How can I save money on housing costs?
Housing is the single largest expense in most family’s budgets. Fortunately, that means it offers the greatest opportunity for saving money.
As you explore options to lower your housing costs, keep the following ideas in mind.
13 Ways to Save Money on Housing Costs
Everybody needs a home — but that doesn’t mean they need to spend half their income on rent.
Try these ideas to reduce or even eliminate your monthly housing payment to stress less, and save more in your personal finances.
1. Move to a More Affordable Housing Market
The median home price in San Francisco is $1,504,311, according to Zillow. In Cleveland, you can spend less than one-fifteenth of that for a median home: $96,455.
Better yet, you can move overseas and buy a home in a beautiful area, such as seaside or mountain towns, for a fraction of even that cost. And that says nothing of the lower cost of living in general, from food to entertainment to health insurance policies and beyond. There are countries where $2,000 per month buys the good life.
Nearly three-quarters (72%) of Americans live in or near the city where they grew up. To me, that indicates a lack of creativity, lack of open-mindedness, or simply no sense of adventure.
Take control of your own life and get intentional about your lifestyle, starting with where you live. Start at the country level, then choose a state or province, then choose a city, then choose a neighborhood. At each level, throw out your preconceptions and do some honest research on home prices, local amenities such as schools, crime rates, and other factors that affect your decision.
My family and I live in Brazil, for example, and thoroughly enjoy the lifestyle (more on that shortly).
2. Brainstorm Ways to House Hack
House hacking involves finding a way for someone else to cover your housing expenses.
For example, I rented a spare bedroom in my first home to a housemate, and she covered nearly three-quarters of my monthly mortgage payment. Despite meeting her over Craigslist, we became extremely close, and remain tight friends to this day.
A friend of mine rented out a suite of extra bedrooms in her apartment on Airbnb. If she rented it for two long weekends each month, it covered the bulk of her rent.
Or you could follow the classic model of house hacking: buying a multifamily property, moving into one unit, and renting out the others, so your neighbors pay your mortgage.
These represent just a few ideas — read up on other creative ways to house hack and ditch your housing payment.
3. Do a Live-In Flip
A different approach to house hacking involves buying a fixer-upper, moving in and renovating it at your own pace, then selling it for a tidy profit and repeating the process.
Hold the property for at least one year and you pay the lower long-term capital gains tax rate. Hold it for two years and your first $250,000 in profits (or $500,000 if you’re married) are tax-free due to the homeowner exemption.
This strategy works best if you have both the skills and the interest in remodeling old houses. Do it right, and your profits reimburse you for your mortgage payments over the last year or two.
Of course, it also means living in a work zone, at least while you’re making repairs. Your spouse may not see the same appeal you do, so make sure they’re on board.
4. Take a Job that Provides Free Housing
My wife and I haven’t paid for housing in over six years. As an international school counselor, her employer provides us with free, furnished, upscale housing.
We spent four years living in Abu Dhabi, the capital of the United Arab Emirates, and loved every minute of it. Today we live in Brasilia, the capital of Brazil, and enjoy it just as much. We haven’t the slightest idea where we’ll move next, and that’s part of the adventure.
And it does wonders for our savings rate: we save and invest every penny we’d otherwise spend on housing.
Play the “What if?” game by researching jobs that provide free housing. Once you start living without a housing payment, you’ll never want to go back to living like everyone else.
5. Learn How to Do Your Own Maintenance & Repairs
There are countless small tasks to be performed regularly to maintain a living space. Homes are physical assets after all, and every physical item gets old and starts falling apart. Faucets and toilets leak, animals and pests invade living space, and weather can wreak havoc on roofs and painted surfaces.
Fortunately, most repairs aren’t so complicated or require such specialized tools that the average person can’t figure out how to do them. Sites like YouTube, WikiHow, and DIY Network provide detailed steps on common problems from repairing leaky faucets to repointing the mortar in a brick wall.
Major retailers like The Home Depot or Lowe’s maintain a skilled staff to help walk you through more complicated projects. And you can, of course, always hire a contractor if you get in over your head.
6. Downsize to a Smaller Home
Bigger homes come with higher price tags. But they also come with an array of other higher costs including insurance, property taxes, maintenance, and utility use.
