Match Day Is Here… What You Need To Know About The Real Estate Market and Doctor Mortgages In 2017!

Congrats!  You have matched and the adventure of residency awaits you.  Now you need to figure out where you are going to live and fast!  Here’s what you need to know to successfully navigate the landmines and have a flawless home purchase in 2017.

Your primary challenge is going to be finding a home. As I write this post there is only 3.6 months supply of homes on the market nationally. That means the pace of monthly sales would completely eliminate the supply of listed homes for sale in less than 4 months (if no new homes were listed for sale).  Anything less than 6 months supply is considered a sellers market.  Many areas of the country are in an extreme sellers market, which means sellers dictate the terms of the deal and the speed they want the transaction to close.  You either have to agree to those terms or they pass you up and find another buyer, often a cash buyer, who can meet their terms.  This can be a monumental challenge for many doctor mortgage lenders and you, their perspective client.  It is imperative you find a lender than can move fast and close in less than 30 days.

Low inventory = need fast closings!

There are a couple reasons why doctor mortgage loans tend to move slower than conventional mortgages.  First, most physician and doctor mortgage loan companies are large national (think too big to fail) banks and they are layered with bureaucracy, government regulations, antiquated IT systems, and status quo (good is good enough).  This is similar to the level of care you might expect to get at the largest hospital systems in New York or Los Angeles on a busy Saturday.  They mean well, but they can only do what they can do with the resources they have.  Nimbleness and speed to respond might not be how you would describe them.

Takes other lenders 51 days ave to close loans

The fact is, many of the larger banks that are the purveyors of doctor mortgage loans simply cannot keep up with the fast paced real estate market. Check out this list of the top ten hated companies in the U.S..  Not one, but two of the biggest banks in the country make that list.  I can tell you we receive an unfortunate amount of business from physicians that are declined the week of, or worse, sometimes several weeks after their settlement deadline.  It’s sad but true.

What can you do to protect yourself?

1.  Choose a Mortgage Professional Who Can Educate and Truly Guide You

If you were to follow just one of these steps, the most important is to find a professional loan officer experienced and proven to work with doctors. The ideal loan officer should have unique physician home loan programs, which have more liberal underwriting guidelines making it easier for you to qualify and ideally provide you with a better experience.

2.  Verify Your Lender’s Reputation

You can protect yourself from this by carefully reviewing the client experiences of your fellow doctors. Do some Googling about client experiences, ask for references, and request your lender put in writing how long it takes on average to close their physician home loan clients.  This is rarely thought through in detail but can make all the difference between you getting a home and the home getting away from you.

3.  Obtain a Credit and Income Approval

A Pre-Approval is simply not enough for you to gamble your family’s new home on. You must get a full Credit and Income Approval if you want to be certain you won’t be surprised the week of closing. The importance of getting all credit and income documents into the hands of an underwriter as early in the process as possible cannot be overstated and is frequently missed.

The thing to keep in mind is that loan officers are paid to say YES, while underwriters are paid to say NO.  They are the gatekeeper and the person who will give the final authority for your loan to close.  So ask yourself, do I want to meet that gatekeeper while I’m house hunting or do I want to meet that gatekeeper when my home is boxed up and the Penske is on the way?

4.  Carefully Select Your Realtor

Steer clear of real estate search websites as a means to locate your next Realtor. Keep in mind those Realtors pay for the opportunity to market to you, which in many cases is indicative of Realtors who don’t have a lot of experience and don’t have a lot of referrals coming from past clients.

If you are relocating, you are looking for someone with relocation, ideally physician relocation experience. You should be able to find such realtors through an online search, via referral from the medical department or practice you are joining, a colleague who has recently relocated to the area or through a referral from a loan officer specializing in physician loans.

5.  Be Proactive and Stay in Communication

Take responsibility for the deadlines you sign on your purchase agreement and ensure you don’t lose your earnest money. This is truly your responsibility and all you have to do is to be aware of your inspection, appraisal, financing and settlement deadlines.  I find most home buyers rarely even know the deadlines in a purchase agreement even exist.

A physician home loan or doctor mortgage loan can be a powerful tool to help you into a home with the least amount of cash possible, sooner than most conventional loans; in many cases with less overall expense as you will likely avoid mortgage insurance. This does not mean they are the right prescription for everyone.  Finding a trusted mortgage advisor that can help you navigate the mortgage and real estate process is ultimately going to offer you the highest probability of successfully closing on your new home.  Good luck!

