Getting a grip on the property ladder is tough. If it was easy, we’d all be doing it, right? There are a number of reasons it can be difficult, many of which mean almost half of Americans still rely on renting. In 2015, 38% were renting privately across America, and the number has steadily risen ever since as more Americans are renting than in the last 50 years. The challenge goes far beyond being able to find an affordable property. Consider paying off your other debts, beating what can be a highly competitive market, and understanding the complex and delicate process of actually negotiating the purchase of a home as just some of the challenges. However, one thing stands above all else as the main obstacle for potential buyers.
Research suggests that the deposit is the main obstacle for first-time buyers in the U.S., exacerbated by rental prices that don’t allow for enough capital to put towards building their down payment. Typically, you’ll be expected to provide somewhere between 5% and 10% of a properties’ value, which can be tens of thousands of dollars to save up. Estimates pinpoint roughly 30% of your income is the limit to spend on rent to be ‘affordable’, although naturally, that can’t apply to everyone. So, what do we do? Luckily, we don’t have to despair just yet. Building a deposit takes commitment and sacrifice, but it is possible.
Know Your Options
First and foremost, you should be clear about what exactly you’re going to need to afford the property you want. The best way to do this is to explore some properties yourself and try to compare a few different loan offers via a mortgage broker or comparison platform, such as Trussle. At the very least, a mortgage advisor at a bank will need to have all these things to make a decision on what they can offer you. Equally, having that solid target amount you know you need to save towards is going to be a much better motivator than having an arbitrary amount in mind.
Budgeting platforms have come on leaps and bounds in light of both Open Banking practices and mobilization of banking. Once you have that target amount to cover your deposit, you’re going to want to holistically gauge incoming and outgoing payments every month and begin to budget carefully to start building up that savings pot. Many people also look into their fixed costs. For example, energy and insurance comparison sites can help you slash the price of your monthly bills, all of which are now able to be tucked away.
Equally, this is the time to tighten the bootstraps and be prepared to say no to certain purchases in the name of budgeting. Millennials have a hard time-saving money for all sorts of reasons, but your responsibility is to ensure that even though your lifestyle is important, it isn’t one of those reasons. It might take time, but give yourself a reasonable time scale to save your deposit and speak to mortgage advisors to secure both Agreements in Principle (a temporary agreement with a lender to secure a mortgage loan) and understand what sorts of mortgage rates and deposit size they’re going to offer you.
Getting that first deposit down is often seen as the most difficult stage in a journey which can become a lot more exciting once you’ve secured your footing on the first step on the property ladder. Financially speaking, your lifestyle might have to temporarily change, you might have to sacrifice a lot of time to finding a property, building an understanding of how the buying process works, and dealing with lenders. However, the ultimate goal is to expand your financial freedom in the future. Buying your first property is a robust foundation on which that future can be built.