How to Save for a Home When All Your Money Is Going Toward Rent

Renters everywhere are feeling the constraints of rising rents. Higher rents erode your ability to save the cash you need to buy a home. Your living situation becomes a Catch-22: the longer you rent, the bigger percentage of your discretionary income you may need to save to offset rent increases.

Saving up to buy a home is no easy feat. You typically need at least a minimum of $20,000 to cover a down payment plus closing costs. That’s because you’ll need at least a 3.5% down payment to qualify for a mortgage and closing costs can be around $7,000 to $10,000 (about 2% to 3% of the purchase price). This goes without saying, but the higher the home price, the more funds you will need for the down payment.

(Keep in mind, you’ll also need a good credit score to qualify for the best mortgage rates. You can get your credit ready to buy a home by checking your free annual credit reports at AnnualCreditReport.com and looking at your credit scores for free each month on Credit.com.)

Picture this scenario: you’re diligently putting away at least 15% of your gross monthly income to buy a home in the near future. If your income is $8,333 per month ($100,000 a year) either from you or a spouse or combined, you would be saving $15,000 per year (or $1,250 a month) to meet that 15% mark.

Savings tip: A 15% home savings rate is a figure you may want to aim for if you make at least $60,000 a year and are looking to buy a house within the next two years. In some markets, however, your savings rate may need to be higher to be consistent with the cost of living in that area.

As demand for housing remains strong, monthly rents are subject to change commensurate with what the market will bear. Let’s say your rent payment is $2,200 per month now, but rises to $2,500 due to housing market changes. You would need to find a way to recover the $300 increase if that money was formerly going into your savings fund. How do you do it?

How to keep rent increases from ruining your plan

Taking no action and using the money you would be saving for a home to cover the higher rent payment will lengthen your home-buying trajectory as your savings rate diminishes. With the rent now at $2,500 and your annual income still at $100,000, your savings rate, as a consequence of losing that $300, falls to 11.4% a year.

You may still get you a home, but will perhaps have to look for one in a lower price range or a different neighborhood. Alternately, you can lengthen your timeframe for making your purchase. You can also cut expenses to offset the rent increase. Here are a few ways to possibly do so:

1. Cut an expense equal to the rent increase. Sounds obvious, but if you can find another spending area to cut back on (Daily Starbucks? A rarely used gym membership? Online shopping?) rather than diverting the home savings to cover your higher rent, you’ll be able to stay on track.
2. Look for a new place with a lower rental obligation. The process might be difficult, but could be worth it for the greater good of buying a home in the near future.
3. Move in with family to aggressively save for your new house. Going from $2,200 a month in rent to $0 can super-accelerate your home-buying timeline.
4. Get a roommate to help pay the rent and offset the increase.
5. Lock in your rental amount with a lease, keeping in mind that a lease binds you to the property. This contract, however, might not be such a bad thing if the term of the lease is consistent with your savings and home-buying plan.
6. Consider buying a home sooner, if you’re financially able to do so. Many 401(k) and retirement fund accounts allow for special privilege borrowing provisions to buy a primary residence. If you have a slush fund in your 401(k), this could be a good option and the money comes out of your paycheckpre-tax.
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   This article was written by Scott Sheldon and originally published on Credit.com.

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14 Foolproof Ways to Lower Your Living Expenses

We've all been there. Can't resist the new model year of your current car. Hey, it's only an extra $90 per month (plus an insurance bump of $37 a month, but who's counting?). Seduced by the cushy sectional that would pull the whole living room together and will only cost $60 per month. That great deal for upgraded Internet and all the move channels. What's another $23 a month?

Problem is, before you know it you're sinking in bills and your monthly payments have become a burden. Here are 14 ways to lower your monthly nut and get back to stress-free living.

1. Renegotiate everything

That means cable/satellite, phone and cell phone contracts, Internet service, bank fees, even your gym membership. You never know what's possible until you ask.

2. Lower your credit card rate

If you have decent credit, you might be able get your credit card company to lower your rate and/or maybe get rid of some of the fees. Transferring a balance to a card with a lower rate is another good trick for lowering payments and doesn't even require you to ask a representative for anything.

"If you don't have an account with a lower rate, shop for one," said CreditCards.com. "Also, see if an offer for a balance transfer might provide a lower rate. Before jumping at a balance transfer offer, though, run the numbers on a balance transfer calculator to make sure the deal makes sense after you consider the fees and the duration of the teaser rate."

3. Cut the cord

You could opt to get rid of your cable or satellite altogether and use streaming services instead. It's a growing option that can save you a good amount of money while still providing a wide variety of viewing options. For example: "Netflix and Hulu Plus both cost $7.99 per month each, while Amazon Instant Video will cost you $99 per year, which is $8.25 per month," said GottaBe Mobile. "This means the total cost for these three services all together would be $24.23 per month, which is a lot less than you'll ever pay for a cable subscription."

GIZMODO

How does that compare with your current bill? It's about one-sixth of what we're currently paying. Calling DISH in 3...2...1...

