Breaking Down the Finances of Renting a Home

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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
• Is It Cheaper to Live On or Off Base?

 

Housing is often one of the most significant financial commitments in a household budget. Whether renting or buying a home, this expense typically accounts for the largest portion of monthly costs. For military families who face frequent PCS moves, variable incomes, and evolving needs, understanding the financial implications of renting is essential.

This overview will examine the role of credit scores in the renting house steps, compare the costs of renting versus buying, assess whether living on-base or off-base is more economical, and outline how to establish an appropriate housing budget.

How Your Credit Score Affects Renting

Although a credit score may feel like an abstract concept, it plays a direct and powerful role in financial life. It can carry enough influence that lenders and landlords may focus solely on the number, overlooking the individual behind it. However, credit scores are not arbitrary. Instead, they are the result of five specific factors:

• 35%–Payment history
• 30%–Credit utilization
• 15%–Length of credit history
• 10%–Credit mix
• 10%–New credit activity

According to Experian, credit scores are generally classified into a range of five categories:

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

For rental applications, a credit score above 650 is typically considered favorable. A lower score does not necessarily disqualify a prospective renter, but it may result in additional requirements. This can include a higher security deposit, a co-signer, or proof of stable income.

How to rent with a low credit score:  

1. Provide proof of consistent income. Demonstrating a stable and sufficient income can help offset concerns about creditworthiness.
2. Consider on-base housing. For military families, base housing often bypasses traditional credit requirements.
3. Use a co-signer. A qualified co-signer with strong credit can provide added assurance to landlords.
4. Offer strong references. Letters from previous landlords or employers can reinforce reliability and responsibility.
5. Seek landlords who don’t require credit checks. Some private property owners prioritize income and references over credit scores.
6. Be prepared to pay a higher deposit or several months’ rent upfront. A larger financial commitment may ease a landlord’s concerns.​

When Buying Might Be a Better Option than Renting

Purchasing a home isn’t always the most advantageous financial decision. Despite a common perception that renting is simply “throwing money away,” the reality is more nuanced. While monthly mortgage payments may sometimes be lower than rental costs, homeownership brings additional financial obligations that require careful consideration. These include homeowners' insurance, ongoing maintenance, and unexpected repairs.

For military families, the situation can be even more complex. Frequent PCS orders may make selling or renting their property difficult, and managing more than one property simultaneously can lead to financial strain. 

The choice between renting and buying is rarely clear-cut. Deciding involves factors beyond monthly payments.

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Buying a home may be the better option under certain circumstances:

• When purchasing a property offers greater value or more space for the investment compared to renting.
• When there’s a long-term plan to settle in the area or an intention to return in the future.
• When the property can serve as a rental investment, generating additional income.
• When personal finances are strong and well-prepared to handle the responsibilities of ownership, including savings for emergencies and upkeep.

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Expenses to Consider When Setting Your Budget

While the cost of a mortgage payment or monthly rent often represents the largest portion of housing expenses, it's only the starting point for a comprehensive financial plan. 

For military families, the Basic Allowance for Housing (BAH) is intended to assist with housing expenses during a PCS move (permanent change of station). While it helps offset housing costs, it shouldn’t replace a comprehensive budget that includes all living expenses. Factoring in BAH alongside the cost-of-living expenses like transportation, groceries, and utilities, helps provide a more accurate financial picture.

How to Set a Budget

In order to determine a feasible budget, there are a few rent-to-income ratios that work well. Financial experts often recommend guidelines such as the 30% rule, or the 50/30/20 rule, to help determine an appropriate amount to spend on rent each month.

For this rent-to-income ratio budget, allocate approximately 30% of gross monthly income toward rent. For example, if the monthly income before taxes is $2,800, a reasonable rent budget would be around $840. While this guideline provides a useful starting point, it’s not a one-size-fits-all solution.

Alternatively, the 50/30/20 ratio offers a broader framework by dividing take-home pay (after taxes) into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment. For a take-home income of $2,800 per month, here’s what the breakdown looks like:

• $1,400 allocated to needs, including rent, utilities, groceries, insurance, and minimum debt payments
• $840 for wants, such as entertainment, dining out, and shopping
• $560 for savings and additional debt payments

It is important to remember that pre-approval for a mortgage, or adhering to the 30% rent-to-income ratio, doesn’t automatically mean you should spend the full amount budgeted. A thorough review of overall financial obligations, such as other housing payments, student loans, car loans, retirement contributions, and education expenses, is crucial. It’s equally important to clarify financial goals.

