Hello! Here’s an awesome post from my friend Emma. As you know, we recently downsized and we now live in our RV. Life is awesome!
In August of 2015, we returned from 15 months of travel through Mexico and Europe with our young son.
We saved hard throughout my pregnancy and were able to fund 15 months of travel with our savings.
However, eventually our savings ran out and we had to go home. Although the savings account was decimated, my attitude to life was completely altered.
I was hooked and wanted to make travel a core part of my everyday lifestyle. I came up with a slightly crazy goal of chasing the summer around the world, traveling for months at a time – between hemispheres, across oceans. Cruise ships. Train travel. Driving an RV across the US.
Wherever we wanted to go.
I knew we’d have to make huge changes to our life to pull it off but I was determined. Not only would we need to drastically reduce our expenses, we also had to build a business that was online so we could work on our own terms – and get paid regardless of where we were in the world. However, after time away from the workforce our retirement savings had suffered and we were moving back to a large mortgage which required a stable paycheck. Returning to an office job, whilst putting our son in daycare, in order to pay a large mortgage sounded like the complete opposite of my dream.
Not one to easily accept defeat, I kept thinking and reflecting. The solution came whilst my husband and I were discussing our return home over a cafe con leche in Spain. We always assumed we’d move back into the large bungalow we’d lived in before departing for our trip. The bungalow was rented out whilst we traveled and all of our belongings were in storage. However, after almost a year of living out of suitcases the thought of unpacking all of our stuff was overwhelming.
We knew that we could live a simpler life, as we’d been very happy traveling with minimal possessions.
We own a smaller, 2 bedroom 860 sq/ft townhouse that was purchased as a rental investment property. I suggested to my husband that we could move to the smaller property and keep the renters in the larger house. After all, the smaller house was still bigger than almost every hotel room and vacation rental we had stayed in.
After some number crunching, we decided to try living smaller and we’ve discovered it suits our lifestyle perfectly.
Here’s why:
Drastically reduced expenses
All of our core bills have been slashed – we now have a lower monthly mortgage payment, lower property taxes, and much lower utility bills.
This combined with increased income from rent on the larger house nets us over $1000 per month. That means we can afford to maintain our lifestyle on my husband’s income, allowing me the financial breathing room to build the business without the pressure of needing to bring in an income right away.
Related: How To Live On One Income
Potential Airbnb rental
One of the ways we plan to fund our travels is by renting out our house on Airbnb when we travel.
An older, larger house in the suburbs isn’t as appealing to guests as a more compact and well-serviced property, close to public transit and beaches. The house will need a full renovation – including a new kitchen, bathroom and dining room conversion – to be up to vacation rental standard but the work is not super-urgent. We can live with it until my business is bringing in more income.
Reduced cleaning time
Any person will tell you that trying to get stuff done – like build a business – with small children around is difficult. I want to spend nap time working on my business, not cleaning up.
Thankfully, I can now vacuum 80% of my house from one socket. We only have one (teeny tiny) bathroom to clean. Less time cleaning means more time working on my business. Saving time is as important as saving money for me right now.
Forced minimalism
We’ve actively decluttered by reducing our belongings down to the essentials and those which give us joy. It’s a work in progress but eventually, we hope to get to the stage where our personal belongings are able to be packed up in a day – and stored securely – so we could take off travelling and leave just the core essentials for Airbnb guests.
I’m committed to donating one bag of items to charity and listing one item of value for sale online each week. So far, I’ve made over $200 getting rid of stuff we don’t need.
Better neighborhood
Often smaller accommodation is found in more densely populated areas with better local services. This is certainly the case for us. We purchased the smaller property for $30,000 less than the cost of our larger suburban property.
Our new neighborhood is close to all amenities and is an employment centre with a lot of manufacturing and services. We have everything we need within walking distance which means we walk a lot. To the supermarket, the playground, preschool. This saves money on gas and other car expenses and is better for our health.
No long commute
We targeted the surrounding area when hunting for jobs for my husband and were successful in finding a position a ten minute bike ride away.
This is great because he gets home sooner which gives me more time to work on the business while he wrangles the boys. Plus, we can remain a one-car family which helps to keep our expenses down.
Our dream life is now within reach
I have a dream of chasing the sun around the world. That means we’d like to be able to travel internationally for at least three months of every year.
With two adults and two kids to pay for we require a travel fund of approximately $15,000 per year. To make that happen, we need to create a location-independent business and have our house generate income whilst we travel.
By downsizing our house and slashing our expenses, we’ve been able to align our financial reality with our dreams. I’m so excited to put this plan in motion and I’m hopeful a lifetime full of travel will be worth the tradeoff of having to share my (only) bathroom with three boys for the next 18 years.
Author bio: Emma Healey is a mother of two. She writes about living well in small spaces with kids on her blog Little House, Lovely Home.
Are you interested in downsizing? Why or why not? How much money could it save you?
Inside: This guide will teach you about the different factors you need to consider when purchasing a home with a 70k salary.
There are a lot of factors to consider when you’re trying to figure out how much house you can afford. Your income, your debts, your down payment, and the interest rate on your mortgage all play a role in determining how much house you can afford.
Your situation will be different than the person next-door or your co-coworker.
Making 70000 a year is a great salary. You are making the median salary in the United States.
It’s enough to comfortably afford most homes and gives you plenty of room to save money each month.
But how much house can you actually afford?
It depends on several factors, including your down payment, interest rate, income, and credit score.
In this ultimate guide, we’ll walk you through everything you need to know about how much house you can afford making 70000 a year.
how much house can i afford on 70k
In general, you can expect to spend 28-36% of your income on housing.
Generally speaking, if you make $70,000 a year, you can afford a house between $226,000 and $380,000.
How much mortgage on 70k salary?
In general, you should expect to spend no more than 28% of your monthly income on a mortgage payment.
