Taking the leap from renter to homeowner is exciting, but it's often harder than many anticipate. Even if the common hindrances of student loans and car payments aren’t weighing you down, the amount you pay in rent can make saving up for your down payment next to impossible.
In 2017, the national median for rent increased 2.4 percent for a one-bedroom apartment, reaching $1,040, according to a report by apartment listing site ABODO. The highest average rents for a one-bedroom apartment reported across the U.S. in 2017 were in San Francisco ($3,333), New York City ($2,811) and San Jose, California ($2,486).
With rent fluctuations varying by season, neighborhood and type of property, it may feel impossible to take control of the amount of rent you pay. But with a renewed focus on how to approach lease negotiations, apartment hunting and saving techniques, the process won’t feel so painful.
“It’s important to make that shift away from, ‘It’s going to be hard,’ and, ‘I’m not sure I can do it,’ to a fun process,” says Marlow Felton, a financial expert and co-author of “Couples Money” and “The Prosperity Factor” with her husband, Chris.
Here are six things you can do to change your rent and spending habits to reach your down payment goal faster.
Get a roommate. One way to cut your rent in half is to bring in a roommate to occupy your spare bedroom or den. Of course, if you live in a studio or already live with a significant other, adding another person to the mix may cut costs, but it could also cause space issues.
You should always follow the stipulations of your lease, as well as notify your landlord of your intent to bring a new tenant into the building. Your landlord has the right to vet any incoming tenant and deny him or her. You also want the roommate to be added to your lease so he or she can contact the property manager for maintenance issues, and so you can remove yourself from full liability of any damage the roommate may cause.
Negotiate your rental rate. When your lease is up, you have the opportunity to try to renegotiate the rent with your landlord. At least negotiating down an annual increase on the rent could be a helpful savings if rental rates have increased significantly in your neighborhood over the last year.
David Mele, president of real estate information site Homes.com, says you can make a lower rent more enticing for the landlord by offering to sign a contract for more than a year. “If a renter were to pursue a two-year lease, they’re then guaranteeing the tenant to the landlord for a longer period of time,” he says. Keep in mind, however, that breaking your lease before the two years are up could lead to fees, so don’t sign on for a lengthy period if you think you may need to move before then.
Another option is to look for an apartment in the off-season – during the colder months – because there are fewer people moving in the winter, “at a time when property managers are looking to fill vacancies and there aren’t as many moves taking place,” Mele says.
Opt for fewer amenities. If you’re looking to move to a new place with hopes of finding cheaper rent, rethink your expectations for amenities. An older walk-up unit with no pool, fitness center or concierge is likely going to be cheaper than the new luxury apartments with rooftop dog parks and in-house sommeliers being built now.
Make your savings a game. Forgoing discretionary spending doesn’t have to feel like a punishment to reach a distant goal. Felton recommends making every dollar you save feel like it carries more weight by separating it out and turning it into a game.
To do so, Felton recommends creating a separate savings account, preferably linked to your other accounts and with few or no fees. Then challenge yourself or your spouse to see how much money can go into the new account by cutting out various expenses.
Felton uses the example of daily lattes, which she equates to roughly $8 per day. “I can take that $8 and then put it into the account, and then I can see it and see that it’s going toward that goal,” she says.
Then rather carrying the mental weight of sacrificing lattes, it’s turned into a positive by putting the money toward your home purchase. Soon you’ll find yourself “looking for money to fill the account,” Felton says.
Move to a cheaper location. Median rents increased in 28 states and the District of Columbia last year, while they decreased in 21 states and remaining the same in one state. Of course, relocating purely for cheaper rent isn’t often feasible, but with some metro areas crossing state lines, examining less-expensive neighborhoods in a nearby state could be beneficial.
While median rent for a one-bedroom apartment increased in New York and New Jersey (to $1,595 and $1,259, respectively), Connecticut’s median rent decreased (to $1,158), and is also the cheapest option when looking at the statewide median, according to the ABODO report. If you can handle the longer commute, opting to live in Connecticut rather than Manhattan can help you accumulate that down payment savings faster.
If moving to a cheaper state isn’t an option, get savvy with your rental search. Mele recommends using the save search features on listing sites to get updates via email or app notifications when new places become available in your price range.
“You can save searches and then get alerts, and it’s really handy. That way, you know what the market rates are,” Mele says. “And then you can work in concentric circles outside of your target area – you might find that the rates go down.”
Track your net worth. Since a house is likely one of the biggest investments you’ll ever make, you should also take a wide-angle view of your financial situation. Felton says tracking your net worth on a regular basis – as much as weekly – can be a big help in achieving your goal.
Keep a spreadsheet of your current debt (student loans, car loan), assets (car, stocks) and spending. You should know if your current debt outweighs your assets, or if your spending keeps your worth stagnant, before you take on a mortgage and buy a house.
