- Don't wait until the last minute—renting your first apartment requires a lot of planning.
- Take steps to build your credit and save for upfront costs and emergencies well in advance, maybe even years before moving out of home or college.
- Before looking at listings, locate a cosigner (if necessary), and determine your budget and roommate situation.
Renting your first apartment is an exciting life step but it can take a lot of financial planning to get there.
If you want to rent an apartment, you may have to start saving and taking proactive steps to build a credit score years before you plan to rent. No, midway through college is not too early to start planning for where you will live after you graduate.
It may seem strange to financially plan for something 3 years down the road, but taking small steps to better position yourself financially will help grant you financial freedom when it comes time to rent your first apartment.
1. Establishing a credit history
Typically, landlords check your credit report and credit score when you apply for a lease. Your credit score is a number used by lenders to determine how likely you are to repay money borrowed. Scores are normally between 300 and 850, and the higher the better. Your score is determined by multiple factors including the length of your credit history, what portion of your total credit limits you use, and your bill payment history.
With a higher credit score, you are generally considered less of a credit risk to lenders. Your credit report is more comprehensive than your credit score, containing your personal information, your credit history (credit lines open, credit limit or loan amount, average monthly credit balance, and your bill paying history), credit inquiries or who has asked to look at your credit score or report, and any appearances in public records for credit-related matters such as bankruptcies, tax liens, or civil judgments.
Landlords may look at your credit score or ask for a credit report to make sure you'll pay your future rent payments. Without a viable credit score or a good credit report, your lease application could get rejected or you may be required to have a cosigner (more about cosigners in point 4).
Building a credit score takes time, so you don't want to neglect it until you're about to apply. If you don't have a strong credit history, it's a good idea to start building one now.
If you don't already have one, consider applying for and using an entry-level credit card. Even a secured card (one that requires a deposit) can help build your credit. Incorporating good credit habits into your regular financial routines will help boost your score, which can make you a more attractive tenant to landlords.
2. Save for upfront costs and emergencies
Renting an apartment can require up front costs and fees. Often, a landlord will ask for the first and the last month of rent upfront. Depending on the city and leasing agent, you could also be required to pay a brokerage fee, which typically is an additional month's rent. Also, you may have to put down a security deposit, which can range from a few hundred dollars up to thousands.
Let's take an apartment that costs $1,500 in rent a month as an example. After the 2 months' rent up front, a possible brokerage fee, and a security deposit, you could possibly have to pay more than $4,000 up front to sign a lease. On top of that, moving can also bring up additional unexpected costs, including moving expenses, and buying necessary furniture.
A strong foundation of budgeting, debt management, and saving can help you create financial habits to afford upfront costs and future emergencies. It does take time and effort to save, but the earlier you start the easier it can be. Setting small goals on your way to the larger ones can help with your long-term motivation and gradually strengthen your finances. To learn more about how to create a budget and start an emergency fund, build toward savings goals, read more Viewpoints on Fidelity.com: Preparing for emergencies.
3. Making your application more attractive
Landlords may ask for a renting history during your application process. If you are moving out of college housing, they could request information from your college or university to see if you had any complaints or violations. A great way to make your application more attractive is asking for letters of recommendation from your college or from your past or present employer to send to your landlord. Having somebody vouch for you generally can only help a landlord see you as a more viable tenant. It is important to be cognizant that your current renting behavior, even if you are living on a college campus, can impact your future applications.
4. Find a possible cosigner
Even with a high credit score and a good credit report, some landlords will require you to have a cosigner if it is your first time renting. A cosigner is a someone who is legally obligated to pay your rent if you fail to do so. Before applying, it is a good idea to ask someone close to you, perhaps a family member or a friend, if they could be willing and able to cosign on your lease. Having these conversations before looking at possible properties to lease will help you understand which locations you are a viable candidate for and be more informed of your situation if asked by a brokerage agent or landlord.
5. Budgeting and roommates
When it comes to budgeting and understanding how much you can afford to pay in rent, we suggest the 50/15/15 rule. It's our simple rule of thumb for saving and spending: Aim to allocate no more than 50% of take-home pay to essential expenses, save 15% of pretax income for retirement savings, and keep 5% of take-home pay for short-term savings. (Your situation may be different, but you can use our rule of thumb as a starting point.)
Part of the "50%" includes your rent. But remember, just because some expenses are essential, like your rent, doesn't mean they're not flexible. Consider exactly how much you need to spend, not just what you can afford. To learn more about how to establish a budget, read more Viewpoints on Fidelity.com: 50/15/5: a saving and spending rule of thumb.*
Once you have your estimated rent budget nailed down, make sure to stick to it. Not touring or looking at apartments that are over your budget can help reduce temptation to go over budget.
If you are looking to reduce your rent cost, you can consider living with roommates. As with a cosigner, it is important to have conversations with possible roommates before starting your apartment search to ensure a more informed and less stressful search process.
One more note about renter's insurance
Renter's insurance can be great idea to help protect you in case of an emergency. Not only can renter's insurance protect your belongings in case of emergencies like fire or flooding, but some plans even have coverage from theft. Before agreeing to any insurance, make sure to read the agreement in full to understand what is covered in your policy and what may not be.
Looking for some saving guidance? Consider setting up a savings goal to help you save up for your first place.