How to save for a house while renting | Saving for first home

Are you a first time home buyer? Are you renting? Are you struggling to find ways to save for a downpayment on your home?  Today, I will discuss on different ways to save for DOWNPAYMENT. I will also point out the advantages and disadvantages.  So Let’s start right now.

Hi Jennifer Yoingco of Texas Home Group.  If you are new to my channel, I post all things real estate, neighborhood tours and tips that I see beneficial even if it is not all about real estate.

Watch till the end of the video as I will provide you my free home buying calculator that you can use, so  you can play around with the figures, so stay tuned.

On to our topic.

Are you aware that 20% down payment is a thing of the past? Majority of consumers overestimate and think that they need 20% in order to buy a house. There are several loan programs that offers as low as 3% or 3.5%.

The first step is to figure out how much you can afford?  Let’s say you are renting and can afford $1500/month, we can safely assume that you can afford a $1500/month mortgage, because you are already paying for the lease at that price.  You can start with this amount as your baseline. And from there work your way up.   There are several online calculators that you can use in order to gauge the sales price of the home based on the monthly mortgage.  If you do not know how to go about this, call your Realtor or Real estate agent to provide you a calculator tool.  Since agents pay a lot for these tools, you can take advantage of using them for free.

How to save for a House while renting or saving for first home.

• Pay down your credit card with the highest interest rate. I know this is counter intuitive because you need the money for your downpayment and why pay the credit card right?  The reason behind this if you pay down the credit card, you will have more money set aside for your downpayment.  It will also improve your chances of qualifying on a loan because it will boost your credit score and lower your debt to income ratio.
• Pay yourself first – what do I mean by this, if you have a raise or a tax refund, consider it gone. I mean automatically transfer all of the money to an interest bearing account like a savings account or where you plan to put all your monies for the down payment on the house.   If you don’t set this up automatically, then you will end up spending it for things that are not really necessary. Sometimes, all it takes is to change your lifestyle. Example if you buy coffee at starbucks every single day or go to a nail salon, maybe you can skip a month or two and use that extra money to save for a home.
• Get a roommate or consider renting out your apartment AIRBNB when you are traveling and most of the time out of your apartment. (take note, the drawback for this is that landlord should be aware of this arrangement and an approval should be given by the landlord prior to engaging in these type of leases). Not all landlords are acceptable to this type of arrangement, but there is no harm in asking.
• Get a second job or a side gig – examples of a second job is driving an uber, doordash, pizza delivery, working at retail, video editing, mystery shopper, baby sitting, pet sitting, cleaning homes, tutoring and more.
• Shop for auto or rental insurance. Insurance increases yearly even for home insurance so better to shop around to get an affordable one.  Ask your home insurance agent for more information.  If you don’t have an insurance contact, let me know and I will be happy to refer one to you.
• Drop the cable TV. Honestly, when is the last time….NEVER…I have not subscribed to any cable even now I have a home.  Netflix or Amazon Prime will do the trick.
• Automate your savings – this is related to my number 2 bullet point of paying yourself first. If you are not disciplined on doing this, there are apps that can help you.  Have you heard of DIGIT? Before it used to be a free app, now they have a free 30 day trial and after which you pay $5/month.  Try it first to see if it is right for you. What it does, it links to your checking account and analyzes your income and spending habits and the system figures out how much you can set aside in savings and it automatically puts that money into savings for you.  You are in control here, you can add more if you want.  I like it because we are not in the habit of paying ourselves and the system will do it for us. All the while, not noticing, you have saved for the month. It is a great tool.
• Credit card rewards – I know they said it takes money to borrow money and one is the credit card. Actually, it is a double edged sword.  I use it to my advantage, which is REWARDS.  If only I monitored all the credit rewards I reaped all through the years, you have been amazed.  I redeemed $1 even to the cents, all the way to $250 dollars.  The figures are not cumulative, it is every time I pay a credit card debt, I redeem the rewards.  I use the credit card like cash, meaning, I do not use it just to use it.  If I need to buy something, I treat it as cash but use my credit.  Meaning I have the funds for it saved and not buy impulsively.  Again, lifestyle change.  This helped me a lot reach my goal of 800 plus credit score.  The highest credit score to date I have received is 850. The lowest is 790s….still good right? Hopefully it stays that way.  It really takes discipline.
• Ask your mortgage lender if they have low down payment options available for first time home buyers. If you do not know any lenders, reach out to me and I can share you my network of preferred lenders.

Example of zero to low down payment loans  are

VA loans (if you are a veteran), USDA loans backed by Dept of Agriculture, FHA loans backed by Federal Housing Administration and conventional loans.

The only disadvantage of paying 3% or 3.5% as opposed to 20% is paying the mortgage insurance.  This is required on ALL FHA and conventional loans. Mortgage insurance protects the lender is case of default.  So it is more to the lenders advantage than to the buyer.

• STATE OR LOCAL DOWN PAYMENT ASSISTANCE – this is very helpful especially for first time home buyers who are not able to save enough money for down payment or their money is only enough to cover closing costs. The only drawback here are income, maximum sales price and geographic eligibility, plus you need to attend a first time home buyer seminar or classes.  Usually they have this class online, so it will not be a hassle and that you may need to pass an exam. The class will help prepare you for successful ownership.
• Gift funds from family – lenders will allow this as long it is coming from a relative. They will need documentation to satisfy mortgage lending requirements.
• Crowdfunding -have you heard of this? Example FeatherTheNest.com and HomeFundIt.com let you build an online profile and raise money for a down payment. I will include links in my description below.

https://featherthenest.com/about

• Lastly, pulling from your retirement like 401K, IRA. There are certain rules and tax consequences for pulling it early.  Make sure to contact your financial advisor for more information, but it can be done.  Example, when I called Fidelity to ask how much to pay if I loan $50,000 from my 401k, the agent said, for 15 years to pay that will be about $190 per paycheck. Again ask your financial advisor, every case is different.

I hope this video has given you ideas and tips on how to save for a house while renting. Be sure to hit the subscribe, like button and feel free to comment with your questions.  As promised, I have included a link to my FREE HOME BUYER’S  CALCULATOR TOOL.  All you need is to scroll down in my description below.  This is Jennifer Yoingco, you are my priority for anything real estate. Serving Houston, Tomball, Spring and the surrounding cities.  I will see you in my next video. Bye.