For example, if the priority is to aggressively reduce debt or build savings, a more conservative housing budget is favorable. Choosing a cheaper rental that meets your needs can help you achieve your long-term financial goals.

Additional Expenses to Consider in Your Budget

Utilities

Depending on the location, utility costs can significantly impact a housing budget. These may include water, sewer, trash collection, gas, electricity, property taxes, and homeowners' association (HOA) fees. Having a clear understanding of the average monthly utility expenses in the area is essential for establishing a realistic house-hunting budget.

Maintenance Fees

For renters, maintenance costs are generally limited, as landlords typically handle major repairs. Tenants aren’t typically responsible for large expenses, unless caused by their negligence. However, setting aside a small fund for minor upkeep can prevent unexpected financial strain.

Renters Insurance

Renters insurance is typically affordable, and it should be factored into a budget. Most policies cost less than $20 per month, and they offer valuable protection for personal belongings and liability.

Transportation Costs

When considering rental options farther from work, especially in metropolitan areas like Washington, DC, or San Diego, carefully evaluate transportation costs. Gas, parking fees, tolls, or public transit expenses can quickly add up, and they may offset potential savings from lower rent. It is important to weigh these costs to determine whether living farther away is truly economical.

Other Upfront and Monthly Rental Costs

Other expenses to plan for when renting a home can include application fees, credit check fees, and a security deposit (often equivalent to the first and last month’s rent). Once you move in, you may incur pet fees or pet rent, homeowners’ association (HOA) fees if applicable, and other service or amenity charges. Keep in mind that rent may increase each year, which can impact your long-term housing budget. For a more detailed look, see How Much Rent Can I Afford?, which can help you set a realistic budget.

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Is It Cheaper to Live On or Off Base?  

The short answer is that it depends on the location and individual circumstances. Deciding between on-base and off-base housing requires consideration of local cost of living, personal needs and preferences, available amenities, and current housing options. It’s also important to recognize that what works financially and practically now may change in the future.

In addition to traditional renting and buying, military housing represents a unique third category. Although military housing is technically a form of renting, it operates under its own rules and should be evaluated separately from civilian rental markets.

When It Might Be Cheaper to Live in Base Housing

1. If you're living in a higher cost-of-living area. In metropolitan regions where off-base housing is scarce and competitive (for example, San Diego, Hawaii, and the DC area), on-base housing can offer more space and amenities for the same, or lower, monthly rent price. The value of convenience and community often found on base can be substantial in these markets.
2. Desire for community and proximity to work. Military housing provides a secure environment surrounded by fellow service members and families. While many military families settle in nearby off-base neighborhoods, the sense of community and support built on base is often unmatched.

When It Might Be Cheaper to Live Off Base

1. If there's an opportunity to save money. Most military housing takes the full Basic Allowance for Housing (BAH). This simplifies monthly expenses, but it limits potential savings. Living off base can sometimes allow service members to retain a portion of their BAH if housing costs are below their allowance.
2. Interest in homeownership or investment. For those considering buying a home, living off base is typically the only option. If financially feasible, purchasing a property may be more cost-effective over time than renting. Additionally, owning a home creates the opportunity to generate passive income by renting it out to other military families during future PCS moves.

Housing budgets are complex and involve many factors. There is no one-size-fits-all approach, and housing costs remain one of the largest financial commitments for most individuals and families. An effective first step is to gain a clear and honest understanding of your personal finances.

From there, identifying a financial goal becomes essential. Whether the priority is maintaining a comfortable lifestyle that balances wants and needs or living well below one’s means to focus on debt reduction and savings, that objective will guide how to approach the housing search.

For additional insights, practical tools, and in-depth resources, explore MilitaryByOwner’s blog, which features a variety of guides and tips to support every stage of the journey.

When you’re ready to start the hunt, take a look at MilitaryByOwner's homes for rent or sale and find your next place to call home. Just click the image below to browse our listings:

 

 

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