If you would like more information about physician home loans, you can download our free eBook and request a client consultation here: http://physicianmtg.com/

Josh Mettle is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNA, and physician assistants.  You can enjoy great physician real estate and mortgage advice here or by visiting his book site.  Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages.  Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here. Copyright© 2017 eJLM LTD.  All Rights Reserved

Fundamentals Pushing Real Estate Prices Higher. Can A Doctor Mortgage Loan Help?

Most often our clients come to us for advice about doctor mortgage loans, but from time to time those same doctors also need to know about what is happening in the real estate market and is it the right time for them to buy.  There is an element of fear in many of the conversations I’ve been having with doctors recently stemming from current real estate values, which have just recently returned to pre-crash valuations in many areas of the country.

Our doctor clients are aware of this and they are very astute in wanting to avoid making the same mistakes as those who bought right as the bubble was peaking in 2006 to 2008.  So where are we today in the real estate cycle and how can a doctor mortgage loan help?

Let’s take a look at a few of the fundamentals that are driving the real estate market higher.

2016 was an interesting year, with massive surprises including the Trump presidency, Brexit, and a stock market that continues to grind higher to new all-time records. How these events and the events ahead might ultimately impact home values is beyond our crystal ball; but we do have some FUNDAMENTALS to share with you. Please feel free to forward this analysis to anyone who might benefit.

Last year, U.S. housing was up 7.1% nationally. That is an incredibly strong national number considering we are nearly 10 years into the recovery.  One of the points I bring up to our doctor clients, is that the current growth is very different than the pre-bubble growth.  The pre-bubble growth was fueled by FAKE demand.  That FAKE demand was from liar loans (stated income, stated assets, stated employment), it was from investors who were buying dozens of homes not to rent as a part of a long term plan, but with the hope the property would go up 25% in 6 months and they could flip the house. It was also fueled by negative amortizing loans that enabled speculators to buy lots of properties, make ridiculously low payment and hope for appreciation.  This FAKE demand then spurred builders to build four times the historic national average of new homes, thus resulting in a massive supply problem, right when buyer demand was waning due to the mortgage meltdown and these exotic loan products going away.

It was the perfect storm fueled by FAKE demand and lots of greed.  But ask yourself this question, is that what is fueling this real estate market? Not at all! This market is real buyers, with real jobs, real income, real down payments, looking for housing for their families.  So our home valuation levels are approaching all time highs, but the fundamentals are totally different and our clients that have used doctor mortgage loans to buy homes for their families in the last few years are doing really well.

Let’s go back to the 7.1% appreciation annually in the U.S.  last year and see how that might have effected you. If you had bought a $250k home with 5% down in December 2015, your annualized return on investment was 142%.

That’s right, your $12,500 down payment is your investment, but the entire $250k home appreciated 7.1%. That is the magic of owning real estate; not only does your cash down payment appreciate, the entire value of the property appreciates.  We like to think a doctor mortgage loan can help you because our mortgage loans for doctors allow you to put down as little as 3% while at the same time completely avoiding mortgage insurance.  That means you can start owning real estate and benefiting from appreciation, while retaining more money to pay down student loans or to start investing for retirement.

Actual Year Over Year Changes In Price

Will housing continue to appreciate?  That is the ultimate question our doctor clients want answered.  I believe if you ignore the noise out of the media and look at the fundamentals, it looks like demand will continue to outpace supply in the years ahead.

The Joint Center of Housing Studies just came out with its household formation report. Between 2005 and 2010 the U.S. averaged 680,000 new households per year (net migration into the U.S. and kids moving out on their own forming new households). From 2010 to 2015 that number grew to 890,000 new households. Between 2015 and 2025 momentum will build with an estimated 1,360,000 new households per year.

Where are all these new households going to live?  Sure, some of them will rent, but eventually everyone tires of annual rent increases and the neighbor’s hip hop music at 2am…

Average Annual Household Growth

Each year between now and 2025 the U.S. will add 1.36M new households, in addition to the previously formed households; they will continue to fight for the best real estate in our local communities.  We are already seeing this take shape, take a look at the national supply of homes for sale, any reading under 6 months’ supply is considered low inventory (supply), we are below 4 months currently, which is extremely low supply of available housing.