Thus, you can spend approximately$1633-2100 a month on a mortgage.
Just remember this is relative to the interest rate, term length of the loan, down payment, and other factors.
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28/36 Rule
But there’s one factor that trumps all the others: The 28/36 rule.
Also known as the debt-to-income (DTI) ratio.
The 28/36 rule is a guideline that says that your housing costs (mortgage payments, property taxes, homeowners insurance, and HOA fees) should not exceed 28% of your gross monthly income.
And your total debt (housing costs plus any other debts you have, like car payments or credit card bills) should not exceed 36% of your gross monthly income.
You must follow the 28/36 rule.
How to calculate how much mortgage you can afford?
If you’re like most people, you probably don’t know how to calculate how much mortgage you can afford.
This is actually a really important question that you need to ask yourself before beginning the home-buying process.
The answer will help determine the price range of homes you should be looking at. Plus know how much money you’ll need to save for a down payment.
Step #1: Check Interest Rates
Research current mortgage rates to get an accurate estimate. You can also check your credit score and search for average mortgage rates based on your credit score.
Right now, with sky-high inflation, you are unable to afford a bigger house when interest rates are hovering around 6% compared to ultra-low interest rates of 2.5%.
With a 70k salary, this can be the difference between $50-100k on the total mortgage amount you can afford.
Step #2: Use a Mortgage Calculator
Use a mortgage calculator to get an estimate of the home price you can afford based on your income, debt profile, and down payment.
Generally, lenders cap the maximum amount of monthly gross income you can use toward the loan’s principal and interest payment to not more than 28% of your gross monthly income (called the “Front-End” or “Housing Expense” ratio). Then, limit your total allowable debt-to-income ratio (called the “Back-End” ratio) to not more than 36%.
You can use a mortgage calculator to a ballpark range of what house you can afford.
Step #3: Taxes, Insurance, and PMI
When planning for a home purchase, it’s important to factor in all of your monthly expenses, including taxes, insurance, and PMI.
This will ensure that you get an accurate estimate of your home-buying budget based on your household annual income.
Don’t forget to include these payments to get a realistic understanding of your monthly budget.
Step #4: Remember your Living Expenses
When considering how much house you can afford based on your $70,000 salary, you must consider your lifestyle and current expenses.
It is important to factor in other monthly expenses such as cell phone and internet bills, utilities, insurance costs, and other bills.
More than likely, you will be approved for a higher mortgage amount than you would feel comfortable with. This is 100% what lenders will do.
They want to provide you with the most you can afford – not what you should afford.
Step #5: Get prequalified
Prequalifying for a mortgage is an important first step to take when estimating how much house you can afford.
It gives you a more precise figure to work with and helps you make a more informed decision based on your personal situation.
Remember that your final amount will vary depending on a number of factors, especially your interest rate, which will be based on your credit score.
Taking the time to research current mortgage rates helps you secure a better mortgage rate, giving you more buying power.
Home Buying by Down Payment
How much house can you afford?
It’s a common question among home buyers — especially first-time home buyers. Use this table to figure out how much house you can reasonably afford given your salary and other monthly obligations.
The assumption is 30 year fixed mortgage, good credit (690-719), no monthly debt, and a 4% interest rate.
Annual Income
Downpayment
Monthly Payment
How Much House Can I Afford?
$70,000
$9,552 (3%)
$1,750
$318,412
$70,000
$16,215 (5%)
$1,750
$324,316
$70,000
$34,058 (10%)
$1,750
$340,581
$70,000
$53,573 (15%)
$1,750
$357,152
$70,000
$75,094 (20%)
$1,750
$375,468
$70,000
$98,933 (25%)
$1,750
$395,731
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Mortgage on 70k Salary Based on Monthly Payment and Interest Rate
How much house can you afford on a $70,000 salary?
This largely depends on the current interest rate of the mortgage loan you’re considering. When interest rates are high, people aren’t actively buying as when interest rates are low.
By understanding these factors, you can better gauge how much house you can afford on a $70,000 salary.
The assumption is 30 year fixed mortgage, good credit (690-719), no monthly debt, and a 20% downpayment.
Annual Income
Monthly Payment
Interest Rate
How Much House Can I Afford?
$70,000
$1,750
3.25%
$406,796
$70,000
$1,750
3.5%
$396,231
$70,000
$1,750
3.75%
$386,101
$70,000
$1,750
4%
$375,994
$70,000
$1,750
4.5%
$357,554
$70,000
$1,750
5%
$339,954
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Home Affordability Calculator by Debt-to-Income Ratio
Around here at Money Bliss, we always stress that debt will hold you back.
In the case of buying a house, debt increases your DTI ratio.
Here is a glimpse at what monthly debt can cause your debt-to-income (DTI) ratio to increase. Thus, making the house you want to buy to be more difficult.
Annual Income
Monthly Payment
Monthly Debt
How Much House Can I Afford?
$70,000
$2,100
$0
$440,085
$70,000
$1,900
$200
$404,584
$70,000
$1,800
$300
$382,334
$70,000
$1,600
$500
$337,883
$70,000
$1,350
$750
$282,208
$70,000
$1,100
$1000
$226,582
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Increase your Home Buying Budget
Here are a few ways you can increase your home buying budget when buying a house on a $70k annual income.
By following these steps, you can increase your home buying budget and find a more suitable house for your income.
1. Pick a Cheaper Home
Home prices vary significantly in different parts of the country.
Moving out of a major metropolitan area with notoriously high housing costs can help you find more affordable homes.
There are plenty of ways to find a home that is cheaper than you would normally expect.
Look for homes that are for sale in less desirable neighborhoods.
Find homes that are for sale by owner or have not been listed yet.
Check for homes that are for sale outside of your usual price range and haven’t sold as they may drop their price.
Move to a lower cost of living area.
