While renting is often seen as a more financially-positive alternative to homeownership, many of us would still like to transition from tenant to owner in our lifetime. Variations of age, geographical position, and financial status often come into play when discussing renting versus homeownership, as well as the trends in the real estate market.
According to a Zoocasa Housing Trend Report from 2018 focused on Canada, 84% of millennials feel that owning a home is an important life milestone, and 90% of Baby Boomers see ownership as a key life accomplishment.
The top obstacles in the way of homeownership are the rising real estate prices, finding the right property, and saving up for a down payment. Luckily, there’s much you can do while renting that will help you achieve your goal of eventual homeownership. Here are 10 things to do right now that will help you buy a home later:
1. Expand your horizons
While scouring MLS listings and going over the options you have, you probably found that house prices can reach pretty high figures. It’s important to keep your mind open and be willing to compromise on location.
For instance, sold prices in Toronto may be considered steep— as they have been rising every year, the figures reached an average of $792,611 in August 2019. The same can be said about U.S.’s Southwest region, including Phoenix and Las Vegas, as well as the Southeast with Tampa and Charlotte, where home price gains are the highest in the nation. However, there are many other cities in the U.S. and Canada where property prices are far more reasonable. Maybe your future lies outside of where you’ve lived so far — don’t knock it until you’ve researched other cities, maybe even other countries.
2. Research mortgages and how they work
Applying for and getting financing is one of the more difficult and confusing aspects of homeownership. If you understand how mortgages work now, you can work on becoming a better borrower. This means keeping your debt obligations—like student loans and credit cards—to the minimum so that banks will feel more comfortable lending you larger amounts when the time is right.
3. Develop good saving habits
Saving up for a down payment is tough, but it’s easier if you have good savings habits. Every month, set up an automatic transfer for a certain amount of money from your paycheck right into a down payment savings fund. If you start with $500 a month you’ll have $30,000 in just five years. Increase or decrease the amount based on the sale prices in your area.
4. Be flexible
Perhaps a detached home isn’t for you, so start researching higher density options like condos and townhouses to see if they’d be a good fit. You can also check out different neighborhoods, cities, and living options. Homeownership is increasingly difficult so don’t get too attached to single-family living in a big city unless you’re confident you have the salary and savings to support it.
5. Go to open houses
Start spending Sunday afternoons once a month or so going to open houses. Get to know your likes and dislikes and what is actually available on the market. This is literally “market research” so that when you’re good and ready, you’ll actually know what’s out there.
6. Keep an eye on your credit score
As a renter, you should make a habit out of paying your rent as soon as you can. While you’re preparing and saving for a down payment, you should also work on your credit score. If you’re wondering what credit score you need when buying a home, keep in mind that lenders want to see it above 650 for the best rate. Pull your report and pinpoint any areas that can be improved upon, such as previously unpaid bills.
7. Create a vision board
Visualizing your dream home is important for understanding what you need from a house. A vision board will help keep you focused on your goal and inspired to work for it. However, you should prioritize needs over wants and understand that managing to buy a house sometimes comes with sacrifices.
8. Avoid buying expensive furniture
With all the tips about saving money and living frugal, you probably know that you don’t need expensive furniture now. There’s no sense in buying a $4,000 dining room table as a renter if you know you want to own, since it may not fit in the room. With constant moving, the value of furniture will decrease as well. You risk damaging it in the process and losing an important investment. It’s better to save major furniture purchases for the future.
9. Increase your income
Now would be the time to ask for a raise or switch careers. Without the obligation of a mortgage, you can take more risks. And since banks primarily look at employment income when deciding lending amounts, the more you earn the more they’ll want to lend to you.
10. Enjoy the renting lifestyle
And finally, don’t become so obsessed with homeownership that you forget to enjoy the tenant lifestyle. Enjoy not having to pay for maintenance and the ability to pick up and move without paying land transfer tax or realtor fees. The freedom of being a renter combined with careful planning and your mindset on saving will allow you to put aside money for a down payment faster than you would believe.