So what does this mean? 

Months of Inventory of Homes

It means beyond the noise in the media, the FUNDAMENTALS point to more potential buyers and increased demand between now and 2025.  This comes at a time where supply is already extremely low.  My guess is your return on investment might not be 142% annually going forward, but it’s likely to do pretty well.

If you have questions regarding doctor mortgage loans and what you might qualify for, I’d encourage you to contact me directly at 385-355-2130 and I can give you a personalized overview of how a doctor mortgage loan might work for your situation.

Josh Mettle is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNAs, and physician assistants.  You can enjoy great physician real estate and mortgage advice here or by visiting his book site.  Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages.  Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here. Copyright© 2017 eJLM LTD.  All Rights Reserved

Our Core Values

 

Core Values

We’d be honored to answer any questions you have. Please write to us here  or call Josh Mettle at 385-355-2130. We love hearing from you!

Should I buy a bigger, more costly home? How do I decide?

Josh Moving Up Analysis

This is a Total Cost Analysis that I put together for a client that was contemplating moving up. And I’d like to have more of these discussions. But the truth is I need your help. I’d like to walk you through the presentation and at the end I’m going to invite you to let me know  if there’s any clients that you have that would like to have a similar type of analysis done for them.

In the top left hand summary section this particular client had a current mortgage balance of $356,000 first and second mortgage with an estimated balance of about $356,000. You can see in the bottom left hand section there we’ve highlighted their current mortgage to be paid off in 18 years, their second mortgage will be paid off in a little over 12 years, a little less than 13 years.

Summary

So we said, okay let’s potentially look at refinancing, but let’s also look at what happens if you moved up to that $600,000 home, the price range that you mentioned you found some homes that were very interesting. And then we use the proceeds from the sale of your current home towards down payment and we ran a couple of different down payments scenarios. We looked at a 20% down on a $600,000 home, a 10% down and 5% down.

Now the interesting part of this tool and what we can do with this forecasting, is it allows us to look at the potential implications over the long term. In the bottom right hand corner what you can see here, and I’d encourage you to click into the “More Info” tab, but what you can see once we ran this analysis is that under any of these scenarios, the client ends up somewhere in the neighborhood of $250,000, a quarter of a million dollars more wealthy.

Net Worth

How did we model this? First, by looking at the potential future value of the home. So we took a $600,000 home at a 3% appreciation rate, fast forward that value over 20 years subtracting the mortgage value at 20 years – there’s equity. We also noticed that at the 20% down scenario, the client saved $535 a month, which could be invested and if we calculated a 7% rate of return over the next 20 years there’s going to be a pretty nice asset value there in addition to the home value.

In the 10% down scenario we did a similar type modeling. we used the $164 a month in savings, we added that to their investment account. Plus, we note that instead of putting $120,000 down, they are only putting $60,000 down, which could be invested. We did the same thing for the 5% down and if you click into the “More Info” tab in the bottom right hand corner, you’ll get a really good idea of how we model that.

More Info Net Worth

You can also click into the “More Info” tab in the Summary section and then once you are in the Summary section you can go over to the Reinvestment Strategy.

More Info Summary

We would be honored to do some of these presentations for your clients and if you can think of somebody who could use this type of value, please don’t hesitate to introduce me. Feel free to call 385-355-2130 and I’m happy to do an analysis for your clients.

Rent vs. buy case study

Hey guys! I just created this exact analysis for a couple of clients of mine in California and we called it the Rent vs. buy case study. I took their names off, obviously. But the numbers were staggering and I wanted to share it because I think it can impact so many of our clients that aren’t thinking long term. I think the decision to buy or rent comes down to the immediate payment on a month to month basis, but they fail to look from the longer term perspective of 5 to 10 years.

So in this case study what we did is we took the comparable rent, or what they thought they’d be moving into in terms of rent and we gave them three different financing options in the top left hand corner.

And the nuances of the financing options will sort themselves out, it’s really beside the point, you can click in the “More Info…” tab. Here’s what’s important. The bottom two sections allow you to analyze the amount of rent that someone is going to pay over the next 60 months in comparison to what they are going to pay down on their mortgage. I’d encourage you to click into the “More Info…” tab there.