“Even if [they’re] just starting out and someone’s going from being a renter to a homeowner, they have to make that mental shift into thinking like a wealthy person and really being aware of that number,” Felton says. “If that net worth isn’t growing, that just means they’re spending too much or they’re not saving enough or they’re going into debt.”
Be ready for things to go wrong.
No one loves shelling out money for unexpected expenses, but sometimes that seems like a rite of passage in homeownership. “Most of the time, the unhappy surprises are simply due to people being unaware of the things that can crop up,” says Brad Hunter, chief economist for HomeAdvisor. First-time homebuyers in particular may not know what to expect after closing on a home, and there’s nothing worse than developing buyer’s remorse about one of the largest investments you’ll ever make. Here are eight headaches to prepare for if you’re looking to purchase a house.A suddenly less-than-desirable location
A suddenly less-than-desirable location
Buying a house across the street from a high school didn’t seem like such a bad idea when you saw how nicely renovated it was. But when you don’t have kids and Friday night football games are keeping you up later than you would like, you realize you should have made a pros-and-cons list regarding the location. Don’t let a charming interior override a location you dislike or a lot that will give you flooding problems. “If you don’t like your lot, don’t buy the house, because you cannot change that,” says Kim Wirtz, a Realtor for Century 21 Affiliated in Lockport, Illinois.A high monthly mortgage payment
A high monthly mortgage payment
One of the most crippling headaches to deal with is a monthly mortgage payment you find you can’t quite afford. Lysette Portales, a real estate agent with Century 21 Jim White & Associates in Treasure Island, Florida, says she stresses to clients that they should shop around for a mortgage with multiple lenders and inquire with each about different program options. “A lot of them might be able to do 100 percent [financing],” she says, noting that many homebuyers typically only know about a couple mortgage programs and settle for one without considering what would be most affordable option both now and down the line.Items that are on their last legs
Items that are on their last legs
Whether it's the roof, water heater or furnace, aging home systems will need replacement. And that may end up being sooner than you’d like, especially if you didn’t pay close attention to the age and condition of the roof, plumbing, electric and heating and cooling systems when your inspector pointed them out. HomeAdvisor’s 2015 New Homeowner Survey found that 75 percent of homeowners face an unexpected emergency within a year of purchase. To expect the unexpected, Hunter points to the survey’s recommendation that homeowners plan to spend 1 percent of the home’s purchase price on unplanned repairs. Maintaining at least that much in your emergency fund will help keep you from dipping into other savings from year to year.Old systems
It’s important to pay attention to a home's aging big-ticket items before you even make an offer. “A lot of homebuyers are distracted by how cute a home can be,” Portales says, adding that she makes it her job to point out the age of the roof, air conditioning unit, water heater and more to buyers. Then when it comes time to calculate an offer, you should factor in the cost of those pieces that will need immediate replacement when determining how much you think the home is worth.An air conditioner that's not the same
An air conditioner that's not the same
Wirtz says one of the things in a home that seems to always break or have issues within the first year of its purchase is the air conditioner. But it’s not always because it breaks down – she says it simply might not be as effective as the new homeowner wants it to be. “It may not be cooling like they’re used to,” Wirtz says. You can either learn to deal with a little less cooling, bring in an HVAC pro to inspect and fix any problems or research any DIY fixes that might get it cooling better – like air conditioner cleaning spray.Unseen leaks
Home inspectors aren’t able to see through walls, so the discovery of a pipe leak isn’t uncommon after you’ve moved into the home. But this is one repair you want to make as quickly as possible. “When there’s water that is not stopped, it can create mold – and mold remediation is extremely expensive and extremely difficult,” Hunter says. Mold growth in your home can cause serious health problems, so it’s imperative to address any moisture issues as quickly as possible to avoid it becoming any more dangerous, let alone more expensive.Surprise renovation expenses
Surprise renovation expenses
Fixer-uppers are all the rage these days, as many homebuyers are willing to take on renovation projects in exchange for a slightly lower price tag. But when budgeting for your renovations, leave plenty of room for the discovery of existing problems once your contractor looks behind the walls. The HomeAdvisor survey found 51 percent of homeowners spent more time on home projects than they expected. “Even if you have a fully vetted, well-reviewed contractor … they still might uncover issues that maybe a previous contractor left incomplete,” Hunter says. He recommends leaving around 10 percent extra space in your budget for surprise problems of any kind.Problems that pile up
Problems that pile up
All too often it feels like the problems in a home have a snowballing effect, but you don’t have to go broke tackling them all at once. “Day one, [homeowners] won’t have to tackle all those projects,” Hunter says. “They can use the list of items found by the home inspector as a checklist and prioritize the items on that list and create a budget.” You should immediately address those problems that create a health or safety issue, such as a broken step or leak in your roof that could lead to mold. But replacing an older dishwasher can wait until next year, when you have more room in your home repair budget.Read More
She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at firstname.lastname@example.org.
Devon Thorsby | June 5, 2019
Homeowners should not fret, as long as they're prepared for the possibility of a downturn.