How "house hacking" helped us save money - our story and suggestions!

Cute house right? This is what I dream of...but didn't buy.

The single largest expense for most people is their home. Reducing housing expenses are key to keeping a budget under control. Here is how we kept our housing costs low and saved a bunch of money using house hacking.

The first step is to buy a house that doesn't max out your budget. Seriously, I know this is hard but do not trust the bank when they tell you what you can afford, you will end up house-poor which is not where you want to be.

I have gotten pre-approved for a house three times (two primary residences & 1 rental). The first time, the lending officer recommended for me to put my student loans in deferment so I could qualify for a larger loan and then take them back out after the closing (seriously, who suggests this?). This would have left me stretched to pay the mortgage and I am so glad I ignored them. The second time I asked for pre-approval for 150k and the gave me 175k, I still bought below 150k. Just because you can technically "afford" it doesn't make it a good idea (hint: the house in the photo isn't mine, mine is a lot smaller). The third time was for our rental, which was more straight forward. I guess they assume you're less emotional and less likely to overspend?

It is in the bank's interest to loan you as much money as they think you can reasonably pay back, the bigger your loan, the more interest they receive. Keep this in mind when you are being told what you can "afford" by the bank.

When buying both of these places, I was a single woman. If you are depending on only one income it is even more important to save and not over-extend yourself. Even though my future husband was living with me when I bought the second house it was important to me that I could afford it on my own just in case.

This was the first step in saving money on our housing expenses. The next step was having a roommate. Let me say, having a roommate as an adult often sucks. They make a mess, invade your privacy and contribute to other small annoyances to your daily life.

You know when it's awesome? When you get a check on the first of the month to put in your savings account.

Having a roommate had a time-limit for us. We knew we couldn't do it forever but the longer we could deal with the irritations, the more financial benefit we would receive. In the end, we had a roommate for 14 months. He paid 600/month in rent which was over half of our mortgage and we saved almost every penny, which we later used to help fund our down payment on our first rental property (more on that later). If you can handle a roommate for even 1 year, what could you do with all the extra money?

My tips for house hacking for financial success:

1. Start young. The younger you are the easier it will be to deal with a roommate, and you will be able to find people looking to rent a room that are close to your age. If you are past your partying days, you probably don't want to have a 20 year old college student moving in.
2. Start as soon as you move into your house. If you have extra space, you will fill it up. I couldn't tell you where our roommate used to live, that space is all full now. 
3. Set the rent at market rate. Don't just have renter pay a share of the mortgage and expenses, look up what rooms rent for in your city and set the rent at the market price. If you are going to rent to a friend, you might go slightly below market but I still wouldn't split the mortgage because you have to consider you also have maintenance, liability and insurance as the owner.
4. Use a lease. Do yourself a favor and have your renter sign a lease, even if they are a friend. Business has a way of turning friends into enemies.
5. Rent month to month. Our roommate was on a month to month lease with a 60 day notice period from either of us. You don't want to live with someone who wants to leave and likewise you don't want someone in your house after you decide you don't. It's better for everyone if you both have an out.
6. Save your rent money. If you are living with a roommate to improve your financial situation, you need to save the extra money (or use it to pay off debt) instead of spending it.

Have you used house hacking as a means to save money or get out of debt?