Saving for a home is more difficult now than it ever has been, and it’s only getting harder, but it’s certainly achievable if you make a plan and stick to it.
If rounding up enough cash seems daunting to you, you’re not alone. Rising prices for both renting and buying, coupled with generational factors like runaway student debt, have put millennials in a tight spot financially. This age cohort has less saved for home buying and retirement than previous generations. In fact, even six-figure earners are having trouble making the numbers work in some U.S. cities.
But don’t get discouraged. Here are some actionable and realistic pointers to help you save for your first home.
Work back from your end goal to figure out how much you’ll need for a down payment. Get to know your local housing market, write down your preferences, and come up with a budget. Make sure to set monthly, even weekly goals to help you achieve the desired results. Then research loan programs to figure out how much your down payment may be.
While typical down payments can run 10% or even 20% of the purchase price, there are many state and federal programs to reduce the upfront burden for first-time buyers. Contrary to popular opinion, you do NOT need a 20% downpayment to purchase your first home. The Federal Housing Administration offers loans with down payments as low as 3.5%, which would be about $8,750 for a $250,000 home (and don’t forget to account for closing costs, which typically run 2–5% of the purchase price).
Now it’s time to get down to business and start saving.
Be Smart about Renting
Many pundits and bloggers will suggest forgoing your daily latte or borrowing money from relatives, but there are more practical ways to save for your down payment. The best involves rethinking your biggest monthly expense — rent.
As a rule of thumb, you do not want your rent to exceed 30% of your net income, the amount of money you actually take home each month. The further from 30% you can be the better, but we know it is not always easy.
Many renters don’t think about negotiating their monthly rent, but it is a viable route. If you can reduce your rent by even $50 per month it can lead to substantial savings over the course of a year or more. And think about living with a roommate in order to save even more money.
But most of all, let Rhove do the heavy lifting! Our mission is to expand access and opportunity for everyone to own in their community. When you live at a property offering Rhove you can make money on rent, accelerating your progress saving for your first home.
Additionally, you’ll build up Closing Credits with Rhove––earn thousands in credits to apply toward closings costs when you purchase your home with one of our trusted realtor or lender partners.
Note: Closing Credits have been discontinued as of September 2020.
Here are some other ideas to keep in mind as you go about saving:
Spend within your means: It sounds straightforward to spend within your means, but many people simply don’t. Limiting major expenses is a great way to do it, so think about skipping out on the next vacation or holding off on that new car lease.
Stash away big inflows: Apply annual tax refunds, or a portion of them, toward your savings for a down payment. Many people are tempted to splurge when the refund comes in. Remember, that’s your money that the government was borrowing interest-free, so don’t just go and spend it haphazardly like money you found lying on the street.
Automate savings from your paycheck: You should be able to automatically divert a portion of every paycheck into a dedicated savings account. Better yet, open up a Rhove account and set your auto-savings so you can earn a high interest rate with no fees.