How to save money to buy a home while renting

How to save money to buy a home while renting

  • Justin Phillips
  • 10/26/22

Saving up for a down payment can be a challenge for those currently renting. For some, rising rent costs make it hard to break from the cycle and imagine homeownership as a reality. The average multifamily rent rose 10% year over year in Austin as of August 2022, according to the UNC Kenan-Flagler American Growth Project report for October 2022, which ranked the fastest-growing U.S. cities. If you’re curious, Austin ranked as the second-fastest growing city!

It's only natural to have questions when you're considering becoming a first-time homebuyer. For many, buying a home is an unfamiliar territory with unknown steps to navigate. As experts on the Austin housing market who have helped countless new buyers move forward with confidence, we’ve compiled tips for first-time homebuyers and answers to their most pressing questions, like: 

  • How can I save for a house while renting?
  • How can I build my credit?
  • How should I budget to own a house?

How to Save for a House While Renting

1. Open a savings account
You’ll want a dedicated spot to put your savings to buy a home where you won’t be tempted to use it for other expenses — this will also help you to clearly see your progress. CNBC suggests that you’d ideally choose one offering a higher interest rate than your traditional savings or checking account. Examples include a high-yield savings or money market account.

2. Evaluate your budget and where you can cut back
When you’re trying to figure out how to budget for a house, you’ll want to add up all of your total income. Next, total all of your monthly costs. The idea of budgeting is different for everyone, and for some, it may include reducing your monthly spending or simply ensuring you know where your money is going and sticking to a financial plan.

3. Address your credit and debt
If your credit score is negatively affecting your options and increasing your monthly payment beyond what you feel comfortable affording, there are ways to build credit, repair it, and get your debt under control. We’ve outlined below how to build credit before buying a house!

Building credit

When lenders are deciding to approve you for a loan, one thing they look at is your credit history to evaluate their risk of giving you money. If you haven’t built your credit score, doing so before you begin searching for your home is a good idea. You can do this by:

Applying for a credit card. Having one or more cards and using them responsibly (i.e. not maxing them out, paying them off on time, and making regular payments. You also likely won’t want to close any open cards when you’re focused on building your score up.

Minimizing hard inquiries. Submitting an application for a credit card (or a car loan and other things) lowers your score by a few points. This means you’ll want to research what credit card you’ll likely be able to get and utilize things that count as a soft inquiry like online pre-qualification forms.

Repairing credit

If you already have a credit history but it is low due to negative information on your credit report, there are ways to help fix it and raise your score before you apply for loans. According to USA.Gov, credit reports list your bill payment history, loans, current debt, and other financial information. They show where you work and live and whether you've been sued, arrested, or filed for bankruptcy. You may want to:

Check your report for errorsIf you find any, you can write a report disputing them and mail it as well as supporting information to the reporting agency.

Pay off delinquent accounts. According to Credit Karma, these are any accounts that are past due on payment, and they can remain on your report even if you’ve since paid them. Once you have paid them and they are still showing on your credit report, you can file a dispute. 

4. Apply for assistance programs
If you’re saving for a house while renting, you’re likely a first-time homebuyer. What you may not know is that there are a wide variety of assistance programs aimed at helping you get into your first home, like down payment assistance, homebuyer tax credits, and more.

5. Find a roommate

Many people prefer living alone to living with a roommate, but that decision could be delaying your timeline for saving to buy a home. Having a roommate means that you’ll have someone to help out with or split the rent, but also the utilities, and the savings can add up.

According to Apartment Advisor, “splitting rent for a two-bedroom with a roommate can save an average of 36% compared to the cost to rent a one-bedroom solo. That translates to nearly $6,400 in annual rent expenses, or more than $500 a month in your pocket!” Once you factor in utilities and other expenses, the savings increase.

How much is rent in Austin?

Average rents in Austin continue to rise with an increase of 8.5% compared to September of last year. As homebuying becomes increasingly unaffordable with the increasing mortgage rates, potential homebuyers may decide to put their buying plans on hold and lease instead. But make no mistake, renters are at the mercy of the landlord, and landlords will likely continue to increase rents because they can.

Pro Tip: If you are nearing the termination of your lease, connect with a real estate professional today so you don’t put your future savings into additional rent. There are numerous alternative financing options available to help potential buyers get out of the rental trap!

6. Earn additional income

When you’re trying to save money for a large purchase, you may also want to focus on where you can increase your income. If it isn’t possible to earn more in your current position and you don’t want a job change, there are ways to boost your income outside of your daily role, known as supplemental income.

For earning supplemental income, one approach is to focus on your strengths and talents and figure out how to profit from them. Are you great in a certain subject? You could tutor on the side. Love pets? Earn extra money by walking dogs or pet-sitting. The options go on, and you may decide increasing your income is one way you want to approach saving for a home.

Pro-Tip: “Renters struggle with wondering if now is the right time to buy. No matter where the interest rates are, you need to know if you are renting, you’re losing money that could be building future equity. Sometimes you have to consider what the bigger picture is for your long-term investments. It is key for you to consult with a real estate agent and get all the information available to you to help you purchase now (or within the next few years). Don't wait for the perfect home. Buy smart, and let us guide you in building future wealth.” -Jolene Weinstein, Head of Sales for Realty Austin. 

An experienced real estate agent can help you understand the costs that go into buying a home, the Austin housing market, and how your unique situation may warrant a different strategy.

Follow Us on Instagram