How Much Can I Afford in Rent?
Before you search for a rental, it’s important to ask yourself: how much can I afford in rent? Think about it – do you want to find your dream place, only to later figure out you can’t afford it? You can calculate how much you should spend on rent pretty simply.
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What Percentage of Your Income Should You Spend on Rent?
Years ago, the general rule was you shouldn’t spend more than 1/4 of your monthly income on rent. It seems like that may have changed in some areas. My realtor’s rule is that she’ll approve a new tenant if they have 3x the monthly rent in income – that’s all she’ll consider as being how much rent they can afford. So if a place rents for $1,800 a month, she’ll want to see $1,800 x 3 = $5,400 monthly income. If a couple applies and each makes $2,500 a month, they wouldn’t qualify. 2 x $2,500 = $5,000 monthly income. In their case, she would recommend they consider spending no more than $1,666.67 monthly on rent, which is $5,000 divided by 3.
Is that the general rule in most cases? Let’s check.
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Nerdwallet’s Recommendation for the Percentage to Spend on Rent
Nerdwallet did an article, How Much Should I Spend on Rent? They say that people should plan on spending about 30% of their gross monthly income (before taxes) on their rent. Using the couple’s income above, 30% of their $5,000 income is $1,500 monthly.
They also explain the 50/30/20 rule which can help people stay on a budget. It says that no more than 50% of your take-home pay (not gross pay) should go for things you need. Needs include money for rent, car payments, insurance, utilities, and food. 30% is what you should budget for things you want but don’t need. Your wants include money for doing things you enjoy but don’t need. That might be having meals out, shopping for non-necessity items, and stopping for coffee daily. The remaining 20% is what you should plan on saving and using to pay down additional debt you may have (like credit card bills).
It’s important to pay close attention to these things before you sign a lease. Make sure you understand what you can afford to spend before you do.
Check Rent Calculators to Determine How Much You Can Afford in Rent!
There are a lot of rent calculators you can use to help you figure out what you can afford to pay in monthly rent. Let’s take a look at a few and see their recommendations. We’ll continue with the example above, with two people earning $5,000 monthly. You can also do a Google search: calculate how much I can afford in rent.
Calculator.net
Calculator.net shares a rent calculator similar to what I’ve described. Enter your pre-tax income, either monthly or yearly, plus enter your monthly debt total (including car payments, student loans, credit cards, and other debts you pay monthly). The couple earning $5,000 monthly are told they can afford $1,800 monthly with $0 debt, but they recommend keeping it lower at a maximum of $1,400. They also mention that many landlords will only consider up to 1/3 of your income for rent.
Redfin.com Helps Figure Out How Much You Can Afford in Rent Based on Expenses
Redfin.com shares a rent calculator that considers your monthly expenses, debts, and savings amounts. Type in either the zip code or the city and state where you’re looking, and enter either your annual or monthly gross income (use the pull-down to change annual to monthly if you’d like). If you click calculate rent, it will show you rentals within 30% of your income. There is a slider that will let you adjust the amount to the level you would be comfortable spending (careful with doing that!).
Calculate how much rent you can afford before you sign a lease to prevent financial hardship later!
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More Advice – You Know What You Can Afford in Rent, But Did You Also Know…
It’s important to not overspend on rent. To have the best chance at financial survival, here are a few other things to consider:
