Stop Feeling Bad If You Don’t Save Every Penny to Buy a Home
If you feel like you are a little behind your home ownership goals, or if you’re wondering if home ownership should be one of your goals, don’t worry. First, you are not alone. Second, saving for a home is harder than ever.
A recent CNBC article on the difficulties of accumulating this down payment noted that it now takes nearly a decade to accumulate cash:
Housing costs such as rent and insurance add nearly three years to the time it takes for a typical renter to save a 20% down payment on a mid-price home. That’s according to Hotpads, home and apartment rental website, which is owned by Zillow. This is because the typical renter spends about 34% of their income on housing. It takes a typical renter about eight years to defer a down payment if he can save about 16% of his income annually. And of course, some places are easier to do than others.
Eight years if you can save 16% of your income each year, in addition to the 34% you probably already put into paying for housing.
Plus the 15% you have to invest in retirement.
And that three month emergency fund that you are trying to accumulate.
And debt repayment.
Etc.
If you want to take a different look at home ownership than just “keep saving,” Curbed recently posted a longread about why we are in an affordable housing crisis :
Nearly two-thirds of renters across the country say they cannot afford to buy a home and it won’t be easier to save on that down payment anytime soon: home prices are rising twice as fast as wages rise . According to research by human rights group Home1, 11 million Americans (roughly the population of New York and Chicago combined) spend more than half of their salaries on rent. Researchers at Harvard found that in 2016, nearly half of renters bear the burden of expenses (defined as the cost of renting 30 percent or more of their income), up from 20 percent in 1960.
The National Low-Income Housing Coalition found that a tenant working 40 hours a week and earning the minimum wage can afford a two-bedroom apartment (that is, not burdened with costs) in exactly zero counties across the country. In other words, it is not possible.
While this whole part is great and you should check it out for charts and graphs at least, the fact is that finding an affordable home is difficult these days. So search for an affordable apartment.
Moving to an area with a lower cost of living can help, but only up to a point – and only if you can find an equivalent job in the new location. I’ve written extensively about how moving from Seattle to Cedar Rapids, Iowa improved my finances, but that’s partly because I was able to take my freelance career with me when I moved. Also, while my monthly rent is half what it used to be, my loft-style studio apartment is only 448 square feet (that’s 14 by 32 feet if you’re interested).
So if you feel like you should be a homeowner by now, or should be saving more money for that down payment, or should be living in an apartment that’s larger than a one-car garage, well … I mean that I may not tell you how to feel, but I can advise you not to scold yourself for it.
Because math is not in your favor right now.
Another tip: if you’re thinking about home ownership because you’ve heard that it can be a good long-term investment, remember that you can always just invest your money in an investment.
As financial blogger Paula Pant writes :
Do you feel better:
- Tie your money to your home
- Looking for an alternative investment combined with rent?
Any cash associated with home equity, including the down payment, is locked up throughout life in an environment where inflation has to be kept up.
This opportunity cost, combined with the additional overhead costs associated with home ownership, can (in many markets) negate any benefits associated with owning a home.
If you decide to go this route, don’t be discouraged if you don’t put every extra penny into your investment. Save what you can, buy and hold, and let your net worth grow.
And if you so desire, you can always extract money from these investments and use them to make a down payment on the house.