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Old 06-05-2007, 09:55 AM
 
Location: St. Louis, MO
238 posts, read 332,075 times
Reputation: 39

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I recently found this forum and noticed that a lot of folks are asking about rentals and about purchasing here in St. Louis. I am a real estate agent and mortgage banker and I was recently asked to write on this topic for a real estate network called Activerain.

After having read some of these posts, I thought that some of you might find it interesting reading. It's not a sales pitch, but an objective look at how you go about figuring out which would be best for YOU. Check it out and feel free to call me with any questions or comments.

**Hmm? I guess that I haven't been on here long enough to be able to post a link?? Oh well, here is the copy from that post. I hope that you find it helpful.

Rent vs buy? Which one is better for you. When considering buying St. Louis real estate, you need to take into account six considerations.

1) How long do I plan on living in the St. Louis area?

2) How secure is my employment and/or income?

3) How's my credit?

4) What is my current tax situation?

5) Is my domestic situation likely to change anytime soon?

6) Am I ready for the responsibilities of ownership?

Notice that I didn't ask how much money you had saved up. The reason that I didn't ask that question is because other than number 6 above, being ready for the responsibilities of home ownership, saving up really doesn't come into play that much.

What? How can that be? Don't I need money for a down payment before a lender will lend to me? If I borrow the whole amount, won't my payment be a lot higher?

The answers are; No, you don't need a down payment to buy a home. Underwriting guild lines have loosened and100% Financing Is Still Available there are numerous programs for you to buy a home with little or nothing down. They now require better credit than they did before the sub-prime mortgage market meltdown (say that three times quickly!), but they are still available.

Lastly, borrowing 100% of the purchase price will raise your payment, but not as much as most people think that it would. Not including PMI (Private Mortgage Insurance) each $1,000.00 that you put down only decreases your payment by $6.24. That means that if you were purchasing a $300,000.00 home with 100% financing as opposed to 90% financing, the payment difference would be less than $300.00 (based upon an 80% First at 6.625% and a 20% second at 9% vs. an 80% first @ 6.375% with a 10% second @ 8.5%)

When you are considering whether to buy a home in St. Louis or not and all of the other answers are pointing towards buying, should the $300.00 difference in the payment dissuade you? If you have the money saved, then great! By all means put it down on the property if that $300.00 makes a big difference to you. If the payment isn't really a problem, it might be worth looking at keeping the money in your pocket and investing it. If you simply don't have the money to put down and you can't afford the higher payment, then maybe you need to remain a renter. At that point you might want to consider a lessor expensive home if that is possible.


How Long Do You Plan On Living In The St. Louis Area?

So, the down payment issued resolved, we move on to the longevity issue. How long do you plan on living in the St. Louis area? If your are married to St. Louis and the chances of you moving within the next three years are slim, then you are a good candidate for buying.

This is because while houses tend to appreciate over time(even in this slow market, many economists feel that the correction in the housing market has pretty much ran it's course. Homes in St. Louis should start to appreciate again shortly.)

Also, the St. Louis real estate market never experienced the huge price run ups that other markets such as San Diego did, St. Louis homes are likely to continue appreciating at a rate at least equal to that of the over-all inflation rate. If you think about it, it makes sense. If nails are 3% more next year than they are this year, then it will cost somewhere around 3% more to build a home next year. As long as the St. Louis population remains steady (and the St. Louis area is expected to gain population), new home prices will rise at least equal to the over-all inflation rate. If new homes go up in price, existing homes will eventually follow suit.

All that said, it generally takes a few years of appreciation for the home to be sold at a price point that allows for the seller to not have to bring money into the closing. There is a mathemactical formula to figure out if buying a home in St. Louis is going to be profitable for you. It goes like this:

Take the total of your mortgage payments (PITI)

(subtract) out the tax savings (home interest deductibility is a major incentive to buy)

(subtract) any appreciation that you got

(add) any selling expenses and the cost of any repairs or improvements

----------------------------------------------------------------------------------

(equals) your gross cost of ownership.

(Subtract) the total of what you would have paid in rent

If the resulting number is a negative, then you were better off buying.

