Before you choose your dream rental, you’ll need to calculate how much rent you can actually afford to pay. There is often a significant difference between what you personally feel you can manage, what a landlord thinks you can pay, and what the local market demands. To avoid signing a lease that stretches you too thin or losing out on properties because you don’t meet income requirements, you must familiarize yourself with three specific price points: your personal budget, the landlord’s screening criteria, and the average costs in your specific area.
What Do You Feel You Can Pay?
To develop a sense of how much rent you are comfortable paying, you need to take an honest look at your income, debt, general living expenses like groceries, and your social spending habits. It is helpful to use budget calculators to see how much money you’re spending on necessary expenses versus discretionary interests like travel or dining out. Because everyone’s debt levels and financial goals differ, only you can determine the exact dollar amount that fits your lifestyle.
For a standard benchmark, the US Department of Housing and Urban Development and many state housing authorities recommend spending no more than 30% of your gross (pre-tax) household income on housing and utilities. Under this rule, if you earn $60,000 per year, you should aim to spend no more than $18,000 per year, or $1,500 per month. Some budgeting experts push this limit to 33%, which would allow for approximately $1,650 per month on that same $60,000 salary. While federal calculators exist to help generate these ballpark figures, they are often conservative estimates meant to keep you financially secure.
What Is the Market Norm Where You Live?
The reality of the rental market also plays a major role in your decision. In expensive hubs like New York or San Francisco, high costs mean residents routinely pay well over 30% of their gross income for housing. In these dense urban areas, higher rents are a fact of life unless you move away from the city center. Even in these pricey markets, landlords still use income-to-rent ratios to screen applicants. In New York, for example, many landlords require tenants to earn 40 to 50 times the monthly rent annually. This means a household would need a combined income of at least $80,000 to qualify for a $2,000-a-month apartment.
What Do Landlords Expect Renters to Pay?
When you begin your search, it never hurts to ask a landlord or management company what specific rent-to-income ratio they require and if they are willing to be flexible. If you are just starting your career or are self-employed with a fluctuating income, you may need to persuade a landlord of your financial stability. You might consider getting a roommate so that your combined incomes satisfy the requirements, or providing tax returns and proof of a healthy savings account to cool any fears about your credentials.
Many landlords will also accept a lease with a co-signer or guarantor who is willing to take responsibility if you are unable to pay. However, keep in mind that some landlords require these guarantors to be local, which can be a hurdle if you are moving from across the country. In many major cities, commercial guarantor services like Insurent or TheGuarantors will serve as your locally-based guarantor for a one-time fee, providing a modern solution for renters who don’t meet traditional requirements.