2. Increase Your Down Payment Savings
A larger down payment can reduce the amount you have to finance, which lowers your monthly payment.
Plus help you get a lower interest rate and avoid paying PMI.
Putting down at least 10-20 percent of the home sale price can help boost your home buying power. You can also take advantage of down payment assistance programs in your area.
3. Pay Down Your Existing Debt
Paying down your debts such as credit card debts or auto loans can help raise your maximum home loan.
Paying down your debts can help you qualify for a higher loan amount.
This is because when you have lower amounts of debt, your credit score is higher and your debt-to-income ratio is less. This means you are less likely to be rejected for a home loan.
4. Improve Your Credit Score
A higher credit score can lead to lower rates and more affordable payments.
You can improve your credit score by:
Paying your bills on time
Paying down your credit card balances
Avoiding opening new credit before applying for a mortgage
Disputing any errors on your credit report
This is very true! We had an unfortunate debt that wasn’t ours added to our credit report right before closing. While the debt was an error, it still cost us a higher interest rate and forced us to refinance once the credit report was fixed.
5. Increase Your Income
Asking for a raise, seeking a higher-paid position, or starting a side gig can help you increase the amount of home you can afford.
While you need two years of income from a side gig or your own online business to count as income, the extra cash earned helps you to increase the size of your downpayment. Plus it lowers your debt-to-income ratio with the savings you are setting aside.
What factors should you consider when deciding how much you can afford for a mortgage?
How much house can you afford on your current salary and with your current monthly debts?
This is a question that we are often asked, and it’s one that we love to answer.
We’ll walk you through all the different factors that go into this decision so that you can make an informed choice.
1. Loan amount
The loan amount is a key factor that affects the total cost of a mortgage.
If you have no outstanding debt, a 20% down payment, a high credit score, and a 3.5% interest rate from an FHA loan, you could be able to afford up to $508,000.
However, if you have debt, a smaller down payment, or a lower credit score, the loan amount you can qualify for will be lower.
Similarly, if you choose a 15-year fixed-rate loan, your monthly payments will be higher, but you will end up paying less in interest over the life of the loan than with a 30-year fixed-rate loan.
Ultimately, your loan amount will affect the total cost of your mortgage, so it’s important to consider all the factors when making your decision.
2. Mortgage Interest rate
Mortgage interest rates can have a significant impact on the cost of a mortgage. The higher the interest rate, the more expensive the loan will be.
For example, a difference between a 3% and 4% interest rate on a $300,000 mortgage is more than $150 on the monthly payment.
Remember, in the first few years of a mortgage, the majority of the payment goes toward interest rather than trying to reduce the principal amount.
3. Type of Mortgage
The primary difference between a fixed and variable mortgage is the interest rate and the amount of your payment
Fixed-rate mortgages offer the stability of having the same interest rate for the life of the loan.
Adjustable-rate mortgages (ARMs) come with lower interest rates to start, but those rates can change over the life of the loan. ARMs are often a riskier choice, as if the economy falters, the interest rate can go up.
Fixed-rate loans are typically the most popular choice, as the monthly payment amount is more predictable and easier to budget for. The terms of a fixed-rate loan can range from 10 to 30 years, depending on the lender.
Adjustable-rate mortgages (ARMs) have interest rates that can increase or decrease annually based on an index plus a margin. ARMs are typically more attractive to borrowers who plan on staying in the home for a shorter period of time, as the lower initial interest rate can make the payments more manageable.
The Money Bliss recommendation is to choose a 15-year fixed-rate mortgage.
4. Property value
Property value can have a direct effect on how much you can afford for a mortgage.
As the value of the property increases, so does the amount of money you will need to borrow to purchase it. This, in turn, affects the monthly payments and the amount of interest you will pay over the life of the loan.
This is especially important as many people have been priced out of the market with the rising home prices.
Additionally, higher property values can mean higher taxes, which will add to the amount you need to budget for your mortgage payments.
5. Homeowner insurance
Homeowner’s insurance is a requirement when securing a loan and it can vary depending on the value and location of the home.
Additionally, certain areas that are prone to natural disasters or are located in densely populated areas may have higher premiums than other locations and may require additional insurance like flood insurance.
As a result, lenders typically require that you purchase homeowners insurance in order to secure a loan, and may have specific requirements for the type or amount of coverage that you need to purchase.
Before committing to a mortgage, it is important to consider the cost of homeowner’s insurance and make sure it fits into your budget.
This is something you do not want to skimp on as the cost to replace a home is very expensive.
6. Property taxes
Property taxes are calculated based on the value of a home and the tax rate of the city or county where the property resides.
The higher the property taxes, the more you will have to pay in your monthly mortgage payment.
In states with high property taxes, the property tax bill can be a large sum of the mortgage payment.
It is important to consider these costs when comparing different homes and locations to ensure you can afford the home without stretching your budget too thin.
7. Home repairs and maintenance
It’s important to also consider other factors such as the age of the house, since some properties may require renovation and repairs that can cost more than the house price itself.
Beyond the cost of purchasing a home, homeowners will likely have other expenses related to owning and maintaining the property.
Also, many homeowners prefer to do significant upgrades to the home before moving in, which comes at an additional expense.
These can include ordinary expenses such as painting, taking care of a lawn, fixing appliances, and cleaning living spaces, which can add up.
Additionally, it’s advisable to buy a home that falls in the middle of your price range to ensure you have some extra money for unexpected costs, such as repairs and maintenance.
8. HOA or Homeowners Association Maintenance
This is often an overlooked factor by many new homebuyers, but extremely important as some HOAs add $500-800 per month to the total housing budget.
The purpose of a homeowners association (HOA) is to establish a set of rules and regulations for residents to follow as well as maintain the community or building.
These fees are typically used to pay for maintenance, amenities, landscaping, and concierge services.