Maintenance includes home repairs and upkeep of course, but it also includes yard maintenance. Mowing the lawn. Trimming trees and hedges. Gardening. Landscaping. Edging your walkways so they look all crisp and neat to impress the Joneses across the street. All that means labor hours, whether you do the labor yourself or you pay someone else to do it.
That says nothing of the psychological pressure to fill the space with “stuff.” A bigger home means more furniture, more decorations, more gadgets and electronics, more toys. I’ve lived in huge homes and I’ve lived in small apartments and everything in between, and I’ve come to realize the truth in the statement “The things you own end up owning you” (bonus points if you can name the movie that popularized it).
When determining where to live, consider how much space you need to be comfortable, rather than automatically opting for a larger home. Aim to declutter and downsize, so you can spend more time and money on experiences you enjoy, and less on the trappings of a large home.
7. Move into an Attached Home
As a related but separate point, consider the upsides of moving into an apartment, condo, or townhouse.
Yes, these types of homes tend to be smaller, which saves you money across the board on your rent or mortgage, taxes, insurance, utilities, maintenance, and furnishings. But they come with a few other specific perks.
First, attached homes cost less to cool or heat because they share walls with other units kept at similar temperatures. More on ways to save on heating and cooling later.
Second, they come with shared walls, foundations, and roofs, which means you don’t have to repair or maintain them, at least not by yourself. If you own a condo, for example, you simply pay money toward a pooled maintenance fund that keeps the roof, foundation, and exterior in good working order. Eight families sharing the costs to maintain one roof costs less than each family maintaining separate roofs.
Finally, they don’t come with a large yard to maintain, or perhaps any yard. The last townhouse I lived in had a rooftop deck and a rear courtyard, so I was able to grill and entertain friends, but I didn’t have to spend hours each weekend mowing the lawn or managing the landscaping.
And remember, you can potentially live for free by house hacking a duplex, triplex, or fourplex!
8. Consider Renting
Somehow, homeownership got conflated into the “American dream.” Many Americans aim to own their own homes, without actually bothering to do a cost/benefit analysis.
Renting often makes more sense. Anyone who doesn’t know how long they want to live in their next home should rent rather than buy because renters have the flexibility to move as soon as their lease ends. Homeowners have to spend months marketing their home for sale, plus thousands in seller closing costs.
In many markets, it costs far less to rent than to own as well. Despite all the complaints about San Francisco rents, the monthly rent on a median three-bedroom home in San Francisco is $4,567, but as you recall from earlier, the median home price is $1,504,311. Adding in property taxes and insurance, the monthly payment costs roughly double to own rather than rent in San Francisco. And that doesn’t even include the costs of repairs and maintenance.
Which raises a final point: renters delegate the costs of home maintenance and repairs to their landlord. They don’t have to set aside money for them every month, and don’t have to foot those periodic $5,000 repair bills.
Renting comes with plenty of perks, so stop blindly following the masses in their pursuit of some generic “American dream.” I say that as a professional real estate investor who believes in real estate as an asset class, but I see far too many people jumping into homeownership without actually running the numbers.
9. Improve Your Credit Before Buying
If you are looking to get a mortgage to buy a home, improve your credit score before buying. Pay off unsecured debts like credit card balances, personal loans, and student loans as a solid first step.
Doing so not only boosts your credit, but reduces your monthly expenses. That can help you qualify for a larger loan amount, and the better credit will reduce both your interest rate and required down payment. Also bear in mind that if you save a 20% down payment, you can avoid private mortgage insurance (PMI).
Read more about whether to pay off debts or save for a down payment, and don’t be afraid to do both simultaneously.
10. Remove PMI from Your Mortgage Payment
One simple way to reduce your monthly mortgage payment is to pay your loan balance down below 80% of your home’s market value and apply to remove PMI from your monthly payment.
If your home has risen in value, that makes it all the easier to reach that 80% threshold. Your lender will send out an appraiser to assess your home’s value, at your expense.
Note that this only works for conventional mortgage loans, not FHA loans or USDA loans.
11. Reduce Heating & Cooling Costs
As mentioned above, you can reduce heating and cooling costs by living in an attached home. But that’s far from the only way to do it.
