Can I Afford to Rent an Apartment?
Are you getting ready to make the leap toward independence by renting your own apartment? Moving out on your own can be both exciting and scary at the same time, especially if you’re unsure about whether you can afford it. This article will help ease your fears by discussing the steps you should take before signing that lease agreement.
Step 1: Know Your Credit Score
Most landlords will check your credit history to help ensure you will be a quality tenant who will pay your monthly rent on time. The minimum required credit score varies by landlord but, according the aparmentlist.com, the minimum score is typically around 650. If your credit score is lower than what your prospective landlord prefers, try to take steps to improve it before submitting your application.
Step 2: Determine Your Monthly Income After Taxes
Add up all your sources of income to determine how much money you have available for rent, utilities, and other expenses. Examples of sources of income that can be included are paychecks from your employer, annuity disbursements, as well as alimony, child support, social security, workers compensation, and severance payments.
Step 3: Calculate Your Current Fixed Expenses
Make a list of all the expenses you currently pay for each month that you will continue to pay when you move into your apartment. These are things like your car loan, auto insurance, student loans, cell bill, medical insurance, monthly subscriptions, any debt payments, etc.
Step 4: Consider Your Anticipated Rent Payment
Most experts agree that your monthly rent should be no more than 30 percent of your total after tax income. For example, if you earn $1,200 a month, your rent should be no more than $360. If you earn $2,000 a month, your rent should be no more than $600. However, the actual amount you can afford depends on your lifestyle and the other expenses you are committed to. Depending on your unique financial situation, you may be able to afford more or less than 30 percent.
Step 5: Determine Other Miscellaneous Expenses
There may be other expenses that come into play when renting an apartment. Some landlords include utilities (water, electric, gas) in the price of rent while others prefer you pay them separately. Many require an application fee, security deposit, and first month’s rent upon applying and/or upon signing the lease agreement. Do you have pets? You may be charged extra for Fido. Do you have to pay to park your car in a parking stall and/or garage? Are there laundry facilities on site? If so, what is the cost to use them? Don’t forget about furnishing your new place. Double check that you will be able to do so without incurring unnecessary debt.
Step 6: Do the Math
Next, calculate the difference between your net income and your fixed expenses, anticipated rent payment and miscellaneous expenses. Is there enough money left over for groceries, savings, and other niceties like eating out, new clothing, and anything else you enjoy in life?
If the answer is no, you may need to find ways to cut back on your fixed expenses or look for an alternative apartment with a lower monthly rent.
If the answer is yes, congratulations - you may be able to afford moving into your own apartment! However, it’s important to stay diligent with your finances by sticking to your budget and not incurring more debt.
Step 7: Consider Finding a Roommate
If leasing an apartment on your own is too expensive, or maybe you want to save yourself some money, consider finding a roommate to help absorb some of the cost. According to national averages, a two-bedroom apartment costs a approximately 15 percent more than a one-bedroom apartment. When you split the total rent and utilities between two roommates, the individual costs are significantly less than it would cost you to rent a one-bedroom apartment.
If you have questions about renting, budgeting, or any of your banking needs, a Personal Banker from FNBO would be happy to answer them. Give us a call today.
The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.