Priced Out of Homebuying? Strategic Steps Renters Can Take to Stay on Track

Facing Homebuying Challenges? Here’s How to Strengthen Your Position

For renters dreaming of owning a home, the current housing market can feel discouraging. Rising mortgage rates, high home prices, and limited inventory might make the goal of transitioning from renting to owning seem out of reach. However, being priced out doesn’t mean giving up on your dream. Here’s how to use this time strategically to regroup, reassess, and come back stronger.

Take a Strategic Pause to Reevaluate and Strengthen Your Finances

Hit Pause—Without Hitting Stop

With home prices and interest rates on the rise, the cost of owning a home has surged. For example, according to February 2024 data from the National Association of Realtors, the principal and interest payments on a median-priced home with a 10% down payment now average nearly $2,300 per month. This figure excludes mortgage insurance, property taxes, homeowners insurance, and other housing-related expenses.

If you’re feeling overwhelmed or priced out, it’s okay to hit pause. Take this time to breathe and remind yourself that stepping back is temporary—not giving up. "Not now" doesn’t mean "not ever."

Strengthen Your Financial Foundation

Use this break as an opportunity to improve your financial standing, which will make you a stronger candidate when you’re ready to buy.

Budget Like a Future Homeowner

As of February 2024, renting is cheaper than owning a home in the 50 largest U.S. metros, according to Realtor.com. While homeownership builds wealth over time, the initial costs can be higher than you’re used to as a renter.

Start by using a mortgage calculator to estimate your monthly mortgage payments, including property taxes and home insurance. Add another 20% for unexpected maintenance and repair costs. If utilities like heating and cooling are included in your rent now, factor those in as well.

Subtract your current rent from this total and begin setting aside the difference in a high-yield savings account. This practice not only prepares you for the higher costs of homeownership but also helps build your down payment fund, making you a more competitive buyer.

Reduce Your Debt for a Better Mortgage Application

Lowering your debt can significantly impact your credit score and debt-to-income ratio (DTI), both critical factors in mortgage approval. A good DTI—generally under 36%—improves your chances of securing a favorable mortgage.

Your credit score is partially determined by your credit utilization, the percentage of your available credit you’re using. Reducing your debt decreases your credit utilization, boosting your credit score. Continue making on-time payments to maintain good credit.

Consider using rent-reporting services that can help get your on-time rental payments reported to credit bureaus, potentially improving your credit score. While some free options exist, most services charge a fee, so choose one that reports to all three major credit bureaus.

Avoid Unnecessary Expenses

When feeling frustrated, it’s tempting to splurge, but resist the urge to rack up credit card debt or buy a new car if your current one is still reliable. Even upgrading to a nicer apartment might be appealing, but such expenses could hinder your ability to save for a down payment.

Reevaluate and Refine Your Homeownership Goals

Revisit Your Goals with Current Market Realities in Mind

This pause is an excellent opportunity to reassess your home-buying goals. You don’t need to abandon your dream home, but it’s worth revisiting your wish list to ensure it aligns with today’s market.

Adjust Your Expectations for a Changing Market

Given current home prices and mortgage rates, you may need to adjust your home search criteria. Consider exploring different neighborhoods or opting for a smaller home. If your goal is to buy a starter home, build equity, and upgrade later, being flexible now could pay off in the long run.

If your job allows for remote work, you might explore relocating to a less expensive housing market. Use this time to research various areas, considering factors like quality of life and cost of living, to determine if moving could be a viable option.

Stay Engaged with Your Home Search Team

Keep Communication Open with Your Agent and Loan Officer

Even while on pause, stay in touch with your real estate agent and loan officer. Let your agent know if your financial situation changes, such as being able to make a larger down payment. Keep them updated on when you might be ready to reenter the market and what types of homes or areas you’re considering.

If you’ve been preapproved for a mortgage, inform your loan officer of your decision to pause. Be mindful of when your preapproval will expire—most last no more than 90 days. Renewing it before it lapses can save you from going through the entire process again, including a hard credit inquiry.

Conclusion: Turning a Timeout into a Strategic Advantage

Taking a timeout from home shopping isn’t a setback—it’s a strategic move. By using this time to strengthen your finances, adjust your expectations, and stay connected with your home search team, you’ll position yourself for a successful transition from renting to owning when the time is right.