Money in a jar

It can seem nearly impossible to save for a house when a large portion of your income goes toward rent. But the truth is you can save for a down payment without having to make major changes to your lifestyle—all it takes is a savings plan and a little bit of discipline. If you’re ready to get out of your apartment or rental home, here are some ways you can save money for your dream house.

1. Determine what you can afford

According to studies conducted by Harvard University, the total cost of your rent plus expenses should be about 30 percent of your total gross income. With this in mind, it’s a good idea to make a budget so you can determine how much you can afford to borrow. A mortgage calculator will help you get some figures.

Once you’ve determined how much you can afford, it’s time to start saving. In general, most real estate experts recommend that you save about 10 percent or more of your paycheck for a down payment. You should also budget an extra two or three percent of the total house price for other costs such as legal fees, unexpected repairs, and closing costs.

2. Reduce your monthly expenses

This may seem obvious, but the quickest way to save for a house is to get rid of unnecessary expenses. Perhaps you can cancel your expensive gym membership and go to the health club provided by your apartment instead. Or you could also ask a family member or someone you trust to move into your place so you don’t have to cover the cost of rent, utilities, and other living expenses all on your own.

To help you save for a house, here a few other tips:

3. Invest your money or open a high-interest savings account

Investing in stocks or money market funds is another great way to save money for a home. As a long-term savings plan, this option is best suited for renters who are looking to buy a home in a few years. Of course, investing is subject to market conditions, and some experts say you should only put a portion of your savings into these funds.

“You have to understand the risk associated with that,” says Scott Halliwell, a financial planner with USAA. “There’s no guarantee you’re going to make money, especially in shorter time frames.”

Opening an interest-bearing account is another way to start saving while you’re still renting. With these accounts, you can set money aside without being tempted to use it on everyday purchases, and most banks can set up automatic payments so you never forget to deposit money into your savings account each month.

4. Rent-to-own

Instead of saving up to buy a home, some renters may be able to work out a rent-to-own contract. This allows a potential homebuyer who can’t afford a down payment to live in a home while making monthly “rent” payments, with a portion of it going toward the future purchase of the house.

According to Sam Tamkin, a real estate attorney in Chicago, a rent-to-own agreement is an important option worth considering, especially if your credit is less than perfect.

“You may be unable to qualify for a loan right now, but there are sellers who may be willing to consider renting to you with an option to purchase later.”

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