In the bottom right had corner, it allows us to anticipate a 4% real estate appreciation rate, extremely conservative in California. It allows us to calculate what the mortgage balance is going to be 10 years down the road after they’ve paid off $100,000 plus in principal. And then subtract those tow numbers and tell us what our potential equity position is.

So, the decision that we’re making today is, do we want tax advantages and to put ourselves into a situation where we’re going to move a half a million dollars in equity in 10 years, or do we want to rent. And there’s a case for both. If someone thinks they’re going to be moving in the next couple of years, if there’s unexpected expenses in the future there may be a case for renting. But we should analyze this and we should think through the decision in a longer term perspective.

Now, one more thing before we leave, top left corner, what’s so cool about this is that there rent is going to go up from $3500 to a mortgage price of about $4200. But, they’re going to get $1000 per month tax break, they’re going to pay $900 per month in principal reduction. So in essence, they are taking money out of their checking account but they’re going to put about $2000 per month back into their savings account – “equity”. And if you look at the net payment, it’s actually substantially cheaper to buy vs. rent. Of course there’s going to be some maintenance and some fix-ups and you need to allot for that, but the analysis I think is powerful.

If this is something you’d like us to do for you or for your clients, we’d be honored to do it. Please call 385-355-2130 and talk to Josh Mettle and we’ll get you set up. Or you can shout out to us on our page.

Will higher mortgage rates slaughter the real estate market?

Thought you might be asking the same question that many of our clients are wondering: “What is the impact of higher rates on home values?” Let’s start with a quick quote, which I think sums it up nicely.

The (rise in rates) was considerable, but no one should be all that alarmed, nor fear that the housing market will come to any kind of abrupt standstill.

After all, rates are only about where they began 2016, and all expectations at that time were that the housing market would be doing fine. It also bears remembering that many long-range forecasts thought that mortgage rates would be well above even these levels by this time. – HSH

But what does history tell us? Are periods of higher rates the killer of home appreciation?

History tells us that periods of rapidly increasing interest rates generally coincide with a healthy and expanding real estate market. Rates typically rise in a growing economy. With the economy expanding and more money flowing, the market will pay higher rates and higher prices for homes.  Granted it does not feel good today as a borrower to pay higher rates, but this is a sign that the economy is healthy and expanding.

Keep in mind that anything less than 6% is incredibly low for a 30 year fixed mortgage, so don’t think you have missed an opportunity to lock in low rates; simply reset your perspective. We are fortunate to see rates well below the historic averages shown below.

The alternative of course is renting, but look at the trajectory of rents since 2011! Rents continue to hit new all time highs across the country, afford you no tax deductions, and if you think about it, are like financing your housing on a one year adjustable rate mortgage.  What I mean by that is each year your rent can climb in perpetuity. Unless you live in a government mandated rent restriction area, you have no protection against a growing housing expense, where at least with a mortgage you can fix that cost with a fixed rate and payment.

Median Rent Since 1988

I’ll leave you with one more chart to consider. Below you will see how each state has increased in value over the last 12 months. With continued economic expansion, lower unemployment numbers, and more demand than supply of new homes, it is likely 2017 will be another very positive year for real estate appreciation.  Surely those who bought since 2011 are very grateful they did. 

Year Over Year Change in Price

If you, your friends, family, or colleagues have questions about financing their next home, I’d be honored to help. Please contact Josh Mettle at 385-355-2130 or if you prefer, here.

What is the cost of waiting to buy a home?

I’ve been getting a good amount of questions from clients asking about what’s going to happen with interest rates in the future, where are home values going in the future and what does that do to my buying power. So, I’ve put together this Total Cost Analysis as a case study to look at what the potential cost of waiting would look like. Please click here to watch this short presentation.

First, let’s dive into some facts. if you look at historic mortgage rates going back to the 1970s, in the seventies the average 30 yr. fixed mortgage rate was 8.86%. In the eighties it was 12.7% and in the nineties we were back in the 8.12%. In the two thousands, average range was 6.29%. So you can tell we are in an extremely low interest rate. At some point it would make sense that we’re going to revert to the mean. As an average over all of those time periods, the average 30 yr fixed mortgage rate is about 8.43%. Today we’re around 4.25% depending on credit score and a few other things, but nearly half of what interest rates have been historically over the last thirty years.

