Everyone needs a place to live, but it doesn’t have to break the bank. This blog is all about efficient finance and frugal lifestyle, so we’re going to cover tips to save on housing costs now so you can have the home of your dreams later.
Most people rent while saving up to eventually buy, so we will look at that approach here.
How Much Should You Budget?
No more than 30% of your monthly income. If you’re spending more than that, you are living too far above your means.
Don’t over spend on renting like your peers so you can own the house of your dreams debt free later.
So what if there is no affordable housing for less than 30% of your monthly income? Maybe you’re looking at the wrong type of housing options. Consider the following.
Skip the granite countertops. At one apartment complex I looked at the rent was $200 less per month for an apartment that had not been upgraded with the granite countertops and hardwood floors. This was compared to another apartment with the same exact floor plan. Remember, you’re living more frugally today so you can achieve financial independence.
Get a roommate. Many apartments these days have floorplans they tout as “roommate” style meaning there are two bedrooms and two bathrooms with the shared living area and kitchen. While many people choose a friend to share an apartment with, it can often be better to choose someone who has similar financial goals. There are even websites to help you find and vet potential roommates.
Rent a room. There are plenty of homeowners who are looking to rent out just one room. Many of these even include utilities, cable, and internet. They often allow for shared use of a kitchen or may be in a basement area with their own kitchenette.
Stay at home. Yeah, it’s not glamourous. Some people are worried that others will judge them for still living at the parent’s basement, but the first step towards financial independence is not worrying about what anyone else thinks. In this case they may only charge you a nominal fee or just ask you to help out around the house. If you have the opportunity to save $1,000 or more a month in rent, it can go a long way towards owning your own home sooner than later.
Don’t Look For Your Forever Home. When searching for your first home, approach it with realistic expectations. You don’t have to live there forever. Look at its potential, rather than trying to spend too much on something that has everything you ever dreamed of! And if you’re not handy don’t worry. A starter home doesn’t have to be a fixer-upper. It might just be a small home or condo that you can afford now — with or without making some improvements.
Avoid the PMI. Before buying a home, you should ideally save enough money for a 20% down payment. If you can’t, you will be required to get private mortgage insurance (PMI). The purpose of the insurance is to protect the mortgage company if you default on the loan. This is wasted money that you could be saving, but instead you are giving away to “guarantee” your mortgate. The FHA also has a mortgage insurance premium requirement with somewhat different rules. The bottom line is, with a little delayed gratification and more saving, you will save yourself a lot of money. Click here to read 6 Reasons to Avoid PMI.
Don’t Pay Too Much. Even when buying a home, you should not pay more than 30% of your income in mortgage payments on a 15-year fixed rate mortgage. Otherwise you are buying more house than you can really afford and are setting yourself up for problems. Also going with a more traditional 30-year mortgage requires you to pay far too much interest. A $175,000, 30-year mortgage with a 4% interest rate will cost you $68,000 more over the life of the loan than a 15-year mortgage will.
Consider House Hacking. This is a term used to describe a way to live in your house, but have others help pay for it by renting out part of it. For example, you may have a duplex and rent one unit. Another option is a single family home with a basement apartment. If you wanted to get the most bang for your buck, you could rent out the home and live in the basement!
No matter what option you choose, first be sure that it fits within your budget and is in line with your financial goals. Click here to get started!