Step One: Research options for loans
Research done in the UK showed that 80% of people would prefer to buy a house than to rent it. But, the same percentage of those under thirty needed help from their parents to get the deposit and money to get onto the housing ladder.
A 20% deposit on a first home is common, which means saving up $30,000 or even more depending on where you live and how much the house is you’re eying.
There are several options to supplement your income to reach this daunting amount. The first is to go the ‘bank of mom and dad’. They may be able to provide a loan, either formally with the mortgage supervisor, or more informal. The may also be the guarantor which means that they will pay the loan repayments if you can’t.
Another option is to buy with family or friends. By splitting a deposit between several people the amount you need to save becomes far more manageable. The only issue is to think about how it will work if one of the buyers want to sell their part of the house, as this can become difficult if not worked out in advance.
You may also consider a shared ownership scheme. In the UK, if you rent and have an income below £80k (£90k in London) you may be eligible to buy a part of a house and then rent what is remaining. This lowers how much upfront deposit you need and decreases mortgage payments. In the US it’s called sub-renting or sub-letting.
You can also look at Help to Buy schemes. These are generally on a new-build house and mean that you generally only need a smaller 5% deposit and then the government puts out the rest of the upfront deposit – generally up to 20%. This loan is free for 5 years and then you need to pay additional fees after that.
Step Two: Figure out how much you can afford to save each month
You can use a savings calculator like this one to help: https://www.moneyadviceservice.org.uk/en/tools/savings-calculator
When you have decided how much deposit you need, you can figure out how much to need to save and how long it will take for you to get there.
Putting a little away each month is generally more effective than random chunks of money. Take your monthly wage, calculate how much you can afford to live on each month after rent and bills and then start putting that amount away each month.
For example, if you look for homes in San Diego, and want to save $10k you will need to put away $265 each month for 3 years.
Step Three: Start Now
Even if the amount you can save is low, it is better to start now than to wait. Even over five years, smaller savings each month can mount up. If you get additional income, make sure to stash it away quickly! This stops you from wasting your money and these extra payments add up.
A good method is to set up a separate savings account that isn’t easy to access. This will stop the temptation of using that money for something else.