You can get more info about cutting the cord here.

4. Refinance your house

If you have enough equity in your house and rates have dropped since you bought (or refinanced the last time), you might be able to refi and lower your monthly payment. Remember that refinancing will add to what you owe, so if you were trying to pay your home off quickly, this would be counterintuitive.

5. Refinance your car

Refinancing your car could save you "hundreds of dollars each year and sometimes thousands over the life of the loan," said Bankrate. But only if you do it under the right circumstances. Check out their "5 situations when it makes the most sense to refinance your car" to see if you meet the criteria.

Drive Sure

6. Do a leak check

A leaky home is one you're paying too much for in heating and cooling bills. Do an energy audit to check for drafts coming in through window or under doors, among other places, and you could save more than $1,000, said RH Foster Energy.

7. Eat in

Or, at least bring your lunch to work a few days a week. According to Jeff Yeager, author of "The Cheapskate Next Door, a family that commits to eating at home can save $3,000 in one year and eat just as well," said ABC News.

8. Carpool

"The Daily Green calculated that the average American uses about 7 gallons of gas per week commuting to and from work," said abc News. "Share your ride and the gas bill with just one friend, you each save $650 a year. If four of you carpool, you each save nearly $1,000."

9. Shop smart

One of the greatest sources of waste in our household? Food that has to be throw away at the end of the week because it's gone bad. And we're not alone. USA Today says Americans trash $640 worth of food every year.

Nourishing the Planet

Meal plan, buy only what you need for a few days and hit the market again mid week, use coupons, freeze leftovers - all of these tips will help.

10. Check your balance

Hidden costs may be lurking - memberships you didn't realize you still had, anything you put on autopay that you're no longer using, old dating sites, gaming and iTunes charges you're unaware your kids are making. Look over your bank and credit card balances carefully to eliminate the riffraff.

11. Buy store brands

Some might be close to or equal to the name brand stuff you're buying. "Store brands often cost 25 to 30 percent less than name brand equivalents, which is an added benefit for customers," said CheatSheet. They can help you figure out which store brands are worth it, and when you should stick to the name brand.

12. Pay insurance and other bulk payments in full

Yes, coming up with large chunks of cash to pay for car insurance, home insurance, and home warranties can be rough. But some of these may end up costing you more if you have to pay a "convenience fee" for splitting up the payments.

13. Clear out the clutter

You know what they say: One man's trash is another man's treasure. Do a sweep of your home, setting aside anything you don't need or want anymore. Whether you list it on eBay or Craigslist, have a yard sale, take any acceptable items to a resale store, or all of the above, you may be surprised at how much money you can make for stuff you didn't even like anymore.

14. Donate!

You won't get paid for donating your old clothes, household items, and the like, but you will get a tax write-off at tax time. Be sure to get or complete an itemized receipt.

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Is Your Payment History Hurting Your Credit Score?

Missing one bill payment might not seem like a big deal.  That is until that payment blemish causes a lender to rethink your loan's terms - or even your overall eligibility.

Being a forgetful bill payer is a big deal to lenders & credit bureaus.  And if you continually skip payments, you can seriously bruise your financial future.

Your Credit Score

How you've paid your bills in past accounts for 35% of your FICO credit score.  Typically, creditors don't report a payment as late until you're 30 or more days past due.  However, some lenders report earlier - as soon as one day past the deadline.  Even one missed payment can have a negative effect on your credit score.

If you're late with more than one creditor or your bills are not paid for more than a month, your credit will take a serious hit.  Multiple late payments will be reported multiple times, while severely late payments - 60 days or more - count more heavily than payments made within 30 days of due date.

Late payments will remain on your credit history for seven years.

Collection Amounts

If your accounts go unpaid, they may be sent to a collections department, causing serious damage to your credit score.

Typically, accounts are sent to collections if they're unpaid for 90 days or longer - though some creditors may turn accounts over sooner or later.  When this happens, the original creditor actually sells the debt over to a collection agency, which in turn tries to collect from you.  When your account is turned over, the original account will be reported as "charged off/unpaid."  You'll also get a second serious black mark on your credit history when the collection agency files a report about the debt.  These reports will stay on your credit history for seven years.

Apply for a Mortgage

If you're applying for a mortgage, having late payments & collection accounts could be harmful.  Mortgage lenders look more closely at your credit history than other lenders (a process known as underwriting).  With a history of late payments, you likely won't qualify for a lender's best rates or terms.  Unpaid collection accounts may cause your application to be denied alltogether.

Improving your Score

If you only have one late payment, talk to your creditor.  Many creditors are willing to forgo reporting a single late payment, or remove the report, if you have a history of paying on time.

If you've missed more than one payment, time & determination are your best tools for improving your credit score.  Making a late payment or having an account sent to collections will have the greatest impact on your credit score as soon as it is reported.  As time passes, the impact on your credit score will lessen.

Meanwhile, keep building up positive history by paying every bill on time, which will help counteract past problems & improve your credit score.



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