Today I found some additional information on FHA loans. I want to do some more research, but here it is in a nutshell: (a slightly disheartening nutshell…but I knew to expect the unexpected.)
Because you put so little down for an FHA loan, (3.5%) you have to make a PMI (private mortgage insurance) payment. Basically, it’s a little somethin’-somethin’ extra added to your mortgage payment.
I also learned that I will probably need an additional 5% of the price of the house for closing costs, taxes, prepaid insurance, etc. Ouch.
I can try to reduce these fees by taking on a slightly larger mortgage rate. Obviously, that will cost more in the long run due to interest. Perhaps there’s a way to take advantage of that by refinancing down the road.
Apparently I can try to negotiate a 3% “buyer concession” as long as the property appraisal supports it (I’m not sure what that means or what that is…but I like the sound of 3% over 5% when I’m the one who’s paying).
As you can see, there is a lot of due diligence involved in buying a house.
When I first learned about the FHA loan I thought to myself, “Investing in real estate is awesome! Why do so few people do it?” I’m beginning to see why.
It is a lot of hard work. It is a lot of research. And of course, there is risk involved.
However, I think those who take calculated risks are rewarded.