St. Louis Homebuyers: Know What You Can Afford
Many St. Louis homebuyers think that looking at houses and deciding what type of house they want is the first big step to buying a home, but they’d be wrong. The actual first step for St. Louis homebuyers doesn’t involve looking at homes at all. In fact, it involves looking at numbers.
How much you can actually afford should be the first thing you look at when buying a home. The reason for this is simple. Let’s say you find a home that you absolutely love. When you go to get pre-approved for the loan, you find out that you just can’t afford that dream home. Now every home you see just doesn’t compare, and you feel angered and stressed.
You want to avoid this at all costs, so here’s how St. Louis homebuyers can calculate what they can afford from the start.
Calculate Your Debt-to-Income Ratio
The easiest way to get an idea of how much you can really afford is to figure out your debt-to-income ratio. This calculation looks at how much money you’re bringing in each month versus how much is going out to pay off loans. Loan can include credit cards, car payments and student loans. Most lenders want to see this number stay below 36 percent.
To calculate this metric, add up how much you pay in debt per month. That means all those debts mentioned earlier. Estimate your credit card spending for the month, and don’t underestimate as it is better to overestimate here. Now take that number and divide it by what your bring in each month. Don’t add in your rent here. In reality, you wouldn’t be paying this, so it doesn’t matter here.
So if you’re bringing in $4,000 and have about $500 in debt, then your ratio is 12.5 percent, well below that 35 percent mark. Now that you know your limit, you can calculate it all in a mortgage calculator. This tool will give you an idea of how much you can really afford, and it will give you a cap.
Playing with These Numbers
If you aren’t quite ready to buy a home right now, then you have plenty of time to play with these numbers. Many homeowners want to bring in more money, so you can look for easy ways to add to your monthly income. Freelancing is always an option, or you can take on a part-time job on the weekends to make a little extra. You may also factor in a raise if you think you might be getting a promotion soon.
You can also look at the different types of loans you might get, how much of a down payment you might make and the interest rates of the time to see what you can afford. The bigger your down payment is, the less you’ll have to repay in interest, so if you think you can save more and put in a bigger down payment, try to do so.