|Someone who is looking to rent a home may be just moving out of their parent's home, or simply can't afford to buy property. Moving out for the first time can be tough, but budgeting for your first home can be tougher.
Most young people will choose to rent their first home since buying property may be too expensive for someone who is just starting out. The financial restrictions on someone who is looking to rent is why it is important to know what exactly to include in a budget for renting a home. Here's what you should consider:
The magic number
A variety of sources will tell you that the goal of budgeting for renting a home is that your rent and home expenses combined should not exceed roughly 33 percent of your post-tax income. If the number is any higher, you risk falling behind on your payments or taking money away from your other expenses to pay for rent.
Rent is usually paid monthly, so it helps to determine your monthly pay. People are usually paid daily, weekly, or bi-weekly, so it will take some simple math to figure out what that number is. Then you simply divide that by three to get 33 percent. That is the maximum amount of home expenses you would be able to afford on your income.
Remember, it's not just rent
That 33 percent includes rent and all of your home expenses. If you are living on your own for the first time, it is easy to forget everything that your parents used to pay for. Here is list of things that you may need to include in your monthly housing expenses:
Some of these expenses could be included in the rent, but you must ask your landlord to make sure. Don't assume utilities or internet will be included in your rent and then end up in a cold home with no connection to anything because you were expected to buy and pay for your own services. Sometimes, even if your landlord will pay for certain utilities, there will be setup or installation fees you may be responsible for.
- Internet/phone (including any installation and setup fees)
- Transportation/ parking fees
- Tenant insurance
Paying the security deposit
When you move into a new rental property, you must pay a security deposit. This is usually about two months' rent. You will get this back when you move out after the lease expires, but it acts as collateral early in the rental so you don't just leave right away. When budgeting for a rental, remember that the security deposit can cost you two months worth of rent at once.
The lease agreement
Signing the lease means that you agree to the terms set forth by the landlord. Some of them are negotiable, so don't be afraid to try to get yourself a better deal. The lease states who is living in your home, how long the term of the lease is, the rules for renting, and the monthly pay that is expected. There are a few things that you can ask your landlord, which may save you money:
You may need to undergo a background check or get a guarantor to sign for you. You probably have to pay for the background check, which is usually $30-$40. The Guarantor is likely a parent or other older family member who has more money and is willing to pay for you should you end up owing the landlord too much money. This is all to protect the landlord from the risk of renting to young, low-income, credit-poor people like you. Try not to take it personally.
- Can I add another roommate to split the rent?
- Can I exchange some work for paying some of the rent?
- Can I get a free month at first, or pay the security deposit over time?
- Can I get some utilities included in my rent?
Do not forget the cost of moving when you are budgeting for renting your first home. You will likely need to hire movers to help transport your belongings into your new property. Hire the right movers for your job. You should probably fill out a quote form here on Topmoving.ca and get some estimates from a variety of moving companies so you know what your move may cost you.
Don't forget that your budget should include the cost of buying any new furniture, appliances, food, or cleaning supplies that you may need in your new home that you didn't move from your old home.
Choosing the right home
The most important part of your rental budget is choosing the right home that will complement your income. There are a variety of housing options available for rental from the cheapest housing possible all the way up to being indistinguishable from home owning. You can sublet an owned property, rent an apartment, rent a townhouse, or rent a home. Just like buying a house, the location, size, safety, included amenities, and current market all will affect the cost of the rental property. You need to determine what you want versus what you need when trying to remain in your budget. You should have a few different rentals in mind at all times in order to give yourself the option to walk away from a bad deal.
If you find a good home and a cooperative landlord, you should be able to keep on budget. Renting a home is almost always cheaper than buying a home, but it still can be costly. Keeping a budget will help you maintain your lifestyle as you move into a new home.