- Don’t Be Late on your Credit Card Payments or Charge Excessively: You need to show your stability with managing money responsibly.
- Don’t Apply for a New Credit Card: Unless your mortgage lender has advised you that this is a good idea to build up your credit, then avoid applying for any new credit cards. Looking for new credit translates into higher risks for lenders.
- Don’t Purchase a New Car: Or any other form of transportation that you’ll have to finance. This will increase your debt-to-income ratio, which is not anything that loan officers want to see.
- Don’t Change Your Job: Do not go looking for a new job during this time. Even if you’re bored at your current job, or tempted by possible pay increases from a different career path, it’s best to keep your current employment situation going during this time. This demonstrations to lenders your stability- Which means you will be less likely to default on the loan.
- Don’t Change Banks: As with your employment, you want your banking history to show stability.
- Don’t Spend Your Money for Closing Costs: You’ll likely be responsible for part of the closing costs associated with a property transaction. Make sure you have enough to pay for your share of the obligation.
- Don’t Close Credit Card Accounts: It may seem like a good idea to close one of your lines of credit after completely paying off the balance, but this is not a good idea. Closing out the credit card wipes that information away- meaning that your loan officer will not be able to take into consideration the fact that you made payments and completely paid off that card.
- Don’t Purchase Furniture on Credit: I know it’s exciting to start picking out fresh furnishings that will go perfectly in your new home, but WAIT! Like a new car, financing large ticket-items will only increase your debt-to-income ratio, and now is not the time.
- While it may seem tempting to go out and spend a bunch of money on that new TV, a fancy new couch, or furniture, your best bet is to keep that money in hand. Avoid buying a bunch of new things until you close the deal on the house itself.
- Don’t Make Large or Cash Deposits into your Bank Account: Lenders like to see that the money for you down payment is “seasoned”, meaning it has been in your account for at least two months. It doesn’t necessarily look good when funds just appear all of a sudden.
- Don’t Co-sign a loan for Anyone: Even if you’re not the person making the payments, it will still increase your debt-to-income ratio. And as we’ve learned, that’s not what lenders like to see.
Are you currently renting, but dream of one day owning your own home? Then you know that one of the most crucial first steps to making this dream a reality is to start saving up money. Unfortunately, there’s a little thing called “life” that can sometimes get in the way. Bills add up, debt may be a constant shadow making it harder for you to save up, and let’s face it, sometimes a fun night out can help to empty your wallet.
With all of these to consider, on top of paying monthly rent with no equity to show for it, it is a lot easier said than done with it comes to saving up to purchase a house. The key here is to budget and find the perfect balance of paying your rent while saving up money for a down payment at the same time.
Keep in mind that saving up 20% of the purchase price is not an obligation for most financing terms. You may also qualify one of the many Down Payment Assistance programs out there. Here are some tips to help you out if you are in this predicament:
- Budget: It’s always important to budget, but it’s especially crucial if you are struggling to pay rent and bills, while trying to save at the same time. Luckily, this day and age, we are fortunate to have technology on our side. There are many cheap and/or free budgeting apps out there. Fudget, LearnVest, and Dollarbird at just a few to name.
- Find Extra Cash Online: The internet has opened up a vast array of different opportunities for you to find gigs to earn that extra cash. Maybe dog-walking? There are small online companies you can register with that will set you up with pooches and their owners. Good at arts and crafts? Sell on websites like Fiverr and Etsy. Try freelance writing for different websites that need articles and that will pay you for it. Even get paid to complete surveys online. The opportunities are endless!
- Don’t Be Late On Payments–Use Auto Pay: To make sure that you don’t end up with late fees, interest, and dings on your credit score, make sure that you make all of your payments on time. Signing up for an auto pay system can help you with this.
- Down Payment Saving: Make sure that you always stash away money each paycheck to save up specifically for your down payment. This is obvious, but one thing that most people don’t do that they SHOULD do, is treat your down payment just as you would any other bill–treat it the same as rent, electric, your phone bill, etc. Putting this money in a separate savings account can be very helpful.
- Don’t Touch Your Savings: One way to help out with saving up for that down payment is to make your savings account “hard” or inconvenient for you to access. It’s easy to do this by putting your extra money into an account that does not offer you an ATM card for it. Additionally, you should use a bank account that requires you to pull out withdrawals only in person. It’s less convenient than a normal savings account, which may encourage you not to touch it next time you see that brand-new TV or pair of jeans on sale.
- Get Out of Debt: This is one of the most crucial things you can do; get yourself out of debt. If you’ve got some debt that needs to be paid off, like a credit card, it is important to pay it all off ASAP. This will help to bring your credit score back up, which is also an impacting factor for how much your potential future down payment will be. It will also be one less thing that is sucking the money out of your bank account with all that interest tacked on.
These are just a few tips for saving up to buy a house while you are renting. Apply them to your life and you will be surprised to see how fast you can meet your goals and finally be able to purchase your dream home!