Rent prices continue to rise throughout the U.S., which creates a disheartening and discouraging scenario for many people.
As of February 1, median rents for one- and two-bedroom units are up 13% and 16%, respectively, since 2019.
One-bedroom rentals are at an all-time median high right now.
High rental prices coincide with a housing market that’s overheated. Demand, inflation, and reductions in home construction have led to record-setting home prices. Potential homebuyers are being priced out, requiring them to stay in the rental market, putting pressure on rent prices.
For renters, it can seem like a difficult cycle to break—how can you save for a down payment when such a large chunk of your income is going toward rent? Homeownership feels unattainable for a large portion of the population.
It’s decidedly not an easy issue to work your way out of, but it is possible.
Figure Out What You Need
The first thing you can do is start to crunch the numbers. If you have a concrete number for the down payment you need, it will be easier to work toward your goals. If you don’t have a plan in mind or a set number to work toward, you’re going to feel scattered, and it will be much harder to get out of the rent cycle.
The down payment will depend on the type of loan you hope to get and where you plan to buy.
There are mortgages with a down payment as low as 3%, giving you opportunities to save up in a shorter period of time.
You may have to pay for private mortgage insurance if you don’t put down 20%, however.
You have to think about other costs that you’ll need upfront money for to buy a home. These costs include closing fees and the costs of moving.
Open a Dedicated Down Payment Savings Account
Once you have a concrete number in mind and have explored the mortgage options available to you, and know which you’d like to ultimately get, you can create a savings account. This account will only be for your down payment and nothing else.
It should be liquid but separate from anything else so that you aren’t tempted to spend the money in it.
Deal with Debt
You’re going to need to find ways to cut costs if you want to put more money aside to buy a house. Cutting your debt is going to be one way to do that.
If you have a balance on a credit card with a high interest rate, you might try to do a balance transfer. You can transfer the expensive debt to a card with a zero-percent interest period.
If buying a house is your goal, try not to add any more debt during this time.
To qualify to get a mortgage, you’ll have to meet the debt-to-income requirement.
Find Ways to Cut Back
It’s hard to give things up, but if you’re putting a fair amount of money into your rent, there’s not a lot you can do about that unless you’re willing to move.
You’ll have to find other ways you can cut your costs. That might mean skipping meals out or delivery food or going through your subscriptions to see what you can eliminate.
Think About Moving
We mentioned moving above, and you may not be willing or able to do it, but if you can, cutting down on what you’re paying for rent is one of the best ways to have more money to put toward a down payment.
If you can’t move to a smaller or less expensive home, you might try to renegotiate your lease with your landlord, or you could get a roommate. If you can move, along with getting a smaller place, another option is to move outside of the center city area, if you live there currently. Typically, the further out you move from the central area of your town or city, the lower the rent.
Explore Assistance Programs
Finally, many mortgage lenders have programs and loans for first-time homebuyers that cover part or all of a down payment. There are also grants, which require you to complete a homebuyer education course before you get the financial assistance.
If you work in certain fields, like as a first responder or teacher, homebuying assistance programs are often available.
A lot of lenders are looking to reach out to underserved communities to help them make homeownership a reality, so make sure to explore everything that’s out there.