Many homes lack adequate insulation and weatherstripping, creating drafts that allow warm and cold air to escape through walls, windows, doors, and attics. Get an energy audit on your home to see where you’re losing the most heat, so you can replace the weatherstripping, reinforce the insulation, and otherwise reduce waste.
Other tips and ideas include:
- Seal outer gaps where pipes and cables enter the house with expanding foam
- Use fans and portable heaters to reduce operation of furnaces and air conditioners
- Install double-pane windows and doors or cover with transparent film
- Insulate and seal ductwork
- Keep heating registers and air-conditioning vents clear
12. Reduce Electricity Usage
Technology can help reduce utility bills by lowering energy use when you’re out of the house or at night. While electrical appliances can be managed manually, there are products that make the process of reducing energy usage automatic, including:
- Programmable thermostats. Thermostats such as the Nest Learning Thermostat automatically controls temperature by learning the habits of the home’s residents and adjusting the temperature to match. They optimize your home’s settings to save you money each month.
- Lighting controls and timers. Products to automatically dim or turn off lights when they are not needed can cut electricity used for lighting by as much as 75%.
- Energy-efficient lightbulbs. Compact fluorescent lamps (CFLs) and light emitting diodes (LEDs) use 25% to 80% less energy than traditional incandescent bulbs and last 3 to 25 times longer.
- Charging stations and smart power strips. “Phantom” power use — electricity that is wasted by electronics that are plugged in, but not turned on — accounts for 23% of the average monthly electric bill. Power strips for appliances, computers, and other electronics ensure they are completely turned off, eliminating wasted power.
- Energy Star® certified products. Designated by the U.S. Environmental Protection Agency, Energy Star® qualified appliances use demonstrably lower energy than other products in the same category.
- Solar panels. Rooftop solar panels to replace or supplement electric power from utilities have skyrocketed in popularity over the past 10 years. According to EnergySage.com, the average home saves between $10,000 and 30,000 over the life of a solar panel system.
Research more tips to save money on electricity and reduce your environmental footprint.
13. Reduce Water Usage
Water bills can drain hundreds of dollars from your monthly budget. Try these ideas to cut your water usage each month:
- Water efficient toilets. Labeled as WaterSense® by the EPA, the newer toilets can reduce an average family’s use of water by nearly 13,000 gallons each year, saving about $100 per year on average. Many utilities also offer financial incentives to replace older toilets. Some, such as the City of Dallas, provide a rebate or a free high-efficiency toilet.
- Low-flow shower heads. A low-flow shower head uses 1.5 to 2.5 gallons of water per minute compared to 3 to 8 gallons for a traditional shower head. They are designed to maintain high pressure flows by restricting water by mixing air with the water or mechanically pulsing the stream while maintaining a constant temperature.
- Faucet aerators. An aerator can be simply attached to the end of a faucet. Adding air to the water stream minimizes splashing, so the stream remains evenly pressured and constant, using less water.
- Drip irrigation systems. If you have a garden — a good way to lower food costs or brighten a landscape — use a drip irrigation system to deliver water directly to the plants without losses to evaporation and runoff. Gardeners can construct a simple drip system with small rubber tubes and specialized dripper heads (emitters). They’re cheap, easy to hide, and can save you significant money on water over the long term.
- Smart watering system controllers. If you water your lawn and have no intention of stopping, consider installing a smart sprinkler system such as this popular one from Rachio. It monitors soil moisture and weather conditions to only water your lawn when it truly needs it.
- Xeriscape your property. Better yet, replace your existing lawn grasses and plants with native varieties that need less water and maintenance. Or install a rock garden that needs no watering at all.
For more ideas, read up on other ways to reduce your water bill.
As your largest household expense, housing should be your first priority to optimize and reduce.
Everyone needs housing, but not everyone has to pay for it. And you certainly don’t need to pay the high percentage of your income that many Americans end up budgeting for it.
Get creative and find your own ways to house hack, downsize, or otherwise save money on housing.
Finally, beware of your lender’s frequent offers to refinance your mortgage for a lower interest rate. While refinancing might lower your monthly mortgage payment, it restarts your amortization schedule, extends your debt horizon, and costs more over the remaining life of your loan.