Historic Mortgage Rates

And so I think that’s an important starting point to realize that we are at a very low point. Even though we’ve seen rates move quite a bit over the last couple of months since the election.

I went a little deeper, I said let’s dive into the numbers and see what happens to home appreciation rates during periods of rapid interest rate increases. And what I found was there were four periods where interest rates – 30 yr fixed mortgage rates – increased greater than two percent in twelve months or less. Those periods were May 1983, March 1987, October 1993 and April 1999.

Many clients that I’ve been talking to are hypothesizing that with an interest rate increase in rates, prices must go down. But, guess what I found? The research shows that on average the cumulative appreciation over those four periods was 5.975%. And if you think about it, as the economy starts to heat up, as unemployment goes down, as wages start to go up, people can pay more for houses. As rates start to go up to kind of cool the economy or reach what the market will bear, you can anticipate that home prices will continue to increase.

Ave Home Appreciation

And the reason that’s so important, is to realize if we’re going into a period with higher interest rates and what history tells us is higher prices, what does that do to your buying power? I’ve put together these three comparisons to what you can expect now.

Today on a $400,000 house (with interest at 4.25%) you’re looking at a payment of about $1857. If rates go up to 5.25% over the next year and let’s just say home prices stay the same ($400,000 home), that’s going to raise that payment to $2050. If rates go up and home values go up – and I just went up by 5%, far below the 5.97% average of increasing rate periods. But, what happens to the payment? Wow, we’ve got a $700 payment increase ($2152) if our purchase price goes up 5% and our interest rate goes up 1%. So, you’re either going to pay more, or you’re going to buy less.

But what if you’re on a budget and you need to keep that payment at about $1900 a month? If interest rates go up to 5.25%, that means your buying power goes down to $365,000 and if we have homes appreciating during that period, that’s really going to push down the quality of home that you are able to purchase.

What will this cost you over ten years? It’s going to cost you $69,240 more in interest for the same house if home prices go up by 5% and interest rates go up by 1%.

Total Cost Analysis savings

I’m not pointing this out to scare you or push you into action if it’s not right for you, but it is good for us to look at history and allow it to teach us what might happen in the future and then put a dollar cost to that potential. If you have any questions, I’d be more than happy to answer them or we can break this down for you on a specific scenario or price range, we’d be honored to help you. Please call Josh Mettle at 385-355-2130 or by reaching out on our page.

Our core values and why we do what we do

Here is why we do what we and how we got started specializing in physician, dentist, CRNA and other medical professions home loans. Even if you’ve been turned down by another lender, give us a call!

  • We believe in honoring all who seek our help by treating them with warmth, empathy and understanding.
  • We exist to do unto others as we would have them do unto us if our roles were reversed.
  • We accomplish this by offering trusted advice, anticipating needs, and with a commitment to deliver exactly what was promised, regardless of the difficulties that may arise.
  • We are a physician focused mortgage team, determined to provide an incredible mortgage experience.

Our Core Values:

  • Humility first
  • Foster growth and knowledge
  • Have fun
  • Create an amazing experience
  • Speed to respond
  • Seek wise counsel
  • Respect, listen, and stay balanced
  • Committed to serve
  • Consistent honest communication
  • Family focused

Please give Josh Mettle a call at 385-355-2130. We’d love to show you how we treat our clients!

CRNA mortgage programs now available!

Hi and thanks for attending this brief overview of the Fairway CRNA mortgage program. This program was recently expanded to be available to CRNAs for our MD and DMD clients, so we’re really excited to share this program with you. I’m going to give you a brief overview of the program and try and iterpret some of the mortgage vernacular, if you will, some of the acronyms that we have. I would invite you to contact me – you’ll notice on the bottome of the flyer here there’s email, office and cell number and i encourage you to reach out to me at your convenience.

Fairway CRNA program, some of the highlights would enable you to close between 60 and 90 days before the start of your employment contract. Obviously a huge benefit for anyone relocating; not wanting to move your family twice – start the job, wait for paycheck stubs and then close.

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Why Physician Home Loans Fail

Jumbo loans will enable you to close up to 60 days. Non-jumbo loans, generally loans that are around the $417,000 range you can close up to 90 days before the commencement of your employment contract. Now it is important that we review your employment contract well in advance because there are some requirements that need to be what’s considered an non-contingent contract. Meaning that your income is based on an hourly or annual salary type compensation plan rather than a commission or RVU profitability type plan. So, there are some caveats to that. Get those employment agreements to us as soon as possible. We can also accept an offer letter. So if your practice that you are going to join doesn’t use employment contracts, they use offer letters, that’s absolutely something we can look at.

