How Can You Save for a House While Renting?

Jennifer Wills

Aug 4

2 min read

Saving for a house while renting can be challenging. Increasing rent costs, along with other living expenses, can make setting aside a home down payment difficult.

Fortunately, you can take steps to save for a house while renting. The following guidelines can help.

1. Improve Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is the sum of your monthly debt payments divided by your monthly gross income. Although 25% or less is best, you might secure a mortgage with a 30% DTI ratio.

Reducing your monthly payments improves your DTI ratio. A lower ratio increases your odds of securing a favorable mortgage interest rate.

Focus on paying off your smallest debt first. Then, when it’s paid off, move on to your next smallest debt. Continuing the process significantly improves your DTI ratio.

2. Elevate Your Credit Score

Work toward an above-average credit score of 700-750 or higher:

Make your credit card and loan payments on time. Late fees decrease your savings capability and lower your credit score.
Use 30% or less of your allotted credit. Taking on additional debt lowers your credit score.

A higher credit score increases the odds of securing a favorable mortgage interest rate and putting down less than 20% on a home.

3. Increase Your Income

Create additional cash flow dedicated to purchasing a home. For instance, take on temporary roles, a part-time job, or contract work. Then, open a dedicated savings account and set up automatic deposits to gather a down payment for a home.

4. Decrease Your Rent Expenses

Consider the following options to decrease your rent expenses:

Find a roommate.
Downsize your apartment.
Move to an area with a lower cost of living.
Live with relatives who charge little or no rent.

Reducing your expenses frees up money for a down payment on a home. Set aside the money you save to reach your goal of homeownership.

5. Implement a Savings Plan

Improving your credit score, increasing your income, and decreasing your rent expenses change your financial dynamic. Optimizing your financial stability creates a strong foundation to achieve your goal of homeownership. These steps help create a clearer picture of how to structure your savings plan for a home down payment:

If you increase your credit score, you might need less than a 20% down payment to secure a mortgage.
If you reduce your rent costs, you can pay off debts and boost your DTI ratio.
When you have the numbers mortgage lenders prioritize, you can decide how much to put toward your down payment monthly.

*This information is for educational purposes only.

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