HOA fees are used to finance community upkeep, including landscaping and joint space development, and can range from $100 to over $1,000 per month, depending on the amenities in the association.
9. Utility bills
When switching from renting to buying a home, you will have to factor in the costs of your monthly utility bills such as electricity, natural gas, water, garbage and recycling, cable TV, internet, and cell phone when calculating how much mortgage you can afford.
In addition, the larger the home, the higher the costs to heat and cool your new home.
Make sure to ask your realtor for previous utility bills on the property you are interested in.
10. Private Mortgage Insurance
The purpose of private mortgage insurance (PMI) is to protect the lender in the event of foreclosure. It is typically required when a borrower is unable to make a 20% down payment on a home purchase.
PMI allows borrowers to purchase a home with less upfront capital, but also comes with additional monthly costs that are added to the mortgage payment. These fees range from 0.5% to 2.5% of the loan’s value annually and are based on the amount of money put down.
PMI can also be canceled or refinanced once the borrower has achieved 20% equity in the home or when the outstanding loan amount reaches 80% of the home’s purchase price.
11. Moving costs
Moving is expensive, but also a pain to do. So, consider the moving costs associated with relocating from one location to another.
Typically fees for packing, transportation, and possibly storage, and can vary depending on the size of the move and the distance the move needs to cover.
Also, consider if by buying a home, you will stop having moving costs associated with moving from rental to rental.
FAQ
When determining how much house you can afford, it’s important to consider several factors.
These include your income, existing debts, interest rates, credit history, credit score, monthly debt, monthly expenses, utilities, groceries, down payment, loan options (such as FHA or VA loans), and location (which affects the interest rate and property tax). Also, think about the costs of maintaining or renovating a home.
Additionally, you should also evaluate your own budget and assess whether now is the right time to purchase a home. Taking all of these factors into account can help you set the maximum limit on what you can realistically afford.
A mortgage calculator can help you determine your home affordability by providing an estimate of the home price you can afford based on your income, debt profile, and down payment.
It works by inputting your annual income and estimated mortgage rate, which then calculates the maximum amount of money you’re able to spend on a house and the expected monthly payment.
Additionally, different methods are available to factor in your debt-to-income ratio or your proposed housing budget, allowing you to get a more accurate estimate of your home buying budget.
The debt-to-income ratio or DTI is used by lenders to assess a borrower’s ability to make mortgage payments.
This ratio is calculated by taking the total of all of a borrower’s monthly recurring debts (including mortgage payments) and dividing it by the borrower’s monthly pre-tax household income.
A high DTI ratio indicates that the borrower’s debt is high relative to income, and could reduce the amount of loan they are qualified to receive.
Generally, lenders prefer a DTI of 36% or less, which allows borrowers to qualify for better interest rates on their mortgages.
To calculate their DTI, borrowers should include debt such as credit card payments, car loans, student and other loans, along with housing expenses. It is important to note that the DTI does not include other monthly expenses such as groceries, gas, or current rent payments.
Closing costs can have an enormous impact on how much home you’re able to afford.
From application fees and down payments to attorney costs and credit report fees, these costs can add up quickly and affect your overall budget. Unfortunately, most of these closing costs are non-negotiable, but you can ask the seller to pay them.
When buying a house, it is important to research the different mortgage options available to you.
You can typically choose between a conventional loan that is guaranteed by a private lender or banking institution, or a government-backed loan. Depending on your monthly payment and down payment availability, you may be able to select between a 15-year or a 30-year loan.
A conventional loan typically offers better interest rates and payment flexibility.
While a government-backed loan may be more lenient with its credit and down payment requirements.
For veterans or first-time home buyers, there may be special mortgage options available to them.
Ultimately, it is important to talk to a lender to see which loan type is best for your personal circumstances.
When it comes to saving for a down payment, it’s important to understand how much you’ll need and how much it will affect your budget.
Generally, you’ll need 20% of the cost of the home for a conventional mortgage and 25% for an investment property. When you put down more money, it gives you more buying power and may help you negotiate a lower interest rate.
For example, if you’re buying a $300,000 house, you’ll need a down payment of $60,000 for a conventional mortgage. On the other hand, if you put down 10%, you can still afford a $395,557 house. But, you will have to pay for private mortgage insurance.
In addition, there are other ways to help you cover these upfront costs. You can look into down payment assistance programs.
Ultimately, the size of your down payment will depend on your budget and financial goals. You should never deplete your savings account just to make a larger down payment. It’s important to factor in emergency funds and other expenses when deciding on the best option.
Eligibility requirements for loan lenders can vary, but in general, lenders are looking for borrowers with a good credit score, a reliable income, and a history of employment or income stability.
For most loan types, borrowers will need to show a history of two consecutive years of employment in order to qualify. However, lenders may be more flexible if the borrower is just beginning their career or if they are self-employed and do not have W2 forms and official pay stubs.
Income verification also needs to be done “on paper”, meaning that cash tips that do not appear on pay stubs or W2s can not be used as income. The lender will look at the household’s average pre-tax income over a two-year period before determining the amount that can be borrowed.
In order to make sure that the borrower is financially secure, lenders will also pull the borrower’s credit report and base their pre-approval on the credit score and debt-to-income ratio. Employment verification may also be done.
For certain government-backed loan types, such as FHA, VA, and USDA loans, there may be additional or different requirements for eligibility. For instance, for FHA loans, the borrower must intend to use the home as a primary residence and live in it within two months after closing. VA loans are more lenient, and may not require a down payment.
The qualifications for VA loans vary based on the period and amount of time the borrower has served. There are many ways to qualify, whether the borrower is a veteran, active duty service member, reservist, or member of the National Guard. For more information on eligibility requirements for VA loans, borrowers can visit the U.S. Department of Veteran Affairs.
