How to Save Money for a House While Renting
For many renters, the dream of owning a home can feel distant, especially when managing monthly rent payments. However, with careful planning, strategic budgeting, and financial discipline, saving for a house while renting isn’t just a possibility—it’s a goal within reach.
With strategic planning, you can rent and still save for a house—and these simple money-saving tips for renters can help.
Start getting ahead financially while renting so you can become the owner of the home of your dreams.
First, to Buy or Not to Buy?
Deciding whether to buy a home or continue renting is a significant financial decision that requires careful consideration of your personal circumstances, financial situation, and long-term goals.
Financial Health
Start by evaluating your current financial health to determine if purchasing a home is feasible. Consider your savings, credit score, and the stability of your income. Ask yourself if you are financially prepared for the additional costs of homeownership beyond the mortgage, such as maintenance, property taxes, and homeowners insurance.
Future Plans
Next, reflect on your lifestyle and future plans. Owning a home offers stability and potential for building equity, but it may not be ideal if you anticipate significant life changes, like relocating for work or expanding your family in the near future. Renting can provide flexibility, allowing you to adapt more easily to uncertain circumstances.
Housing Market
Analyze the housing market in your desired area. In some regions, buying may actually be more cost-effective than renting when considering long-term property value appreciation.
Responsibility
Finally, assess your comfort level with taking on such a big responsibility. Homeownership might be the right path if you welcome these challenges and the opportunity for investment growth. Ultimately, the decision should align with both your financial situation and lifestyle aspirations, ensuring that it supports your broader life goals.
If you’re thinking that buying a home may be the right decision for you in the near future, it’s time to start preparing.
Tip #1: Set a Clear Goal
Start by understanding how much you need to save for a down payment for a house. Consider a typical home’s purchase price in the area where you are interested in moving, and calculate the down payment you will need. A down payment of 20% is standard (and may eliminate the need for the additional expense of private mortgage insurance), but speak with your finance about offer options for lower down payments.
Decide what will be the minimum down payment you will be looking at, keeping in mind that a larger down payment amount will reduce your monthly mortgage payments.
Also make sure to factor in closing costs, which typically range from 2% to 5% of the home price, and additional expenses like moving costs and initial home repairs.
You’ll also need to consider what your monthly mortgage payment will look like. How does it compare with your rent costs?
For a quick preview if renting or buying makes sense financially for you, check out Guidance Residential’s affordability calculators.
Tip #2: Get Pre-Approved
If you want to know the exact number you should save for a down payment on a house, find a home financier and get pre-approved. Your home financier will help you determine how much you can afford and you can work your way to that number. Taking the steps for a pre-approval will also help you make the decision to rent or buy.
Keep in mind that alternatives to a conventional mortgage now exist, and you can find financing that aligns with your values. You may want to consider interest-free mortgages where the contract is built on a partnership rather than a borrower/lender relationship. These Islamic mortgages are not just for Muslims. Rather, it is available to anyone who is looking for a more just, equitable, and socially conscious method of buying their home.
Tip #3: Make a Budget
Once you’ve been pre-approved and know how much you need to save for your down payment funds, it’s time to make a budget and set savings goals.
Evaluate your current financial situation to determine how much you can save monthly. Utilize budgeting tools or apps to track your expenses and identify areas where you can cut back. Break down your monthly income, and categorize your expenditures into essentials, savings, and discretionary expenses. You may find you’re spending money on subscription or streaming services that you haven’t been using.
Set a specific savings target each month that aligns with your overall goal.
Tip #4: Reduce Monthly Expenses
Saving for your down payment can be difficult, especially if you’re on a tight budget like most renters are. However, minor adjustments to your discretionary spending can add up to big savings. As you put your budget together, make a note of which expenses you can scale back on.
For example, take a look at your cell phone or cable plan. Could you possibly downgrade if you don’t use the full package? Or maybe you don’t need to pay for a full unlimited gym membership and could do a pay-as-you-go option instead. Consider also cooking at home more often to save on other costs.
Reevaluate your monthly subscriptions and memberships. Cancel those that are not essential, like gym memberships, streaming services, or magazine subscriptions.
Tip #5: Save on Utilities
Take a look at how much you’re paying for utilities. Maybe it’s time to upgrade your appliances to energy-saving ones. Ask your landlord if you can do so and also ask if they can make small repairs such as improving the insulation or sealing any gaps that may be present around your doors or windows. This can help save energy when turning on the air conditioner or heater.
These steps not only save you money but they’re also environmentally friendly.
Tip #6: Optimize Your Rent
Consider relocating to a less expensive rental property to increase your monthly savings. This may involve downsizing or moving to a more affordable area. Weigh the potential savings against any moving costs or job commute changes.
