Things to consider when renting a home

0:00- [Narrator] Let's talk about things to consider when renting. So the first consideration is how much should you spend? And a general rule of thumb is that you should spend a maximum of 30%. I could write that neater, 30% of gross income on housing costs. Now, I didn't say rent here, I said housing costs.

0:25And I'm gonna tell you in a second what the difference is. But, first, let's think about gross income. That is your income before you pay things like taxes. So let's say that you are making $5,000 a month. You don't have a take-home salary after paying taxes of "5,000, but this is what your employer says they're paying you.

0:43Well, in that world, you shouldn't spend any more than 30% of it on housing costs, 30% of $5,000, that would be $1,500. That should be your limit. Now you might say, "Okay, does that mean I can spend $1,500 on rent?" Well, that's where we go and think about what I meant by housing costs.

1:00Housing costs are rent, plus utilities, plus maybe there's types of insurance. Maybe you have to pay for parking, maybe you have to pay extra because you have a pet. Who knows? That's rent plus other costs. And if you're going to pay, say utilities, then just $1,500 in rent might break this rule.

1:19Now, this rule isn't written down in law, but it's a good thing for you to pay attention to so that you don't break your own budget. And it turns out that in many cases, the landlords might wanna hold you to this. Sometimes they have a rule that your gross income needs to be at least three times the rent.

1:38Now, here, we're saying 30% on housing costs. I just said three times the rent, the numbers are close, but that's the landlord imposing this constraint on you. Now, above and beyond that, the landlord's going to look at things like credit history or let's say a credit report, to see how good you have been at paying your bills before.

1:58They might want to look at a rental history, sometimes even want referrals of your previous landlords to make sure that not only were you paying things on time, but that you were a good tenant and you took care of the property. Now, there might be sometimes they also wanna look at making sure when you tell them your income that you are good for it.

2:18So sometimes they even might want a reference to, say, your employer. Now, the other things to think about are things like a pet policy. If you have a pet, that usually makes it a little bit harder to find a place, depending on the pet, depending on its size. Some places might not want pets, they don't allow it, or they charge extra for pets because they think it might damage the property in some way.

2:42There's also occupancy limits or occupancy rules. This is how many people can stay in a place. This is usually if they're going to have some type of occupancy rules, it's usually two people, people, per bedroom. So, if there's a two bedroom place, they might have an occupancy limit of say four.

3:07So it might be hard for a family of five to rent a two-bedroom apartment. Now, once again, this isn't a hard and fast rule and people might be willing to make exceptions, but you should definitely ask about that before you go too far down the process. Now, we talked a lot that housing costs are not just rent.

3:23It also could include utilities. So this is a good thing to ask if rent includes utilities or do you have to pay that separately? Pay that as well? And then last but not least, you might say, "Okay, I'm good. "This is no more than 30% of my gross income, "the housing costs, I have a great credit report.

3:45"I don't have pets, or I know that they allow pets. "I can give good references. "I'm not going to violate the occupancy limits." But, there's also upfront money above and beyond just paying the rent. Usually the upfront money that you have to provide when you get a place is first month's rent, first month rent, a security deposit, which is usually equivalent to first month's rent, or it's usually pretty close to whatever the rent is.

4:16And this is a way that the landlord protects themselves if you were to damage the property in some place, they would deduct what it would cost to repair from your security deposit. If you take really good care of the place when you leave, the security deposit is refundable, or most of it will be refundable, depending on how much wear and tear is on the property.

4:34And, then, in a lot of places, they also want last month's rent, last month rent. And they do this because most landlords want at least 30-days notice before you leave a place. So this protects them that if someone were to just leave, they still have that last month's rent.

4:51So, that essentially allows them to have 30-days notice. But this could add up to a lot of money. If we go back to the scenario where the rent is, say, $1,500, then you would be looking at $4,500 in upfront money before they hand you the keys here. So definitely pay close attention to that.

5:10And some places actually have things like moving costs or things like that if it's in a some type of apartment that charges extra fees. So, just make sure you have all of that in consideration before you go too far down the process.