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How to save a down payment for a house while renting?

Today, most mortgage programs require a minimum down payment between 3% and 5%. So if you’re thinking about buying a $400,000 house, be prepared to spend between $12,000 and $20,000 for a down payment – and this doesn’t even include closing costs! 

Housing is likely your biggest monthly expense, accounting for 30% of your income (on average). With most of your money going toward keeping a roof over your head, saving up to buy a home can seem impossible. But it’s not.

It might take a few years to drum up the cash. But the right strategy (along with discipline and patience) puts you one step closer to ownership. Here’s a look at seven ways to save for a house while renting.

1. Pay off credit card debt

If you have credit card debt, or any debt, come up with a plan to pay off some (or all) of your balances. Now, you don’t have to be debt-free to buy or save up for a house. But paying off debt can free up money for building a down payment fund faster. 

Plus, paying off debt can increase your credit score. This helps you qualify for a lower mortgage rate, which saves money in the long run. 

To get started, contact your creditors and negotiate a lower interest rate. Next, increase your monthly payments. With a lower rate, more of your monthly payment will go toward reducing the principal balance. Most importantly, stop using credit cards and pay cash for everything. If you use a credit card, pay off the balance in full every month.

Here are a few other strategies to help pay off your debt faster.

2. Set up a mortgage down payment fund

Keep the money you’re saving to buy a house separate from your emergency fund. If you haven’t already, open a new account and name this account “down payment fund.”

Naming your savings account after a specific goal helps you stick with the savings plan. You’re reminded of your goal each time you check the account. And with visual reminders, you’re more likely to make better decisions with your money. 

Also, consider opening an online high-yield savings account for your down payment fund. This approach works for two reasons. Your money is less accessible in an online bank, so you’re less likely to take needless withdrawals. And two, online savings accounts earn a higher interest rate, giving you a higher return on your money.

3. Save your tax refunds

If you receive a large sum of money throughout the year, maybe a tax refund or a work bonus, fight the urge to spend this money frivolously. 

Instead, deposit the entire amount (if possible) into your down payment fund. Windfalls can give your account a much needed boost, helping you hit your savings goal faster.

4. Earn extra income to save for a house

You can also save money for a house while renting by earning extra income. Talk to your employer about overtime hours, consider getting a part-time job a few days a week, or turn a hobby into a business. 

Seriously consider a side hustle that’s also your own business. Even though it takes time to get a small business off the ground, you could potentially earn more as your own boss (even after taxes and expenses) compared to working a second job. 

Whether you receive extra money from overtime pay, a part-time job, or a side hustle, deposit 100% of this income (minus anything owed for taxes) into your down payment fund. 

This is exactly what I did when I started freelance writing. I deposited all money earned from a particular client directly into my savings account. Since the funds weren’t tied to my debit card, it was easier to save.

If you’re able to earn $150 a week with additional work, that’s $600 a month or $7,200 a year.

5. Get a roommate to save for a house while renting

It also helps to cut your housing expense by getting a roommate and splitting the rent and utilities. This also works if you have a spare room – maybe a room over the garage or a basement apartment. 

The extra money received from a roommate or tenant can beef up your down payment savings account, making it easier to save for a house while renting

6. Downsize before you buy

Additionally, consider downsizing before you actually buy a house. And yes, I know moving sucks.

But if you’re living in a place with high rent, saving money for a down payment can be an uphill battle. On the other hand, moving into something smaller (or maybe something older) can potentially save hundreds a month. 

Ask your parents, siblings, or grandparents to let you move in on a temporary basis. What you pay in rent will probably be less than living on your own.

7. Cut back on expenses to save for a house

And of course, it always helps to reduce other living expenses. There’s a lot of flexibility with variable expenses, so work to eliminate or cut back in these areas. This can include getting rid of cable, canceling a few subscription services, getting rid of a gym membership, eating out less, reducing your weekly grocery bill by $15, only shopping when you need something, shopping at secondhand stores, etc. 

These moves might seem insignificant, but the savings will add up. In which case, saving up for a house while renting becomes a little easier.