We hope you can put this into action asap and secure your own bit of land soon.
If you’ve found this useful we think you might also appreciate our pieces on saving money to buy a car, saving money on weddings and the weirdest ways to save money that really work.