Ready to get your own place? While living on your own is typically an exciting time, it also comes with added responsibility. Before you jump the gun, it’s important to nail down exactly how much you can afford. And how to improve your credit score.
Maybe you’re wondering whether you should rent or buy? In either case, keep reading to learn how much of your salary should go toward rent. We’ll also go over how to improve your chances by boosting your credit score.
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Rental income percentage
Many financial experts swear by the 30% rule – which states you should spend 30% of your gross monthly income on rent. In other words, if you make about $3,000 a month before taxes, your rent should be no more than $1,000 a month.
Unfortunately, this rule doesn’t apply in every situation. Plus, as more and more people struggle with debt and the costs of living in a major urban area, this piece of advice becomes less practical. In fact, it can even come across as outdated.
A better method is to work your monthly rent into the 50/30/20 rule. This budgeting rule states that you should spend 50% of your post-tax monthly expenses on necessities. Such as rent, food, gas, debt payments, utilities, insurance, etc.
You can spend another 30% on entertainment, including dining out, movies, shopping, etc. The final 20% should be saved – either in an investment account or a savings account.
By incorporating your rent with other necessary expenses, you’ll have a clearer picture of what you can and cannot afford.
How much does housing cost in your area?
The fact of the matter is that rent varies across geographical locations. What you could get for $1,000 a month in one city compared to another can be vastly different. Neighborhoods in the same city can also vary. If you’re looking to reduce your costs, have you thought about switching up the location?
Make sure to cast your net wide and explore all the neighborhoods in your area to find the most economical and agreeable choice. Roommates can also make it more affordable to live in the home of your choosing. You’ll also want to compare townhouses, co-ops, and apartments.
Comparing Average 1 Bedroom Apartment Rent
Do landlords look at gross income?
Landlords will look at your gross income to decide whether or not to approve you. But they will also look at many other factors. Including your employment history, criminal background, eviction history, and credit report.
In many cities, landlords will use an income to rent ratio to help them determine your eligibility.
Oftentimes, the 30% rules will be a guideline. Which means that if you’re trying to rent an apartment for $1,000 a month, your gross monthly income will need to be at least $3,000.
The income to rent ratio can vary enormously depending on the area you live in. For example, in New York City, landlords often like their applicants to have an annual income of 40 times the monthly rent.
Would buying a home save you money in the long run?
Owning your own home can be a great investment. As property prices increase, you may be able to sell your home at a higher price than for what you bought it, and keep the profits. There are also numerous tax benefits related to home ownership.
However, owning a home is not without its costs. You’ll be responsible for anything that goes wrong with your apartment or house, such as flooding, mold remediation, upgrading appliances, or replacing your HVAC. Some of these costs can range thousands of dollars.
If you’re trying to understand whether it makes more financial sense to rent or buy a home in your area, you’ll have to examine several factors. First, make sure you understand how much rent you’d pay for the type of home you are looking for.
Next, make sure to use a mortgage calculator to find out your monthly mortgage payments. You’ll typically be asked to provide the price of your home, the percentage of your down payment, estimated property taxes, HOA fees, and homeowners insurance.
Compare your monthly mortgage payments with your expected rental payments. If you can, try to take into account unexpected expenses that come along with managing your home. Finally, remember that rental payments tend to increase every year while most mortgage payments stay the same over time.
Open the door to better rental opportunities
One way to improve your chances of getting approved for the perfect rental is by working on your credit score. Whether you’re trying to rent an apartment or buy a home, your credit report is one of the most important determining factors.
MoneyLion’s Credit Builder Loan gives you access to credit tracking tools, weekly score updates, and most significantly – a small loan for an affordable interest rate that’s designed to help you boost your score. For $19.99/month, you can access up to $1,000 of financing at a competitive rate.
MoneyLion makes sure to report all your payments to the three main credit bureaus – Experian, TransUnion, and Equifax. This means your score will get a boost so long as you’re making your payments on-time!
How MoneyLion can help you move into your dream home
Getting your own place is the start of newfound independence. However, it also means being responsible for monthly payments. Whether you’re hoping to rent an apartment or buy your first home, MoneyLion can help you make it a reality.
At MoneyLion, we give people the tools they need to improve their credit scores and reach new levels of financial health. We’re also here to support you with Instacash.
Instacash is MoneyLion’s tool for no-interest cash advances whenever you need some quick cash – either for a monthly payment, moving costs, or whatever else! All in all, MoneyLion takes a comprehensive approach to your finances with banking, investing, and credit-building tools.