Tip #7: Consider Adding a Roommate
If you’re looking for another apartment to rent, consider getting a roommate. Two-bedroom apartments are oftentimes cheaper when dividing the monthly rent by two versus renting a one-bedroom apartment. Multiply those savings by 12 and you’re saving a lot for your down payment.
Check out Facebook groups (make sure to verify identities and do so safely) or ask around for anyone who may be looking for a roommate. Split the rent with someone and cut down on your costs.
Tip #8: Negotiate Your Lease Renewal
If you’ve proven to be a good tenant during your lease, you can use this to your advantage when negotiating your lease renewal. From a landlord’s perspective, when you leave, they’ll need to take time to find a new tenant. They won’t know if the new tenant will be as easygoing as you were. Use this as leverage when negotiating.
Also, consider tactics like asking for a longer lease for a lower rate and bringing up prices for similar apartments available for rent in the neighborhood.
Doing this research beforehand also gives you options for other places to rent if your renewal doesn’t work out.
Tip #9: Consider a Side Hustle
Outside of your day job, you likely spend time on hobbies. See if any of those hobbies can turn into side gigs that will earn you extra money. Maybe you like making handmade items. You can sell those on Etsy. Or if you’re really knowledgeable on a subject or speak another language, students are always looking for tutors. Try selling unused items on eBay or at a garage sale. Or choose a seasonal job like a tour guide in your city when the number of visitors increases during peak season.
Leverage your skills or hobbies by starting a side business, whether it’s freelance writing, graphic design, tutoring, or crafting. The extra income can significantly boost your savings efforts, accelerating your timeline to homeownership.
Tip #10: Open a Separate Account
Now that you’ve found which expenses you can cut back on and also how you can potentially make more money, make sure you save it.
Open an account specifically for your down payment fund. Keeping your down payment savings separate from your everyday funds reduces the temptation to spend it on non-essentials. Set up a separate bank account just for your down payment and make sure not to touch it for any other expenses.
Any time you have some extra money, such as a tax refund, go ahead and put it in this account.
Tip #11: Save Automatically
Ask your employer if they can separate your paycheck. Have a set percentage go to your special down payment account each time you get paid.
Having it done automatically will not only allow you to save time but also keep it consistent, which will help in the long run.
Tip #12: Take Advantage of Employer Benefits
Some employers offer down payment assistance programs to help you buy a house. Check with your HR department to see if such programs are available. Additionally, contribute to retirement accounts, like a 401(k), if employer matching is available, as this can free up other funds for your house savings.
Tip #13: Plan for Unexpected Expenses
Life is unpredictable and unexpected costs can arise, such as car repairs or medical emergencies. Establish an emergency fund that can cover at least three to six months of living expenses to ensure you don’t dip into your house savings when unexpected expenses occur.
Tip #14: Apply for Assistance Programs
Research federal, state, and local programs geared towards first-time homebuyers. Many offer lower down payment requirements or even grants and loans designed to assist with home purchasing costs, easing the financial burden of saving while renting.
For eligible first-time homebuyers, there are programs available depending on your income and state. For example, Guidance Residential has an ongoing partnership with Freddie Mac to promote homeownership by offering credits. These programs typically require you to take a first-time homebuyer education class. It’s worth the time spent to learn, plus you get credit towards your down payment.
Work Toward Your Dream
As you can see, it is truly possible to save for a down payment while renting. Remember, the journey to homeownership is a marathon, not a sprint, and every small step you take is a step closer to your dream home. But you may be able to move into your own home sooner than you think.
The question is—what are you waiting for? Apply the tips outlined above, and start putting money aside today so you can realize your dream of homeownership. To get a preliminary estimate of how much home you will be able to afford, check out our free online home finance calculators.
Ready to Take the Next Step?
Buying a home is one of the most important decisions you will make. The team at Guidance Residential is here for you, from the first step of pre-qualification or pre-approval, on through to finding the right real estate professional for you and your family — or refinancing a home you already own. We invite you to explore the home buying process with Guidance Residential today. You can also instantly calculate an estimate specific to your personal situation with our finance calculators online.
Guidance Residential remains the #1 U.S. Islamic home financing provider, with more than 40,000 families assisted over more than 20 years. Learn more about our co-ownership model of Islamic home financing, and get started on your home finance journey today.
Your Guidance Residential Account Executive is here to help with any questions. Looking to refinance or purchase? Have a friend or family member who is looking for a home? Call 1.866.Guidance, or start an application today.
Originally published August 2020, updated October 2024.
