You are probably planning to rent your own house or apartment for the first time. While you are looking for advice about renting, someone must have mentioned the “3x rent rule”. The rule has become a common practice for landlords to approve tenant applications.
However, what does ‘making 3 times the rent’ mean?
The 3x rent rule means a prospective tenant’s adjusted gross income has to be three times more than the proposed rent of a property. This rule makes the landlords feel more secure when they rent their property to tenants.
If you have heard about the rule for the first time, you may need more details to understand. So, in this article, I will explain the 3x rent rule and why it is important.
I will also give some tips on what you can do about renting if you do not make 3x the rent.
Making 3 Times The Rent Rule
In most cases, American landlords and property managers follow the “3x rent rule” when screening tenants’ applications.
The three times the rent rule means a potential tenant should have a take-home pay or gross income three times more than the housing rent.
Now, what is take-home pay or gross income pay? Gross income or take-home pay is the monthly amount a person is left with after deducting taxes, loans, alimony, IRA or 401k contributions, or car/house payment.
For example, you have found a nice apartment, and the rent is $1800 a month. When you apply for the tenant position, the landlord will check if you pass the 3x the rent rule. So, you should calculate whether you have the gross income to pass the rule.
As the rent is $1800 a month, your monthly gross income has to be $1800 X 3 = $5400, or your yearly gross income has to be $64,800. This income does not have to come from a single source. It can be a total of wages, capital gains, or retirement accounts.
The rule also applies to couples. In this case, the combined monthly gross income of the couple has to be 3x the property’s monthly rent.
But in case you are renting a property with multiple roommates, sometimes all of you have to meet the 3x rule separately. Landlords make this strict rule so that others can bear the cost when one roommate moves out.
As you can see, the rule of 3x the rent can become difficult to follow for many people. The accommodation cost in America is increasing, but many people struggle to increase their income. In fact, in some areas, the rental costs exceed the average income.
Why The 3 Times Rule is Important?
It is not a law that tenants must have gross income 3 times the accommodation rent. But the 3x rule has become a common practice in the US. The rule is widely followed in cities with high living costs, like Chicago, New York, Boston, Los Angeles, etc.
This rule might be inspired by Section 8 of the Housing Act rule, where the government stated a household should not pay more than 30% of its income for accommodation costs. This gradually transformed into the ideal rent-to-income ratio in the housing market.
Thus, landlords follow the rule to make sure their tenants have enough money in their pocket to pay rent regularly. The 3x rule ensures landlords that the tenants will not be irregular in paying rents.
In the worst-case scenario, a tenant may even leave the property without paying the accumulated rent. Thus, the landlords have to spend money, time, and other resources to make the property ready for renting again.
The rule is also beneficial for tenants. Tenants with three times more income than the housing rent as less chance of being evicted.
Landlords often evict a renter when they fail to pay the rent for months. This is a frustrating situation for both the tenant and the landlord.
How Landlords May Verify Your Income
To prove your income, you have to provide pay stubs for the last 3 to 4 months. It ensures the landlord about your income. They may even verify the bank statements and check your credit score.
Then you have to provide copies of your W2s. It shows your total income for the previous year and how economically stable you are.
Your landlord will find consistency in your earnings. But if you have changed your previous job, your last year’s records may not be considered.
Besides, the landlords call your employers to check if you are giving authentic information. They will ask about your behavior and current working status. So, you must not make any false claims in your application.
This is how landlords verify the income of employed tenants, but what about self-employed applicants? Self-employed applicants are often unable to show consistent gross income. So, it becomes difficult to rent accommodation under the 3x rent rule.
However, their bank statement and credit score can convince the landlords to make some exceptional rules. So, they must show consistent deposits and a good credit score while applying to rent a property.
When you are applying to a landlord, initially, you do not have to show any documentation as proof of your income. But once the landlord considers you a potential renter, they will verify your income.
What Happens If You Don’t Make 3 Times The Rent
As the rental cost is rising rapidly, it is not always possible to earn enough to meet the 3x the rent rule. Yes, it is difficult to rent accommodations if your gross income does not follow the rule. However, it is not impossible.
You can find a roommate who can share the rent with you. You can ask someone you know to introduce you to a private property owner who will bend some rules for you. Also, you can look for smaller accommodations that fit your income.
Tips For Getting A Rental Without Meeting The Income Requirement
If you are looking for more ways to rent without meeting the 3x rule, follow these tips:
- If you have a large amount of savings in your bank account, it can convince the landlord to consider you a prospective tenant. It will show that you have a backup, even if you do not have the monthly required gross income.
- Offer the landlords a higher deposit that is more than they asked. It makes your application strong, and the landlord might be interested in meeting you.
- Look for a landlord who rents simple properties. They are often flexible to make changes in rent rules.
- Seek landlords who also take care of the utilities of the apartment. You can try convincing them that since they are paying for the utility, it will not be a problem for you to pay the rent consistently every month with your income.
- You may not make 3x the rent, but you might be debt-free. Meaning you have no loans or mortgages to pay. You can arrange a meeting with the landlords as you may not be able to mention this clearly in the application.
- Ask someone to be your guarantor. The person can be someone from your family who can cosign with you. You should convince your landlords that your guarantor can take care of the rent cost if you fail to do so for some reason.
Conclusion
Even if it is not a state law to have income 3x the rent, the landlords of America typically follow this rule.
Therefore, look for accommodations that fit your gross income. However, you can also try convincing a landlord by showing your good credit score and guarantor.
Also, if your building needs it, check on renters insurance if your building qualifies.