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Breaking Down the Finances of Renting a Home In Gulf Breeze Florida

By
Real Estate Broker/Owner with Charles Stallions Real Estate Services 610125

What you'll find in this article:

  • How Your Credit Score Affects Renting
  • When Buying Might Be a Better Option Than Renting
  • Expenses to Consider When Setting Your Budget

Let’s discuss one of the enormous financial investments in your life: housing. Whether you rent or buy a home, this portion of your monthly budget is typically the most substantial. We’ll break down the finances of renting a home.

We’ll look at credit scores, determine whether renting or buying is better for your budget, and learn how to calculate an appropriate budget.

 

How Your Credit Score Affects Renting

“A credit score is a statistical number that evaluates a consumer's creditworthiness and is based on credit history.” — Investopedia

While your credit score seems like your twice-removed cousin loosely tied to you, it’s not. It dictates much of your life (financially, anyway). It carries so much weight that some people only see the number and fail to see you. But your credit score isn’t random. It’s carefully calculated based on five key components:

  • 35% - payment history
  • 30% - credit utilization
  • 15% - length of history
  • 10% - types of credit
  • 10% - new credit

Experian breaks down their credit ratings as such:

  • Exceptional: 800-850
  • Very Good: 740-799
  • Good: 670-739
  • Fair: 580-669
  • Very Poor: 300-579

A good credit score for renting is typically above 650. But if your score falls below that magical number, does that mean you can’t rent a home? No. But it will be a little more complicated. There are more hoops to jump through.

Here's what you can do:

  • Show proof of consistent income.
  • Have a co-signer.
  • Provide stellar recommendations.
  • Pursue a rental that doesn’t run a credit check.
  • Be willing to pay more.

Learn more about your credit score and renting:

  • [7 Steps to Help Rebuild Your Credit Score]
  • [Does Your Credit Score Matter When Renting a Home?]
  • [How to Rent a Home with a Bad Credit Score]

When Buying Might Be a Better Option than Renting

Is buying a home always better for your budget? Contrary to popular opinion, no. We’ve all heard it before. Why would you ever rent? You’re just throwing money away! Well, guess what? That’s not true. While monthly mortgage payments are often less than rent, owning a home comes with greater financial responsibility.

 

Not only do you have to account for homeowners insurance, maintenance, and repairs, but if you can’t sell the property or find renters in time, you’re on the hook for two residences. The point is that many gray areas in a discussion are often painted in black and white.

When buying a home might be the better option:

  • If you can get a bigger house with your money,
  • If you plan to stay and settle in or return to the area.
  • If it will make an excellent rental property.
  • If your finances are in order.

Related: [What to Know About Your Finances Before Buying a Home]

Expenses to Consider When Setting Your Budget

The bottom line is that your budget goes beyond your mortgage payment or monthly rent — those bills might be the most significant part of your expenses, but they’re just the starting point.

 

How to Set a Budget

Nerdwallet recommends the 30% rule or the 50/30/20 rule to help you calculate how much you should spend on rent each month:

“One popular rule of thumb is to spend around 30% of your gross income on rent. So if you earn $2,800 per month before taxes, you should spend about $840 per month on rent. This is a solid guideline, but it’s not one-size-fits-all advice.”

“You can also use the 50/30/20 budget as a guide to figure out how much you can afford to spend on rent. This method allocates your take-home pay (after taxes) to 50% for needs, 30% for wants, and 20% for savings and additional debt payments.”

So, if you earn $2,800 per month after taxes, your budget would look something like this:

  • $1,400 for rent, utilities, groceries, insurance, and minimum debt payments.
  • $840 for wants like shopping, happy hour, and concerts.
  • $560 for savings and additional debt payments.

However, like home buying, just because you’re pre-approved for a mortgage (or can spend 30% on rent each month) doesn’t mean you should. It’s best to run the numbers and then look at your finances. How much money do you have pouring into another house payment, student loans, a car payment, retirement, kids' college tuition, etc.? And what’s your goal? If you want to aggressively pay off debt or save, see how little you can put toward monthly rent. If you find a home for $500/month that fits your needs, go for it!

Additional Expenses to Consider in Your Budget

  • Utilities: Depending on where you live, they could be a heavy burden: water, sewer, trash, gas, electricity, property taxes, HOA fees, etc. Understanding how much you can expect to pay monthly utilities will help you set a proper house-hunting budget.
  • Maintenance: Maintenance expenses for renters aren’t usually a cause for concern. Since the landlord is typically responsible for the big stuff, you shouldn’t expect to dish out hundreds of dollars in repairs (unless the damage was your fault). However, it’s not a bad idea to create a fund for the little things you are responsible for maintaining around the property, like light bulbs, lawn care, paint, batteries, etc.
  • Insurance: Renters insurance is generally benign to your budget. Most don’t exceed $20 a month.
  • Transportation: You might think you can save money each month by finding a less expensive rental out of the city. While that’s a nice thought and should be considered, be sure to factor in the cost of transportation. Whether it’s gas or public transportation fees, you might not save enough money in rent to warrant the distance from work.

Budgeting for a house is no small feat. There are many factors to consider, and there’s no right way to go about it. The cost of housing is expensive, bottom line. The best thing you can do is make yourself painfully aware of your finances. Pick a goal. Is it to live comfortably with your wants and needs or to live under your means to pay off debt and save? Your response to that question will help you prioritize how you’ll approach your house hunt. And if you have more questions or need more guidance, head to our blog, where we’ve got all the info you need!

And when you’re ready to start the hunt, look at and find the next place to call home. Just click the image below to browse our listings!

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Dennis Neal
RE/MAX, Big Bear - Big Bear Lake, CA
Your Home Sold in 21 Days or We Sell It For Free

Hi, Charles. It looks like great things are happening in your market. Thank you for sharing. Have a fantastic week.

Jun 14, 2024 10:32 AM