A good credit score will mean you have access to more lending options, better interest rates, and more purchasing power.
On the other hand, a poor credit score could mean you are approved for a loan, but at a higher interest rate and with a smaller house.
This means your budget will be more limited and you may not be able to buy as much home as you had hoped for. Additionally, lenders will also look at other factors, such as your debt-to-income ratio, employment history, and loan term, in order to determine your overall affordability.
What House Can I Afford on 70k a year?
As a borrower, you need to consider the interest rate, down payment, credit score, debt-to-income ratio, employment history, and loan term when determining how much house you can afford.
A higher credit score can often mean a lower interest rate, and a larger down payment can bring down the monthly payments.
All of these factors can have an effect on the amount of money you can borrow and the home you can afford.
Ultimately, understanding the impact of different factors can help borrowers make the best decisions when it comes to getting a mortgage.
Now that you know how much house you can afford, it’s time to start saving for a down payment.
The sooner you start saving, the sooner you’ll be able to move into your dream home. But you may have to wait if you are considering a mansion.
By taking into consideration this guide into account, you can make a more informed decision about the cost of a mortgage for your new home.
Know someone else that needs this, too? Then, please share!!
In one week, my sister will be moving back in with us.
She’s joining us in Colorado so that she can do a little more traveling while having a safe place to store her stuff. She won’t be with us full-time, as she mainly plans on using our home as a home base so that she can travel more. However, she will be with us some of the time and she will be paying rent for when she is actually with us.
Related article: We’re Moving To Fruita, Colorado! And My Moving Bucket List.
I’m excited to have her move back in. We’ve missed her, it will be nice to have our dog sitter back (I’m not going to lie, this will be amazing), and the little extra money will be nice.
While renting a room in your house most likely will not make you rich, it may earn you a good amount of side income. I know of a few people who rent out many rooms in their home and have been able to pay off their home completely due to this.
There are many things to think about if you are interested in renting out a room in your house. It’s not an easy decision and will require some thought. Some people love the extra cash that renting a room in your house brings, while others just aren’t meant to live with others.
Side note: This post is about renting a room in your house on a long-term basis. If you are interested in renting out a spare room on a short-term basis (such as for vacations), I highly recommend you check out Airbnb. I know people who are making thousands of dollars a month by renting out rooms on this site!
Related: 12 Passive Income Ideas That Will Let You Enjoy Life More
Below is what you need to know when renting out a room in your house for extra money.
Check to make sure you can start renting out a room in your house.
Before you spend any more time, you should always make sure that you can actually rent out a spare room in your home. If you are unsure, it might be a good idea to check with laws in your town as some towns are a little picky when it comes to rentals.
If you are renting your home from someone else, then it’s always wise to ask for your landlord’s permission. They might want a new contract written up or they might even say no.
If you live in a neighborhood that’s in a homeowners association, sometimes they don’t allow renters either. It’s very wise to check with your HOA as well so that you don’t get fined.
Research before you set a monthly rent.
Setting a price for your rental can be a hard part of this process. I highly suggest that you do your research before you assign a random number on your spare room. I say this because if you price it too low, then you may actually end up costing yourself money in the end (due to wear and tear, utility bills, etc.).
Also, if you price it too high then no one may be interested.
You can determine the price of your room rental mainly by checking comparables. You can check what other spare rooms are going for in your area, what extras they may be offering, whether there is a private bathroom included or not, and more.
One thing you will have to determine is whether you will include utilities in your rental rate, or if you will split all bills with your new roommate.
For me, I like to just make it easy and include it. However, you may lose money if your new roommate is wasteful when it comes to electricity, water, etc. By splitting utilities, your roommate will most likely be more mindful of what they are using.
Advertise that you are renting out a room in your house.
There are many places where you can advertise your rental. You can put a sign on your front lawn, advertise in a newspaper, or place an ad online on a website such as Craigslist.
Everyone and everything is online now, so posting your ad online will most likely be your best choice.
Always be honest with what you list in your advertisement. You should be honest about how big the room is, what rooms come with the agreement, if there is a separate entrance, and more. Also, be sure to include pictures of what is included.
Interview possible roommates.
You should never just take any random person when renting out a room in your house. Always conduct interviews just like you would if you were renting out your whole home.
Conducting interviews is important because you can learn more about the possible roommate, weed out any crazy people, and determine if the two of you will get along. You will be living within feet of them, so this is a very wise step to take.
You can also do a background check if you would like as well. After all, you will be living with them!
Always set rules when renting a room in your house.
Before your new roommate moves in, it is always a great idea to talk about (you may even want to create a contract) the many things that people fight about once they move in together. This can help prevent arguments.
Some of the things you may want to talk about include:
Can they have friends over? What about a party or a BBQ? What about sleepovers?
What noise level is allowed?
Who cleans the home?
What area or areas are off limits?
When is rent due?
Who buys things like toilet paper and trash bags?
Will food be shared? Sometimes when renting a room in your house, food is shared. I don’t think this is common though.
Would you ever think about renting out a room in your house for extra money? Why or why not?
Life is a constant struggle and real estate is at the heart of that struggle. You spend your youth getting the education you need to earn money; your young adult years saving for your first house, and your forties and fifties desperately trying to increase the size of your assets.
Bigger is always better throughout this time. If you find a new home that has more rooms and more square footage than your current home, you feel like you’re moving up in the world. It means you’ll have more room for that gym you’ve always wanted, the home office you need for your new creative project, and the extra bedrooms for your growing family.
But what happens when your children grow up and move out. What happens when you’re too old to care about a gym and have retired from all professional and creative pursuits? You now have a house that is much bigger than you need and is a chore to maintain.
