The Dirty, Dirty Facts About FHA Loans
Website design By BotEap.comBuyers of owner-occupied homes don’t typically think of themselves as investors trying to make money, so they pay full price for a home and get a government-insured loan for the purchase, without giving it much thought. Most of your attention is focused on choosing the right neighborhood or the right style and location. These are fundamentals that are more important to them than money. In a way, they assume that their house will eventually increase in value.
Website design By BotEap.comThe other sector is the 20% of buyers and sellers that make up the investment market. These are sellers who sell at a discount and buyers who buy at a discount. These buyers and sellers are consciously trying to make a profit and their goal is to make money or build wealth.
Website design By BotEap.comBut I believe that all homebuyers are real estate investors, for the simple reason that no one buys a home with the intention of losing money. But with government-insured loans, this is often what happens.
Website design By BotEap.comAs a result of ongoing government intervention since the great depression of the 1930s, today’s mortgage industry has become a half-private, half-public money machine turned monster.
Website design By BotEap.comWhile government-insured loans like FHA, VA, and USDA were created to help low-income homebuyers pay off a home mortgage, the result has been very expensive loans that will more than double the cost of a home loan.
Website design By BotEap.comNote that I said the cost of the loan. Not the cost of the house. The property value is set. It is the costs of the loan that go up. And few loans are more expensive than government-insured loans that are supposedly designed to help low-income homebuyers.
Website design By BotEap.comMost retail buyers who use a traditional FHA (government-insured) mortgage to buy a home don’t even realize the true costs over time. Traditional home loans can be very expensive. In the traditional world, the actual cost is more than double the advertised cost of the house.
Website design By BotEap.comHere’s a quick example: the FHA loan
Website design By BotEap.comProbably 90% of all ordinary home sales are financed this way. You borrow $95,000 to buy a house that is appraised at $100,000. Bring $3,000 at closing to pay the loan origination fee. Bring $5000 at closing for your down payment as required by the FHA. Bring an extra $3,000 at closing to cover everything else like attorney fees, courier fees, processing fees, appraisal fees, taxes, insurance, plus fees, and… that’s done. idea.
Website design By BotEap.comSo now you “own” a house with the following general numbers:
- Appraised Value: $100,000
- Initial payment $5000
- Loan Amount $95,000
- Fees and costs: $6000
- $100,000 house, FHA loan with $5,000 down payment, $95,000 loan amount. 30-year fixed interest rate of 6% means you will pay:
- amount of $95,000 borrowed. (important)
- $110,046.28 in INTEREST
- $14,820 PMI insurance (added to monthly payment)