The most important thing to do before starting any type of house search in St Louis is to ask yourself; how much home can you afford in St Louis? What price point should you limit yourself too?
The price tag definitely plays a role into the affordability of a home, but it’s not the only number that counts. When trying to determine how much home can you afford in St Louis, you want to take into consideration the ALL monthly costs associated with home Ownership and not just your mortgage payment!
There are several factors that will makeup your final figures.
Getting Pre-Approved To Determine How Much Home You Can Afford
A lender looks at your personal financial situation and determines how much they will lend to you and at what rate. Typically the minimum credit score is 620, and higher scores will lock in better rates. One of the reasons it’s so important to keep your credit up is that a couple points on your rate could make thousands of dollars difference in the long run. Interest makes up a hefty amount of your monthly mortgage payment, and keeping tabs on your credit health or bringing in a co-signer could greatly benefit you in lowering your loan costs.
In tandem with this, your down payment is also important in determining how much home can you afford in St Louis. What you have saved and are willing to put down has a twofold effect. First, lenders typically require around 5% down to start, so start checking those saving accounts. To give you an idea, on a $250,000 house, 5% is $12,500.
If you wish to rid yourself of PMI (Private Mortgage Insurance) 20% down is required or your lender might be able to buy it out with a slightly higher rate (call me on this). On a $250,000 house 20% would equal $50,000. Second, the more you put into your down stroke, the less your loan amount will actually be, and the less your monthly payment will be. If you put down 10% on a $250,000 home, your loan in reality is for $225,000. Having a healthy savings plan is key. In today’s market rates are very low and every $10,000 borrowed does not cost you very much on your monthly mortgage.
However it’s these types of conversations that you need to be having early with your lender to determine how much home you can afford. If you don’t have a lender call me and I’ll give you the best in St Louis!
My best advice is to weigh out your options with your lender about putting down 5%, 10%, and then 20%. Then compare that with what you get for the money in certain neighborhoods with a good Realtor (ME) to realize how much home can you afford in the various neighborhoods in St Louis. This will help you narrow down areas based on your budget.
Besides the dreaded credit score and tapping into your savings account, a lender also looks at your debt to income ratio.
What’s coming in vs. what is going out.
Big balances on any credit cards?
What do these cost every month and are they being paid on time? Enter the answer: income. Do you make enough to support your current debt obligations and still have enough for a new mortgage? Also, how do you get paid? W2 or 1099? Salaried, hourly, commissioned, or self employed? This has a HUGE impact on your loan. Having the pay structure of a Realtor, this was real tricky for me.
Bottom Line: Get Pre-Approved Before You Start Looking At Properties
After scoping yourself out, now it’s time to turn to the actual homes themselves and see what makes up their affordability. The actual price tag and mortgage associated with it is the most obvious factor. As a rule of thumb, for every $100,000 you spend on a home, you can expect to pay $500 a month on your mortgage. So, for the $250,000 home that you put 10% down, your monthly mortgage payment would be around $1,125 per month. But that is not your bottom line.
Check Your Property Taxes
Looking at a property’s tax bill and HOA dues are also key to determining which homes you can afford. For taxes, it’s important to make sure the bill you’re looking at, is the one you will inherit when buying the home. Making sure it is free of senior exemptions or a senior freeze is crucial, as well as determining what it will translate to as a monthly cost. A $5,000 tax bill will increase your mortgage by about $416 per month.
Is There An HOA?
Do you plan on living in a gated or professionally managed neighborhood? Or in any sort of attached living (ie townhome or condo)? Many of the homes for sale in St Louis have an HOA attached to it. If you are looking for a single family home this is not the case typically. Does your association have multiple amenities? Doorman, pool, exercise facility? This can drive up your monthly assessments real quick. On the other hand, your monthly assessment can include some or all of your utilities, making the higher dollar amount worth it.
Wrapping this all together, how much home you can afford is made up of not just the home, but also you. Putting the pieces together can be a little laborious in the beginning, but the outcome is WELL worth it. I’ve had many clients shy away from home ownership because of their fears of affordability, and one of my favorite parts of my job is watching those same clients glow at the closing table. Helping bring this all together is the job of a good agent, and a good lender. Choosing the right ones can make the process smooth and achievable and truly the key to seeing how much home you can afford.