When to Downsize
The idea of downsizing may seem abhorrent to the ambitious go-getter who is intent on going bigger and better, but there are several times when a smaller home and less space makes more sense, including:
Empty Nesters
If you have a big family, with several children and a busy household, it makes sense to get a big home. Kids want their own rooms and putting multiple family members in a small space is only going to cause arguments and fights.
But when those kids leave home, the noise of a busy household turns into the silence of an empty nest and a larger home no longer makes sense.
Sure, you have extra rooms to do with as you please, but extra rooms mean extra cleaning and maintenance. If you’re not very mobile, it doesn’t make sense to live in a multi-story house with several bedrooms that need dusting and bathrooms that need cleaning.
You’re also sitting on a small goldmine, because by selling up and buying a smaller place, you can use the additional funds to take vacations, buy flash cars and enjoy life a little more.
Struggling Debtors
A big family home costs a lot to maintain, especially if it still has a mortgage. And when you add credit card debts, car loans, personal loans, student loans, and other debts on top of that mortgage, you’ll be left with very little money.
You could take out a home equity loan, but only if you want to cling onto a large home that you don’t really need. In situations like this, it makes much more sense to buy a less expensive home and use the additional cash to pay off debts.
As an example, let’s assume that you live in a 5-bedroom townhouse. If we take the national average, that house could be worth just under $500,000. If you have just $100,000 left on your mortgage and sell for the asking price, you can clear the mortgage, drop $200,000 on a new 2-bedroom house, and once all bills, closing costs, and new furniture expenses have been accounted for, you’ll have around $150,000 to clear your debt.
Being debt-free is a great feeling, much better than owning a large house that you can’t afford.
Homeowners Who Struggle with Upkeep
Bigger homes require more maintenance, and if you’re not very mobile you may struggle to give them the care and attention they need.
Pipes burst, wood rots, doors break, faucets leak. And that’s before you consider all the essentials that need to be replaced every few years. If you lack the DIY skills and can no longer afford to pay someone to help, it might be time to downsize and get a newer and more manageable property, one that has far few maintenance requirements.
Homeowners Struggling with Utility Bills
In stories from the mid to late 19th century, there was a cliché of the old widow who lived alone in a large house that was always cold and poorly maintained because she couldn’t afford the utility bills. She was usually confined to a small portion of the house and left everything else cold, dark, and in a poor state of repair.
This cliché exists for a reason, and while it was once the reserve of “old money” landowners who were desperate to cling onto their family homes despite dwindling income, it is now common in many middle-class homes.
If your financial situation is so dire that you can’t afford to heat the home you live in, it’s time to downsize.
Bored Retirees
If you’ve spent your entire life working, earning, and sculpting a life for yourself, the last thing you want to do is spend your retirement years walking around an empty house in the middle of nowhere.
You need to live a little.
By selling up and getting a smaller space, you’ll have more money left over to enjoy yourself. Go on a few cruises, take a trip across Europe, fly to Australia—live your dreams.
It’s not just about vacations and frivolous spending, either. You can also buy a house that is more suited to your current lifestyle and your desires. You might have purchased a house smack-bang in the middle of suburbia, ideal for raising kids, but what if you’re a city dweller at heart and you miss the big lights? You might have your heart set on going the other way, delving further into solitude by purchasing a cabin in the middle of the woods.
You Want an Investment
Downsizing is often the right move for older homeowners, but younger ones can also benefit by shaving a few square feet off their living space.
Let’s imagine, for instance, that you’re in your forties and have been lucky enough to purchase a large house that is now more or less paid off. You have been working in a high-paying dead-end job for most of your life and want to go out in style before you retire.
You can sell your home and move into a smaller house, before using the money to fund a business or just to invest. You could even purchase several homes, living in one and renting the others. You’ll earn yourself some additional retirement income for when the time comes and if you play your cards right, you won’t have any mortgages to worry about.
Bottom Line: Big Decision
Whatever the reason and whatever you decide, it’s important to take your time and think this through. Buying a new home is a huge step and downsizing is even bigger, because in addition to the buying process, you also have to think about how you’re going to spend all the money you’ll have left over (assuming it won’t go toward clearing your mortgage).
You also have to think about capital gains tax and what will happen to your loved ones’ inheritance.
It’s a big decision made for the long-term and is therefore not one you should make quickly or take lightly. Speak with a financial planner, chat with other home buyers who have done the same thing and get advice from your real estate agent and loved ones.
Often, there are two camps of people when it comes to wrangling financial documents: Some keep everything, every ATM receipt, every bank statement, sometimes in a drawer or box with little to no organizing principle. Others throw away (hopefully after shredding) just about everything that arrives in the mail.
The best approach is likely somewhere in between. There is a happy medium. Here, you’ll learn how to keep just what you need, organize it well, and dispose of financial documents properly when they no longer serve a purpose.
The Importance of Financial Statements
“Out of sight, out of mind” is a cliche for a reason. Once taxes are filed, paychecks are deposited, and the rent or mortgage is paid, we tend to forget about these transactions, dumping the receipts in a deep file cabinet or throwing them away altogether.
However, the consequences of financial documents and bank statements stick around long after they’ve been settled. For example, the IRS can come calling years after a person files taxes if the organization suspects that income was misreported. Or, in the event of loss or damage, having a record of purchase for big-ticket items like electronics or jewelry can make it easier to file a claim.
Keeping track of financial statements can help serve as protection or proof if a transaction is challenged or misreported. Without the statement, people might spend days trying to obtain duplicate records, when they could have just had them neatly filed in the first place.
Not everything needs to be saved forever, but some things should be safely filed away for a rainy day.
Recommended: Do I Need a Personal Accountant?
What to Keep and For How Long
Like items in a grocery store, each type of financial document has its own expiration date. Some will be relevant years after they’ve been filed; others can be tossed within months. Here’s the general rule of thumb of how long a person should keep each statement:
Tax Documents: 6-7 Years
Keep tax documents — anything related to filing taxes — around for seven years. Why so long? The IRS can audit anyone up to three years after they file if the agency suspects that an error was made in “good faith,” aka an accident.
income tax return up to three years after the fact for a refund.