The other major benefit is that you don’t have monthly mortgage insurance. And you’ll notice that the loan to values (LTVs) are between 95% and 97% up to $636,000 loan amount. And if you were to finance greater than 80% of the value of the property – less than 20% down – we have programs with no mortgage insurance. And that is really advantageous number 1 because it is going to reduce your payment; it’s going to be much less without mortgage insurance. And it also gives you a littler greater tax efficiency because in most cases the interest on your mortgage is tax deductible, where your mortgage insurance is typically not tax deductible. I’m not a CPA, please consult yours, but that is the information that my CPA and many CPAs of our clients have told us.

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Why Physician Home Loans Fail

The other benefit would be qualifying with income driven repayment amounts on student loans. So, if you have zero payment, or if you have a smaller income based repayment or income drive repayment, any of the repayment plans would work, RePay, Pay As You Earn. We can qualify you with that payment amount, as opposed to how conventional underwriting guidelines require you to qualify, which is generally between 1% and 2% of the outstanding balance. So, if you have $200,000 in student loans, conventional underwriting guidelines may require you to qualify with a $4,000 a month payment where we could qualify you with a $150 income driven repayment amount. So big benefit there.

You’ll see the loan amounts. Now these loan amounts are contingent based on the area that you are in. So, the $424,000 is national, but there are some areas that have what’s called high balance loan limit areas, so you can go as high as $636,000. Above that we go 90% financing up to $1.5 million.

One of the intangibles and the last thing we put on there, obviously, is we treat you how we’d like to be treated if our roles were reversed. And we have a vast experience with looking at employment contracts, handling relocations, student loans, and we’re not going to make a mistake and get you – ay you’re pre-approved and then you find a home and you’re disappointed once your loan makes its way to an underwriter. So, we’re experienced with all those moving pieces and make we give you the right information up front.

Again, if you have any questions, I’d encourage you to contact us directly, 385-355-2130 is my office number or 801-699-4287 is my cell or you can email me at josh@joshmettle.com and I’d love to answer any additional questions you might have.

What is a physician home loan and do I qualify while in training?

What is a physician home loan and do I qualify while in training?In the simplest terms, a physician home loan has more liberal underwriting guidelines, whereas conventional and FHA loans are underwritten to more rigid and inflexible underwriting guidelines. Conventional and FHA loans are rarely the best solution for a young physician in training.

The Conventional Loan

Conventional loans are purchased by government sponsored enterprises such as Fannie Mae and Freddie Mac. Over 95 percent of the loans in the country are purchased by Fannie Mae, Freddie Mac, or Ginnie Mae and are conventional, VA or FHA loans.

No matter which bank you go to, the vast majority of their loans are sold to Fannie, Freddie, or Ginnie Mae. The bank (Wells, Chase, Bank of America, etc.) that you get your loan from typically remains the servicer on these conventional loans  — billing you every month, collecting your payment, administering your escrow account, managing your taxes and insurance and providing you with a payoff when you want to pay off your loan. That’s all they do in many cases; they don’t actually own the loan anymore, they just act as the loan servicer and get a premium for doing so.

The loan itself is then often sold to Fannie Mae or Freddie Mac. These institutions bundle such loans and sell them as mortgage-backed securities (bonds secured by mortgages) on Wall Street. Because Fannie and Freddie are government sponsored enterprises, they have adopted sweeping, rigid guidelines in order to maintain consistency in the kinds of loans that are delivered to them and then in turn, sold on Wall Street. In order to qualify for a conventional loan, your situation has to match these rigid guidelines exactly, or as I like to say it, fit inside their underwriting box.

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Why Physician Home Loans Fail

The Physician Home Loan

In general, a physician home loan is a portfolio loan product. That means that the bank or institution that is making the loan is actually going to keep the loan. That enables the bank making the loan to determine its own underwriting guidelines and risk threshold. This results in more liberal guidelines for physicians than it would for other people.

