Your guide to breaking the rental cycle

Falling into a pattern of renting living space is common, but becoming a homeowner is attainable. Use this guide to make a plan that fits your goals. 

For many, finding a room, apartment or home to rent is a natural step when starting life on your own as a young adult. Renting is a sensible choice in many situations and has its own advantages – there’s flexibility on how long you’ll stay in one place, monthly payments that fit almost any budget, and building care and maintenance are typically managed by the landlord. But after a while, homeownership often becomes a better alternative. From a financial standpoint, buying property could serve as a long-term investment. Rather than spending money on rent each month, you’re working towards owning your own asset. Here are a few things to consider as you plan your path to becoming a homeowner.

Commit to your goal early on

One of the biggest challenges in ending the rent cycle and buying your first home is saving enough money to put towards buying a home. While saving up will likely take time, the first step to homeownership is to set clear intentions of owning a home. Establishing this as a goal and deciding you’re ready to make it a priority will help you find opportunities to set aside money when possible. Are there any expenses like cutting streaming subscriptions or other extra monthly costs you can eliminate and start saving?

For Maddie Martini, a marketing specialist at U.S. Bank, having the long-term goal of homeownership was a catalyst for responsible saving strategies, which benefitted her over time and allowed her to purchase her first house. “I always knew that I wanted to buy a house, so I never spent a crazy amount on rent or anything like that,” she says. “I made sure I was never outspending my means so I could keep building that savings slowly but surely.”

Find a down payment plan that works for you

While some people are able to provide a 20% down payment on their home, there’s no one-size-fits all rule that applies to every situation. Everyone’s finances are a little bit different, and there are a variety of down payment options that can work depending on your needs.

For example, private mortgage insurance is an option with some conventional loans for borrowers whose down payment is lower than 20% of the purchase price. This is used as a way for the lender to ensure they’ll be paid back and makes loans more accessible to those who don’t have a 20% down payment. However, doing so means your loan will be more expensive – an additional fee (private mortgage insurance or PMI) is included in your monthly payment or closing costs, but could go away once your loan meets certain requirements, depending on the type of loan. It’s especially important to stay on top of your payments in this situation, as being late with your payments can affect your credit score.

If you’re able to pay 20% or more up front, you’ll have several advantages. Because you’re paying off a large portion of the price right away, your loan and monthly payments will be smaller than if you were to put down less than 20%. Your interest rates could be lower as well, and you’ll be in a secure position with potentially more equity from the start.

Map out your monthly costs

Once you have a plan to save for a down payment, the additional monthly fees you’ll pay are often similar to rent costs, or could even be more affordable depending on your circumstance. “When I realized that my monthly payment would actually be less than renting, that was a huge thing for me,” says Maddie.“I’m paying less each month than I ever was when I was renting – that made me decide I can actually afford this.”

When making a budget for purchasing a home, it’s important to look closely at how the timeline of payment will work – not just the listing price. Calculating fees like property taxes, homeowner’s insurance, utilities and homeowners’ association costs for condos will help you get a realistic idea of a cost breakdown, so you can determine what aligns with your income and long-term financial situation.

If you’re a first-time home buyer or have a limited budget, you may want to consider looking at properties such as duplexes where you could lease a portion of the space for extra income. You can also designate a spare bedroom for a potential roommate, which will help offset monthly costs. Keep in mind that you don’t necessarily need to live in your first home forever – you can look at your home as an asset and first step on your path toward economic stability.

Connect with professionals 

When you feel ready to move forward with your home search, you’ll want to contact professionals who can help you each step of the way. Your real estate agent will be able to guide you throughout the process and narrow down which properties have the features you’re looking for within your price range. Your mortgage loan officer (MLO) will also work with you to get pre-approved for a loan so that you’re eligible to make a purchase when the time comes.

“The market [where I bought my home] is very competitive, so you have to move quick,” says Maddie. “If you're thinking about it, get preapproved, talk to a mortgage loan officer – make sure you’re prepared for all those things.”

Having the paperwork and a relationship with your home professionals early on in the home buying stages will help empower you to make a competitive and timely offer as soon as a home you love comes on the market. Your real estate agent’s and MLO’s primary roles are to support, educate and advocate for you so you can ultimately end up making a smart, confident choice in selecting a house. With careful planning, budgeting and assistance from professionals, soon you’ll be on your way to breaking the rental cycle and becoming a home owner. 

Dreaming of buying your first home? Learn about what types of credit scores qualify for a mortgage and how you can improve your score.