Well, Match Day has come and gone. Most US MS4s are giddy with excitement about moving on to the next phase of life (where they actually start getting paid, even if it is relatively meager payment.) A few are heartbroken as well, and there will be a post about that on Monday. But this weekend, we're going to do a brief update about what's going on in the doctor mortgage marketplace. These posts are relatively easy for me to write- I just email all my doctor mortgage advertisers and ask them what's changed in the marketplace in the last year. If they respond, they get a free plug. Easy, peasy. Sure, most of what they send back reads like ad copy, but there are always a few pearls in there.
The Rent vs Buy Decision
Before we get into the responses I got back from advertisers, I thought it would be interesting to take a look at a thread on the Bogleheads forum that cropped up this week where people briefly fought over whether or not I recommend residents buy a home or rent. Let there be no doubt about how I feel about this subject. While it is possible for a typical resident to buy a home and come out ahead, that generally will not happen, and when it does, it is unlikely that the purchaser will come out very far ahead. But I'm about ready to quit fighting this battle. Here's what I wrote in that thread.
It's actually impossible to talk graduating medical students out of buying a house. I know. I've tried. They're all convinced they're special; their circumstances are unique; it will work out for them etc. Sometimes it does. Most of the time it doesn't. Certainly it's more likely to work out well for a 6-7 year residency than a 3-4 year residency. But I'm currently selling a home I bought 9 years ago for less than I paid for it. It also sat empty for a year. When I had a renter in it I was making money, but it was cash flow negative. Overall, probably came out a little behind compared to renting. Certainly renting would have been far less hassle. [And for those following along at home-this was my first attending house, now an unintentional investment property in another state, NOT a resident house.]
Better to make your home buying mistakes with a little resident house than a big attending house, I suppose. Much easier to earn your way out of them.
The main issue is that first time home buyers don't get that a mortgage payment is SUPPOSED to be much lower than rent. Like 45% lower. They just don't believe that the transaction costs can be so high, or that maintenance and repairs can cost so much, or that homes don't appreciate in a straight line, if they appreciate at all.
Oh well. I just gave up and decided to sell ads to mortgage lenders instead. Since they're all going to buy anyway, might as well help them get a decent deal on the mortgage.
So, just in case there were any doubt, I still stand by my recommendation that the vast majority of residents and probably even most new attendings, at least for 3-12 months and especially if in any kind of unstable job situation, should rent instead of buy. But I'm also very well aware, based on the traffic I see on my doctor mortgage pages and how happy all these lenders are to purchase ads from us, that you're all buying houses anyway. But do me this favor at least- consider renting and run the numbers using the NYT rent vs buy calculator. Maybe you are the exception to the general rule. But most of you aren't.
The Doctor Mortgage Loan
Is there a place for a doctor mortgage loan? Absolutely. Far better to use your limited early-career cash flow to max out retirement accounts and to pay down high interest student loans than as a downpayment that may only reduce your fees by a few thousand and your interest rate by less than half a percentage point. Personally, I think most new attendings living like a resident can do it all, but I recognize that most docs aren't actually willing to do that. Thus, the doctor mortgage loan.
My general criteria for a “doctor mortgage loan” are the following characteristics:
- Less than 20% down and no Private Mortgage Insurance
- Willing to take a contract in lieu of pay stubs
- Special underwriting that only considers student loan payments due (such as the reduced IBR/PAYE payments), not the total loan burden
One of my advertisers, Tal Frank with physicianloans.com, made a good point in his reply to me. Mr. Frank's argument was that a “true doctor mortgage” was a portfolio loan that the lender kept in house, rather than selling off via Fannie Mae, Freddie Mac, FHA etc. The advantage of these is that the lender can do “special underwriting” in that it can make loans that don't have to conform to the guidelines of these organizations that buy the mortgages from the lenders, bundle them up, and sell them to investors (a process called securitizing.) That's true, but I see it as a relatively minor point that few doctor loan purchasers care about, AS LONG AS THE LOAN CAN BE CLOSED. Obviously, if you only qualify under “special underwriting” that point will matter a great deal to you, and you may want to ask prospective lenders about it. Also bear in mind that your contract may not be available until late June and official student loan payment amounts may not be available while you're in a grace period.
This is an area where lenders can get pretty tricky though. For example, some lenders might call an FHA loan a doctor loan. But all FHA loans require PMI. So how does the lender get around this? By paying for the PMI itself and charging you more in fees or interest to make up for it.
The NHF Program
One new thing in the last year, and one I wrote a post about a while back, is the NHF grants. Josh Mettle with Physician Home Loans @ Fairway, recently sent me a copy of a blog post he wrote on the subject- Top 5 Reasons To Get an NHF 5% down payment grant. Obviously, free money can change the rent vs buy calculation if you're on the fence about it. (Yes, yes, I know, most of you and especially your partners aren't on the fence. You've already hopped it and are currently spending every evening on the internet surfing the MLS in your soon to be new city.)
One cool thing for those who do buy a house is that mortgage rates have remained quite low despite the seemingly perpetual threat of rapidly rising rates. My favorite place to check rates quickly is Amerisave. Friday's rates for a $200K, conventional (20% down), no-cost mortgage were 3.91% for a 30-year fixed, 3.125% for a 15-year fixed, and 3.25% for a 5/1 ARM. The lenders who were willing (most weren't) to specify what rates people were seeing for doctor loans say they're still in “the 3s.” So if you plan on 4%, and get something slightly less, that'll be a pleasant surprise.
Every lender's doctor loan product is a little different. Here is a brief description of what the lenders who responded to me currently have to offer:
Sandi Frith with Huntington Bank – 0% down up to $500K, 5% down from $500-650K, 10% down from $650K-$850K, and 15% down up to $1 Million. Townhomes and condos allowed. No pay stubs required, but they do require a certain amount (an amount equal to 2+ months) of reserves (even non-liquid reserves) if you want to move in before your job starts.
Physicianloans.com – 0% down payment to $650K without PMI. Requires 700 credit score. 10% down required from $650K-$1M with a credit score of 680.
Stephanie Arcelay with Suntrust – 0% down up to $650K and can close up to 60 days before the job starts.
SoFi- Yes, those student loan refinance guys now do mortgages also. 10% down up to $5 Million. (Can you tell they're located in The Bay Area? What kind of a doctor buys a $5M house?) They lend in 23 states, and rates are a little higher than most doctor loans, but it's always great to have another option.
Bank of America is having a few improvements in their loan product coming up next month. For example, you will be able to go up to $1M with just 5% down and up to $1.5M with 10% down without PMI. As always, email my business manager (cindy (at) whitecoatinvestor.com) for BOA contact information.
Chris Minear with Citizens Bank – As little as 5% down, as much as $1 Million loaned without PMI. Low reserve requirements, only contract required, and liberal exception policy to stated guidelines.
Mike Wagner with BBVA Bank– 5% down up to $1 Million without PMI. No reserve required, only contract requirement, can close 60 days prior to start date, 690 score required, and 30 year fixed, 15 year fixed, 5/1 ARM, and 7/1 ARM available.
At any rate, if you do decide to buy, and most of you who have read this far are going to, please include these website sponsors in your search. Thank you for supporting those who support this site. And if you're not a physician, don't assume these loans aren't available to you.
What do you think? Did you buy a home as a resident using a doctor loan? When all was said and done, was it the right move? How about as an attending? Which lender did you go with and what was your experience? Comment below!