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Please make sure you’re sitting down when you read this: A staggering 21.3 million of American renters are spending more than 30% of their income on rent, according to the Joint Center for Housing Studies at Harvard University.

What’s the cause of this trend? Part of it may be that the cost of rent is rising faster than incomes.

So how can you combat this? Proper budgeting helps. However, in the right situation, your best bet for avoiding the rent problem may be to avoid renting altogether.

Examine the Bottom Line

It’s generally not recommended to spend more than 25% to 30% of your income on housing expenses. It puts the rest of your financial life at risk.

For instance, if you make $4,000 a month, 25% to 30% of your monthly income is $1,000 to $1,200. By not going over $1,200 a month on rent, you’ll still have at least $2,800 a month left over for your other expenses and savings after you pay your rent.

Or if you make $8,000 a month, 25% to 30% of your monthly income is $2,500 to $3,000. After you pay rent, you would still have $5,000 to $5,500 a month for your other expenses.

With that in mind, take some time to determine how much you can afford to spend on renting or buying a house and go from there. Zillow has a great calculator that could help you figure out which option may be more economical for you.

There’s no substitute for a monthly line item budget. Putting together a monthly budget can help you determine the amount of rent or house payment you would be comfortable paying each month. Don’t forget to set a little money aside for savings, investments and emergencies.

If you feel you’re spending too much, it may be time to downsize or look at moving to a different city nearby.

Once you have a number in mind for how much you can spend on housing, it’s time to figure out whether you should rent or buy.

Rent or Buy

Both renting and buying have some key advantages, so which one is right for you? Let’s take a look at each option.

Why Rent?

Renting can be good for a few reasons.

Renting an apartment may be a good first step for many young people just getting started. When you’re first starting out on your own, you may only need a small place, and a decent apartment could be just what you need. This also gives you the opportunity to build up credit and to create a history of making utility and rent payments so you can get financing for a house down the line. Most mortgage lenders look at your rent payment history to show that you have made consistent payments in the past.

Renting also gives you flexibility. If you find yourself moving around a lot, being able to get out of the lease after a year without having to put the property up for sale may appeal to you.

Finally, sometimes certain amenities are included when you have an apartment. Depending on the apartment, utilities, Internet and cable might be included in the rent.

Why Buy? 

As compelling as the case for renting a place may be, there are a lot of good reasons to buy. Every market is different, but chances are, it’s more affordable than you think.

The biggest reason to take the leap and purchase your own home is for the investment. When you give your money to a landlord, you get nothing back out of the investments except a place to stay.

By contrast, when you buy a house, you gain equity with every payment you make. This equity is very much like a traditional investment in that it can be translated into cash.

How does this work?

Once you’ve built up equity for a while, you can refinance to take cash out and use it for other purposes, such as updating the kitchen or paying off your credit card debt.

You also may build value quicker in the current market, as home values have been on the rise for a while now. The higher your home value goes, the more money you can make when you sell.

Not only is buying an investment, it may also be more cost-effective than renting. With rates as low as they are, you may be able to own a home by paying as much as or even less than you’re paying for monthly rent.

There’s also something appealing about having a place to call your own. You can make updates and really make the space your own. And it gives you a chance to settle in and get involved in the community because you won’t be moving when your lease is up.

Down Payment

While there are certain advantages to a higher down payment, you shouldn’t let the fact that you don’t have 20% to put down keep you from getting a house. There are a variety of options if you’re looking at putting less down. With a conventional loan, you could put down as little as 3% with standard programs. If you’re going with an FHA loan, the minimum is 3.5%.

If that still seems like a lot to pay at closing, Quicken Loans has an exclusive option for well-qualified clients. You can purchase a home with as little as 3% down. This means you can purchase a $150,000 home with a down payment as small as $1,500.

There are a few restrictions, such as having a minimum FICO credit score of 680 the requirement that you must be purchasing your primary property.

If you’re ready to kick renting to the curb, get your mortgage process started. If you have any questions, don’t hesitate to let us know in the comments.


This Post Has 2 Comments

  1. I looking for a 3 bedrooms home in waldrof md 20602 yes i have bad credit i am a retired veteran with va ss payments and wife get ss payment

    1. Good evening, John:

      Thank you for your service! While the VA doesn’t require a specific minimum credit score, lenders set their own policies. At Quicken Loans, we require a median credit score of 620 in order to qualify for a VA loan. With that said, I think it would be good for you to speak with one of our Home Loan Experts at (888) 980-6716. They can work with you to come up with a plan to get your credit where it needs to be in order to give you qualification options. As far as the finding of a home, our friends at Rocket Homes Real Estate LLC can help match you with an agent who can work to help you find a home that meets your goals. Happy holidays and have a great night!

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