Are you spending half or more of your income on rent? If the answer is yes, you’re not alone. A recent Harvard study found that 26% of Americans are doing exactly that, up from 20 percent in 2001.
Conventional wisdom is that around 30% of your income is a comfortable amount to spend on housing. However, this number can vary for some people based on their lifestyle and location. For instance, notoriously high-rent areas like New York City can see most people spending 40% of their income, but some residents may feel this cost balanced out by using public transportation, relying on the public school system or accessing higher paying jobs.
Further, not all experts agree on how to calculate that magic 30% number. Some advocate calculating your take home pay and allocating 25-30% of that number, while others rely on the total gross salary as a guide. Some include utilities and other costs in the category of “housing payment” and some do not. Even if you do manage to find a monthly payment that’s comfortable for you and an apartment that fits your needs, there are no guarantees that your rent won’t increase. In fact, you can be almost certain it will over time.
So why are people still renting? For many, the biggest barrier to homeownership is saving up for a down payment. Traditionally, mortgage companies used to require a 20% down payment to buy a home, which can be difficult to save for if you are spending half of your money on rent. However, now there are many low or no down payment programs available and some that offer down payment grants to homebuyers (speak to a local lender to see if these apply). Many renters simply aren’t aware that there is an easy way off the treadmill and into a fixed monthly payment without dipping into savings. Lots of current renters also may not know if they qualify for down payment assistance.
Talk to your Academy Loan Officer today to find out if you qualify to be a homeowner!
*Please consult a tax professional about your specific situation and the tax saving benefits of homeownership.