Additionally, the IRS has six years to follow up on returns if it thinks the filer underreported income substantially, meaning by 25% or more.
It’s not a bad idea to keep the tax return, in addition to supporting documents. That could include evidence of:
• Retirement plan contributions
• Charitable contributions
• Interest payments on a mortgage
• Alimony or child support payments
Record of Sales: 3 Years
From selling stock to selling a home, and every large sale in between, it could be smart to keep these records of sale for at least three years after the transaction takes place. These documents can be called up in tax-related issues.
Paycheck Stubs, Bills, Bank Statements, Investment Statements: 1 Year
If someone isn’t using direct deposit for payday, they should keep their physical paychecks for a year. Once they receive their W-2 and confirm that the amounts match, the stubs can go.
Utility bills, bank statements, and other bills should stick around for a year , just to be safe. Budgeters can use them to compare balances month over month. It also can be a helpful habit to check over bank and credit card statements each month. It’s a chance to catch and dispute fraudulent or incorrect charges. In addition, bills for services like medical treatment and auto repair should be kept for at least for a year for reference.
Investment statements that are distributed quarterly should be kept on hand until the annual statement is revealed and the numbers are lined up.
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Receipts, Resolved Credit Card Statements: Toss It
Unless purchases are logged manually, a person should feel comfortable tossing receipts almost as soon as they acquire them. As long as they don’t plan to return the item, all they should do is confirm the amount against the debit or credit card charge, then send that little slip to the trash.
credit card is paid in full each month, there’s not much reason to keep the statement lying around. Again, it can be used to check charged amounts and spot mistakes or fraud, but once statements are resolved against transactions, it should be okay to ditch the statement.
Although there are suggestions for how long people should keep a statement, at the end of the day, they should trust their gut. If there’s an urge to hold on to something not listed above, keep it.
Three Ways to Store Sensitive Documents
It won’t matter what a person saves and shreds if they don’t know where to find records in the long run. Safely storing sensitive financial documents doesn’t really mean tucking them away and forgetting about them. Here are a few ways to store and organize financial records:
• Use an old-school filing system. Finding an affordable, fire-safe file box to keep statements in is already a massive step up from the bottom of a junk drawer. Everyone will have their own approach to logical filing, but it could be done by year, type of record, or institution the record comes from.
Some might be tempted to go extra safe and take this paperwork to a safety deposit box at the bank. However, if the documentation is needed, it won’t do a person much good sitting miles away in a bank vault. Keeping it close and safe is probably preferable.
• Scan and save online. Many smartphones come with the capability to scan documents, and there are other well-reviewed scanning apps on the market. Those who tend to lose paper might choose to scan everything and save it online. The only hitch is keeping up with the scanning, and saving all documents to the cloud instead of just on the phone.
• Go paperless. Many institutions offer paper-free transactions, meaning customers don’t get statements in the mail. Online banks vs. traditional banks have made this a priority. Going paperless does not mean having to log on to each site to get financial information, but it does mean a person is less likely to lose papers.
Going paperless with financial statements may require a little more work to access records — people can’t just wait for documents to arrive in the mail. But if done correctly, they can find the papers they need with the click of a few buttons.
Recommended: Are Online Bank Accounts Safe?
The Takeaway
Going paperless with records doesn’t have to be tricky or time-consuming. That’s one of the benefits of opening an online bank account like SoFi Checking and Savings. It’s easy to find the information you are looking for online, as well as to track your spending and saving in one convenient place. What’s more, SoFi offers a competitive annual percentage yield (APY) and charges no account fees, which could help your money grow faster.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit can earn up to 4.20% annual percentage yield (APY) interest on Savings account balances (including Vaults) and up to 1.20% APY on Checking account balances. There is no minimum direct deposit amount required to qualify for these rates. Members without direct deposit will earn 1.20% APY on all account balances in Checking and Savings (including Vaults). Interest rates are variable and subject to change at any time. These rates are current as of 4/25/2023. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet. Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances. Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice. SOBK0523022U
In high school, I babysat a kid whose parents were pretty well off. And by “well off,” I mean they were crazy rich.
One day I decided to take the kid out for ice cream — my treat. When we got to the ice cream shop, I only had enough money to buy him the small, and he wanted the large. What then followed wasn’t exactly a temper tantrum; it’s probably better described as a communication breakdown. He was legitimately confused as to why he couldn’t have the larger size.
He truly couldn’t understand the concept of “not enough money.” Price was not a matter of quantity to him, but simply a choice — it was like asking whether he wanted vanilla, strawberry or chocolate. The idea that his options were limited because of cost was beyond him. He also didn’t understand that I was treating him. From his perspective, the ice cream was always there for him to begin with — it didn’t matter who happened to be forking over the money.
I recently recounted this story to my mom, complaining about how this kid probably wouldn’t grow up to learn the tenets of financial independence like I did, because he was privileged, and I grew up so poor.
“We weren’t that poor,” my mom said, dryly. “You exaggerate.”
She then reminded me that she truly grew up poor. She had dreams about her next meal. She shared a single room with seven brothers and sisters. My mom reminded me that she lived in a remote village in Hong Kong, for crying out loud.
My own mother was one-upping me in the impoverished childhood department. And she definitely won.
But thinking about this situation, and my mom’s response, I’ve been pondering a couple of things:
1) Are privileged kids at a disadvantage when it comes to learning the lessons of financial independence?
2) Have I romanticized being poor to facilitate my financial goals, and what are the implications of doing this?