If the resulting number was a positive, then you would have been better off having rented.

In my experience, it generally takes about 3 years before it is better to have bought your home.

How Secure Is My Employment/Income?
This one is a biggie and can be connected to the first question about how long you plan on staying in the St. Louis area. If you're pretty sure that your job is secure and that even if you had to change jobs, that it wouldn't be a problem getting a new job in your area at an equivalent rate of pay, then you're probably a good candidate to buy.

How's My Credit?
The answer to this question is going to determine in part how much your payment is going to be. If you have bad credit, then, if you can get a mortgage, the payment is going to be higher, sometimes much higher than it would be if you had good credit.

Renting on the other hand doesn't necessarily cost you more if you're credit isn't so hot.

What's My Current Tax Situation?
Uncle Sam Taking Too Big A Bite Out Of Your Pay?As mentioned above, the government allows for a huge incentive to buy your home as opposed to renting. Even on modest priced homes, the income tax savings can be substantial. The more money you make and the more expensive the home (within certain IRS limits), the bigger this incentive is.

If Uncle Sam is taking too big a bite out of your paycheck each week, you should consider buying a home.

Is My Domestic Situation Likely To Change Anytime Soon?
This one cuts both ways! How secure is your marriage? How likely is it that you will get married in the next few years? As pointed out above, if you sell your home too soon, you're likely to take a loss. This can happen if you get a divorce or get married, so you need to think about how secure your current domestic situation is.

Am I Ready For The Responsibilities Of Home Ownership?
Every home everywhere is in the process of falling down. The truth of the matter is that your home was falling down before it was ever completed. If it weren't for our efforts to keep them standing, eventually time and the elements would knock down every home.

It takes time, effort and money to keep a home standing and looking good. You're going to have to mow the grass, fix the furnace, replace this, upgrade that. The list is endless. Are you ready for it? Is it going to bum you out to tell your buddy's that you can't go on the float trip because you have to stay home and paint the eves? It the thought of it bums you out to much, then maybe it's better that you stay a renter.

If you thought about it and said, no! I can handle that! Then you're ready to participate in the American Dream and to take advantage of all that owning your home has to offer! Did you know that the number one source of wealth in the country, bigger than all of the other sources of wealth combined, is equity in residential real estate?

Did you know that if you finance your home on a long term fixed rate mortgage that you can practically fix your housing expense for the next 30 or 40 years? How much is Grandma's house payment? Wouldn't that be sweet?

So, how do you determine how long you should rent before you buy? By sitting down with yourself and any significant other and honestly answering the six questions that I posed to you above. Your answers to these six questions will determine if it's time!



Bob Mitchell

Last edited by Bobster; 06-05-2007 at 10:02 AM.. Reason: Getting Link To Work
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Old 06-11-2007, 06:43 AM
 
Location: San Antonio, TX
334 posts, read 915,583 times
Reputation: 261
Quote:
Originally Posted by ValueList View Post
many economists feel that the correction in the housing market has pretty much ran it's course.
Those are the economists who work for the National Association of Realtors. Most independent economists predict that this correction has a long ways to go.
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Old 02-01-2008, 05:07 PM
 
Location: St. Louis, MO
238 posts, read 332,075 times
Reputation: 39
Sorry about the delay in getting back to you on this....I'll admit, I'm pretty surprised that the housing market hasn't rebounded as quickly as I thought that it would, but I'm still bullish on housing and not just because that's how I earn my living.

The facts of the matter are that it costs "X" dollars to build a house and if the builders aren't making a profit, they will eventually stop building. When this happens, the supply curve will shift, moving up the demand curve. Also, the population is continuing to grow and these folks will need a roof over their heads.

Here in St. Louis we have a large and diverse economy, as well as a relatively low cost of living. All these things combined lead me to believe that as soon as either the government steps in to fix the credit markets or as this glut of foreclosures works it's way through the market, that St. Louis will once again experience appreciation.

Thank you for your comment!


Moderator cut: no signatures in posts please

Last edited by da jammer; 02-05-2008 at 12:10 PM..
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