Art Tells it Like it is

So last night I met with our mortgage lender. Apparently there is a difference between a mortgage lender and a mortgage broker – though don’t ask me what it is. There was so much to absorb in our meeting, that that piece of information flew right over my head.

Our mortgage guy is Art, a man with infinite patience and number crunching skills. He explained the difference between a conventional loan and a FHA loan – the latter is a governmental loan that helps first time buyers by stipulating that they only need to put down 3.5% of the sale price. He explained all those maddening acronyms – MIP and PMI (essentially they are the same thing – mortgage insurance) for example that has to be paid if you are putting down less than 20% on your home purchase.  He also explained “points” (also known as origination or discounts) – which I am not going to attempt to explain myself – read about it here.  Plus, all the terrifying costs involved in purchasing a house.

Ron shows off his plumbing skills

Ron and I have a clear budget in mind. We are not about to make a careless decision that will haunt us for the next 30 years and keep me up nights with belly aches induced by financial stress. Though we were pre-qualified for a $275K  loan, our budget is $200K and we’d be happier to spend even less than that now that we know all the costs involved. We are very fortunate in that my dear husband is exceptionally handy and talented when it comes to fixing anything – plumbing, electric, computers, electronics – you name it, he can do it. So we’d be happy with a semi-fixer upper – in fact, this falls under Ron’s dream – he would like nothing more than to be able to work on his own home.  I am all for it, as long as the infrastructure is sound and the important stuff like toilets and faucets are functional!

But I digress. I was about to talk about costs involved in purchasing a first home…so, hold onto your hats…and flex that brain…

On a $200K sale price - our estimated closing costs (with two points) would be a whopping $8,900. Then there are the bloody prepaids/escrows. Apparently you have to pay 14 months up front home owners insurance (not to be confused with mortgage insurance), PMI and property taxes. So on our sales price and in the areas we are looking (Drexel Hill, Lansdowne – for now anyway – where property taxes are approx. $5K), these costs would amount to approximately $8,000. 

Now I have to confess, though Art tirelessly tried to explain to me why we need to pay these exhorbitant upfront escrows AND have PMI, property taxes and homeowners also tied into our monthly mortgage payment – I could not grasp this concept. It feels to me like we are paying double. Like if we are paying so much upfront, shouldn’t we NOT have to pay these in our mortgage payment for the first year?

So do the math…before we even utter “downpayment,” we are looking at about $17,000!!!  If that doesn’t cause you to reach for the Prozac, nothing will.  I know it came as quite a shock to me.

Frankly, though I’ve had a few days to absorb the shock, I still feel like climbing atop a roof and yelling , What the fuck??!!

DR&A