To you, the physician or physician in training, there are several benefits over a conventional loan:

  • Higher chance of approval — When any outside of the box factor makes you ineligible for conventional financing, a physician home loan might be the only option. More often residents, fellows and newly attending physicians are approved with physician home loans and declined with a conventional loan because they just don’t fit the guidelines due to student loans, time on the job, down payment, etc.
  • Low down payment — The physician home loan will finance somewhere between 95 and 100 percent loan to value depending on your qualification, the bank making the loan, location and the loan amount you are seeking.
  • No PMI (private mortgage insurance) — PMI is typically required on conventional loans with loan amounts greater than 80% of the home’s value or purchase price. However, I’m not aware of any physician home loan that has PMI. Because the banks offering these loans are portfolio lenders they do not typically charge PMI, but do have a slightly higher rate than what is quoted for A+ conventional loans. Typically a physician loan will save you 0.5% to 1.0% in annual PMI, but you will pay 0.2% to 0.3% higher rate for the loan type. A bank making a physician mortgage loan is willing to underwrite the loan with more liberal guidelines than a conventional loan, but they charge a slightly higher rate for taking on that added risk. Because they factor their risk into the rate, they can offer you a loan with lower down payment, student loan payments not being counted and closing before you begin employment. You more than make up for that extra interest cost by avoiding mortgage insurance with a physician loan.
  • Student loan(s) not counted against your debt to income ratio — This can be particularly advantageous for those transitioning into residency or fellowship or someone early in their attending career where student loans might be deferred or in some kind of IDR (Income Driven Repayment). Conventional underwriting guidelines typically do not allow exclusion of any deferred or income based payments or loans in forbearance. In any case, where the current payment is zero, conventional guidelines typically require underwriting to count that debt against your monthly debt-to-income ratio at 1 to 2% of the outstanding balance. So if you are a resident with $150k in deferred student loans, conventional guidelines typically require that underwriting calculate your monthly student loan payment at $3k per month (2% of $150k). On a resident salary that means you won’t qualify for much more than a Cracker Jack box. Physician home loan underwriting will typically allow you to exclude those payments altogether or use an IDR payment to qualify.
  • Higher loan limits — Because physician home loan lenders don’t sell the loans to Fannie and Freddie, they don’t have conventional loan limits. Loan limits will vary by location and by lender. Typically you’ll be able to borrow a higher amount with less money down on a physician home loan than you would on a conventional loan.
  • Ability to close before starting work — Most conventional mortgage lenders will require that you provide two paycheck stubs in order to qualify. A doctor mortgage will allow you to close the loan even before your new job starts. Some physician home loans will allow you to close as early as 90 days before you start your new job and qualify based on the employment contract or offer letter. For clients with families, this is a big deal and can save you the trouble of having to move twice.
  • Flexibility on proof of income, enabling an earlier home purchase — Conventional underwriting guidelines typically require that anyone who is self-employed or a 1099’d independent contractor must provide two years of tax returns for proof of income. Many emergency medicine, anesthesiologists and dentists are 1099 employees. These clients would have to wait until they have tax returns for two full years (which often means nearly three years on the job) before they can qualify for conventional financing. However, a physician mortgage allows a 1099’d or self-employed physician to qualify even before employment begins.

Still reading, but didn't download our book? There's still time to get a FREE copy of 'Why Physician Home Loans Fail - How to Avoid the Land Mines for a Flawless Home Purchase' It's packed with mortgage tips for doctors, dentists and medical professionals.

Why Physician Home Loans Fail

One more intangible benefit of the physician home loan is that the loan originator, processor and underwriter are in the business of administering physician home loans. These folks are much more likely to understand the unique situations and circumstances that are common obstacles for physicians, dentists, residents and fellows. They are experts who can handle anything that is thrown at them. Getting a mortgage loan can be a stressful experience at best; having people who are pros and know physician home loans will make your experience much more smooth.

 

Josh Mettle is an industry leading mortgage lender, speaker, and published author, specializing in financing physicians, dentists, fellows, PhDs, and physician assistants. You can find information on his book and get more physician real estate and mortgage advice at http://www.fairwayphysicianhomeloans.com and www.whyphysicianhomeloansfail.com

Download a FREE copy of his book here!

Josh is also a fourth generation real estate investor, owns a number of rental homes, apartment units and mortgages. Josh is the host of the Physician Financial Success Podcast available on iTunes at: www.physicianfinancialsuccess.com
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