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How to finally get out of your rental once and for all

Buying a home can be a stronger investment, but it requires commitment. Here’s how to save for a down payment and what you can do if you’re struggling to qualify for a conventional loan.

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Jenny Rose Spaudo

9/19/2022 · 3 min read

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Key takeaways:

  • Owning a home can be a better investment than renting.

  • To save for a down payment, it may help to try increasing your net income and cutting back on expenses.

  • If your savings or credit score are too low for a conventional loan, there may be other ways to pursue homeownership.

Sick of renting? Here’s why buying a home may be a better investment in the long run — and how to work toward making it a reality.

Why buying can be better than renting

Every person’s situation and needs are unique, but in general, buying tends to be a better investment than renting for a few reasons.

First, depending on where you live, a mortgage payment may be less expensive than renting. Also, rental rates may increase steadily, while fixed-interest mortgage payments may only fluctuate slightly over the years.

And, when you buy a home, your mortgage payments slowly increase your percentage of ownership — also known as home equity. (Your equity can also increase if your home's value appreciates over the years.) Your rent payments, on the other hand, typically increase your landlord’s equity.

How to save money for a down payment

If you’ve decided to pursue homeownership, you’ll need to save for a down payment, among other expenses. Here are several ways you may be able to put extra money toward your future home:

  • Request a raise at work or pursue a higher-paying position.

  • Start a side hustle to earn extra income.

  • Ask your landlord if you can add roommate(s) and divide the rent.

  • Ask your landlord for a discount in exchange for paying rent a few months in advance.

  • Cut back on discretionary expenses such as dining out, specialty coffees, subscriptions, movies, and other entertainment.

  • Consider a staycation this year instead of traveling to an expensive destination.

  • Buy your clothes and shoes at discount or consignment shops.

  • Walk or bike to places near your home instead of driving.

  • Shop around for less expensive insurance plans and cell phone service.

Overcoming hurdles to homeownership

Despite the increases in housing prices over the last few years and mortgage interest rates that are currently high, homeownership may still be an attainable dream. But what if you can’t save enough for a down payment or your credit score has taken a hit? You may have other options.

Down payment assistance programs

There are thousands of local and federal down payment assistance programs available. If you qualify, these programs can help you fund a down payment through a low-interest loan or a grant. You may want to ask your real estate agent for information about down payment assistance programs in your area.

Alternative loan options

Many conventional loans may require a minimum credit score of 620 and a down payment of at least 5% of the home’s purchase price (or 20% if you want to avoid private mortgage insurance).

However, as popular as they are, conventional loans may not be your only option. Certain loan alternatives allow qualified borrowers to obtain a mortgage with a lower down payment or credit score.

FHA loan: some Federal Housing Authority (FHA) loans only require a 3.5% down payment and a minimum credit score of 580.

VA loan: funded by the US Department of Veteran Affairs (VA), these loans are reserved for active or retired military members and their spouses. Many VA loans don’t have minimum down payment requirements.

USDA loan: backed by the US Department of Agriculture (USDA), these loans are available to low- to moderate-income families in certain rural areas. Most USDA lenders don’t have a down payment minimum.

This content is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.

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Jenny Rose SpaudoAuthor

Jenny Rose Spaudo is a freelance copywriter and content strategist specializing in real estate, finance, and tech. She's written for clients like Edward Jones, AAA, Flyhomes, PropStream, and Guild Education, and her writing has appeared in Business Insider, GOBankingRates, Yahoo! Finance, AOL, and more. When she's not tapping away at her keyboard, she's busy enjoying time with her husband and family, volunteering at her local church, or listening to real estate podcasts.

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Jena GreeneEditor

Jena Greene is the Managing Editor at Opendoor. She covers real estate, personal finance, money management, and market best practices. Jena is passionate about empowering people to find their dream homes and making the home-buying process a delightful one.