“There is No Success Without Hardship”
Sophocles said this. In my case, I’ve found it to be true. Growing up “poor” forced me to learn the tenets of hard work, responsibility and resourcefulness — qualities that have helped me find success in my endeavors. My mom had even less money, and she learned those lessons even more thoroughly. To this day, I’ve never seen anyone more frugal or with more self-control than my mother.
So I grew up believing that wisdom comes with adversity. But thinking in terms of financial independence, what does this mean for those who grow up privileged? It’s usually a parent’s goal for their children to grow up without financial hardships. Consequently, can those children learn the lessons of personal finance just as powerfully without going through all the tough stuff? Can we be wise without having to endure adversity?
How Much Can You Learn With a Safety Net?
Of course it’s possible for the privileged to learn to be industrious and diligent and all of that, but I feel like the lessons are much different when you have to learn them. Here’s a somewhat nerdy example.
In The Dark Knight Rises (spoiler alert) Bruce Wayne must escape his prison by climbing to the top of a deep pit and leaping out of it. He tries this a few times while secured by a rope — his safety net. He’s unsuccessful each time. Then, he decides to try the escape without the rope — the motivation is, if he doesn’t succeed, he’ll fall to his death. Of course, Wayne finally succeeds without the rope. His will to survive leads him to accomplish his goal. He succeeds when there is no other option but to succeed.
I know it’s just a movie, but it’s also a parable. So I ask myself: How successful can you be in learning the lessons of value, responsibility, etc., when you’ll be totally fine if you don’t?
The Problems With Romanticizing Poverty
I plan to have a safety net for my own kids. In fact, I don’t plan on having kids until I can afford to have a safety net for them. Does this mean they’ll grow up at a disadvantage when it comes to financial independence? Will they have less success because they have less adversity? How do I teach my kids to be financially independent when I plan to give them a financial safety net?
Second, even though I finally have some financial elbowroom and am able to live comfortably, I still have this “impoverished” mind-set. I discussed this a bit when I wrote about not buying a new computer because I didn’t feel like I’d suffered enough to afford a new computer. This mind-set has kept me from enjoying the fruits of my financial independence. Exaggerating my poorness has worked in my favor in the past, especially when I needed to save money to pay off my student loans. But these days, it’s given me a false sense of insecurity. And why else have I worked so hard for my financial independence if not to feel secure?
Another issue I have with romancing poverty is that it’s kind of condescending.
Like a lot of lower-middle-class families, in our household, we always had this subtle resentment of people who, as my dad would say, “had everything handed to them.” I have a friend who’s embarrassed by the fact that he’s had everything handed to him — there’s this unspoken shame you feel when you tell people you didn’t pay for your own lifestyle.
And that’s not really fair. Why should there be a sense of haughtiness for people whose parents provided for them?
My mom also pointed out that it’s about perspective. What I considered “poor,” many people in the world would consider incredibly wealthy. It’s insulting to call it “poverty” and say that I grew up poor when, really, we may have struggled to pay utility bills, but we always had food.
At any rate, I’ve been mulling over these thoughts in the past few weeks, especially in wondering how I’ll teach my own children financial independence. So I have a few questions:
Do you think impoverished kids learn the tenets of responsibility and hard work more intensely or effectively than privileged kids? Basically — is there a personal finance advantage to growing up poor?
How do I go about teaching my children the importance of finance, responsibility and self-sufficiency when I plan to give them a safety net?
Does an impoverished mind-set keep you from enjoying the freedom of financial independence?
Save more, spend smarter, and make your money go further
Last month’s average temperatures nationwide were the second highest ever recorded, and July is showing no signs of relief. The hot weather paired with many large utilities already raising customer rates means that Minters could see their highest utility bills ever this year.
Luckily, there are steps you can take now to reduce the cost of cooling your home. So sit back, pour yourself a cold drink and take advantage of these tips to keep your utility bill from heating up.
Replace Your Air Filters
You should be replacing your air filters once a month, especially during the summer. Dirty filters restrict airflow, which means the air conditioner runs longer and uses more energy. Replacing a clogged filter will reduce your energy consumption by up to 15%! Buy several filters at once and create a recurring calendar reminder on your phone.
Cool Down Your Bed, Not The Room
Feeling hot when you try to fall asleep is uncomfortable at best, but running the air conditioning all night is the quickest way to a steep energy bill. Instead of turning down the temperature on your thermostat, consider purchasing a bed fan or cooling mat. Bed fans are special bed-height units that send cool air between your bed sheets, using much less energy than central air or a wall unit. Cooling mats use no energy at all! Just pop it in the refrigerator during the day, and place in your bed when you’re ready to turn in for the night.
Consider a Smart Thermostat
Your thermostat controls half of your energy bill, so any cost savings strategy deserves a long look at that tiny box on your wall. Thermostat innovator Nest reports that a correctly programmed thermostat – ones that make adjustments based on your activity – can save about 20% on your heating and cooling bill. In fact, average annual savings with the Nest Learning Thermostat is $173/year – with units costing around $250, you’ll see a return on your investment in your second year.
You can use Nest’s online tool to calculate how much money you can save based on your location, home size and system specifications. Even if you don’t have a smart thermostat, don’t forget: adjusting your temperature just one degree can cut your energy use up to 5%.
Get an Estimate for Radiant Barriers
If you live in a region with prolonged hot temperatures, updating your home’s insulation is a great option for reducing cooling costs for good. Radiant barriers – also known as reflective insulation – reflect heat away from the home.
Heat travels in three ways: conduction, convection, and radiation. Traditional insulation materials slow conductive and convective heat flow, but do not account for radiant heat that travels through your roof and into your house. Radiant barriers are easiest to install in new construction, but can be installed in your existing house, especially if it has an open attic. Studies show that radiant barriers can reduce cooling costs 5% to 10% when used in a warm, sunny climate.
What are some tips and tricks you use to keep things cool around your house? Share with us in the Comments or on Twitter with #MyMintTips.
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