Finding your dream home in St. Louis is about more than choosing formal dining versus a great room. In the wake of the 2008 global financial crisis, making a good home-buying decision is a matter of carefully assessing your financial circumstances and then obtaining the best possible home loan rates in St. Louis.
St. Louis Home Buying Trends
The good news for home buyers in St. Louis is that the market has stabilized and market projections forecast sustained moderate growth, according to the St. Louis Post-Dispatch.
While St. Louis is no longer a pure buyers’ market, mortgages remain affordable, making this a great time to lock in low interest rates.
The 36 Percent Rule
Your first step in discovering how much home you can afford is using a mortgage calculator.
Banks use a 36 percent debt to income ratio to set your maximum mortgage. For example, if your family’s combined gross income is $100,000, your monthly debt repayment $500 per month, and you can afford a down payment of 20 percent (approximately $80,000), you may qualify for a mortgage of approximately $400,000 with a monthly payment of $3,000. If you cannot afford a 20 percent down payment, you will qualify for a smaller mortgage and be required to take out private mortgage insurance or PMI at a cost of approximately $200 per month.
Less is more
Just because a bank will loan you a certain amount of money for a mortgage does not mean that you should buy the most expensive house for which you qualify. Instead, you should factor in a few other aspects of your personal finance:
- Moving and Move-In Expenses: It costs money to move, even if you are just renting a truck and having friends help out. Also, no matter how new or well-maintained a house, there will always be minor work that needs to be done and things you will need to buy.
- Emergency Savings: What would happen if you had a medical emergency or lost your job? You should always have savings covering at least six months of living expenses.
- Retirement Savings: You need to save a minimum of 10 percent of your annual income for retirement. Don’t mortgage away your future by buying too much house.
The Bottom Line
Carefully calculating how much house you can afford will enable you to live comfortably in your new home, with struggling to meet your monthly obligations or feeling house poor.