By Brandon Koll | Last Updated 9/8/2025
For most people, their biggest expense is housing. Whether you are renting or buying a house, the monthly payment is usually a large hit to your budget. What are some things that you should consider before signing a lease or mortgage paperwork? We can start by looking at renting a place.
Renting
If you are just moving out on your own or renting just makes sense for your situation, you want to be careful and put yourself in a situation to succeed. Too many people fall in love with a beautiful apartment that makes their budget overly tight. Let’s look at some tips for your first time renting.
Getting started
We can imagine that you just landed your first descent paying job and you want to move out on your own. The first thing you need to do is get some savings put together that will cover your first and last month of rent and a security deposit. Look around at different places available to get an idea of how much you will need. If there is no rush to be out on your own, you should also have an emergency fund built up that will cover at least 3 months of your expenses. Calculate the 3 months based off the average rent and utilities that you think you will be paying.
How much can I afford?
Once you have saved everything up to secure your place, take a hard look at what you can afford. If the rent is more than 30% of your take home pay, you should look at other options. If you have debt such as a car payment or credit card payments, you might want to look at becoming debt free or at least reducing your debt before jumping in on a new place.
Find something in your range
Now that you know how much you can spend, it is time to find a place in your range. If you can’t find anything affordable in your desired location, you might have to look further out or in worse neighborhoods. Another option is to find a roommate. In my opinion, it is much better to live with someone than to have no extra margin in your budget. Make sure that you find something that will set you up for success and leave you extra money to save and pay off debt.
Buying
If you are looking at buying instead of renting, there are other things to consider. We are going to look at getting a loan, what kind of downpayment you should do, and the most important thing in real estate. Let’s start with getting a mortgage loan.
Bank approval for a loan
If you have good credit, getting a loan for a house is typically easy. There are other factors that can complicate things, but most people with good credit can get a loan. There are also banks that will work with people that have no credit, but you must look a little harder. The problem is that most banks will qualify you for more money than they should. You will see approvals that go as high as 50% of your take home pay. Stay with what I said for renting at less than 30% of your take home pay.
Down payment
Another big part of buying a house is having a down payment. You want to have at least 20% down to buy a house. The first reason to have 20% is the fact that you won’t have to pay Private Mortgage Insurance. Anytime you can avoid adding extra money to your payment, you should. The second reason for 20% is that it will help lower that payment. Once again, do what you can to free up margin in your budget.
What loan term should you get?
Once you have the down payment saved up, you should look at the loan terms. I’m going to make this simple. Do a 15-year fixed mortgage. When you pay on a mortgage, most of the interest is paid in the early years. This set up makes a 30-year loan much less desirable. Now that you have all these items figured out, it is time to look at the most important thing.
Location
I’ve heard many times that the 3 most important things in real estate are location, location, and location. You need to really study the market in the area you want to buy. When you find a place make sure there is not a location issue. Is the place on a major road? Is the place sitting on low ground that would be prone to flooding? Is there an airport or an active train nearby? All these things can kill the value of a place and make it difficult to live in.
Finance Hack – Pick a good location and make sure you still have margin in your budget.
It can be very exciting to get a new place. Don’t get so excited that you make a bad decision that you must live with for a while. Ensure you pay a lot of attention to the location of your new place. Maybe go as far as visiting the place on many different days and times to see it at all hours. The other main thing to consider is the fact that you can afford the place. If it leaves you with minimal margin in your budget, don’t do it.
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