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.]
Gold Level Scholarship Sponsor
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.)
Rates
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.
Terms
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!
Your comment on no one taking the advice to rent is similar to my experience. It makes such little sense for residents to rent (almost the same goes for people less than a couple of years out) and no matter how many times I repeat the advice, it falls on deaf ears. I thought I was just doing a bad job explaining it, but I guess if you’re just as unsuccessful as I am, then maybe that’s not the problem.
You mean own I assume.
Yeah, in the second sentence
The physician mortgage game is changing. Since the mortgage meltdown, typically the institutions that offered physician mortgages were the mega-banks. But ask the loan originators whom work for those mega-banks (at least every single one I’ve had a conversation with) how they like their companies and they will tell you they are less than happy. Why? Because they are not heard, they are a very small piece of a very large organization and their wants, needs and words, fall on deaf ears from management. In other words, upper management at these mega-banks were not focused on the client or the client experience, the decision makers in management were not originating loans themselves and were too far removed from the client to really understand the problems and listen to the originators.
Today you see more and more small banks and lenders getting involved, which is a good thing. With more players, comes more competition, with more competition, comes lower costs, better customer experiences and more potential lending programs and solutions.
What is the definition of a physician home loan? It’s a loan program that can accommodate your specific challenges; low down payment, closing on contract and without pay-stubs, can work around your student loans, typically originated, processed and underwritten by a team or professionals that frequently work with your colleagues and have vast experience that enables them to forecast problems and create solutions prior to them killing your deal.
Whether that loan is a portfolio loan (retained on the books of the bank) or is in some other way specially underwritten to accommodate your specific needs, is a mute point. The only thing that matters is, can the lender you choose, take care of you, work around your specific challenge(s) and offer you an acceptable rate and fee structure.
With more competition and options coming to market, I believe you will see a vast improvement in the physician mortgage market over the next few years.
Thanks for the update. As someone who has been out of fellowship for 12 years, I find that the majority of programs don’t apply. Do you know why the programs are limited to “new” doctors? Thanks.
I think the theory is that docs who are 12 years out of training probably ought to be able to come up with a 20% down payment and get a less expensive conventional mortgage.
Not all programs are limited to new doctors, that is a guideline by a few banks but not all. Feel free to contact me by clicking on my name above Keisha.
I was one of those residents that bought a house when I started residency in 2011. It ended up working out for us. Granted we were in a low cost of living area in Oklahoma. Also, housing prices and the economy were doing great in the area due to the oil and natural gas boom. We ended up selling it after 3 yrs for $13,000 more then we paid for it. I added up all the initial costs and expenses over the 3 years and compared that to what we would have paid in rent. We came out ahead but just by a couple of grand. I would have done it again if I was in the same location and situation.
This kind of illustrates the problem. When I read this, I think your story is the perfect justification for renting: Going through all the hassles and uncertainties of ownership for only a couple of grand over a few years can’t possibly be a good idea. But apparently you look at the experience as positive and would do it again. I just can’t understand it.
Move your start/end dates by a couple of months/year to now where oil is no longer booming and how would it go? A couple of grand is nothing and hardly qualifies as winning given the hassle/liability of a house.
I bought a house in texas with a 6 year residency, and still had over a year unoccupied and sold at a loss, and the place wasnt even expensive when I bought it (138), just less expensive when I sold it(120). I think living in LA prior messed up my anchor bias and made me feel like they were basically free.
Unless you were going to turn it into an investment rental, its not worth the hassle, but agree, you cant talk doctors out of much as they are super individualistic/etc…
We were one of the lucky ones. We used physicianloans.com to buy a home during my husband’s residency in Denver, CO that we stayed in for another 6 months post residency (so 3.5 years total). We bought in 2011 and sold in 2014 (house sold in 36 hours for $6k above listing price with 6 offers on the table) and even after paying fees and real estate agent, still came out $60k ahead. We were then able to turn around and use that immediately on our attending home down payment (which we had negotiated down significantly from list price…) Best gamble we ever made…but not sure I would do it again. Definitely not with our current bigger home!!! Planning to stay in this one to retirement, assuming all continues to go well with my husband’s job…
Congratulations on your success- but I agree with you that it is more a function of when you bought (2011 instead of 2007 for example) than anything else.
Chelsea —
What was it like working with physicianloans.com? I am struggling to find many reviews online.
Most of my fellow anesthesiology residents who bought are going to lose a small amount of money after 4 years. Most bought in the range of 140-150k (buys a 3 bedroom 2 bath, 1400-1800 sq ft home here in Texas). For the most part their homes have had a very small increase in valuation (about what might be expected from inflation). The loss all comes from the other costs involved, mainly 6% realtor fees paid by seller, and closing costs, now also often paid by seller. Total fees and costs associated with selling a home using a realtor are in the neighborhood of 10-12% of the total home value. So conservatively, for a friend who bought for 150k and is now selling for 160k (minus 10-12% or 16-19.2k dollars), they’ll lose 6-8k off the deal. Luckily, most people probably saved about that much on rent over 4 years, so the total transaction is a wash, but certainly (like WCI said), much more headache with home ownership than renting.
Don’t forget all the other costs of home ownership: security system? lawn equipment, way higher water bills, carpet cleaning, home maintaining. I guarantee all those who say they “added up the costs” didn’t include those.
Any of these programs offer an extended rate lock of 180+ days, or free extension if builder goes over? We are buying a new construction home from a builder not set to be finished for 6 months but looking to lock in rate since not sure where they are going by that time. Possibly 15 yr fixed. Most places charge .25 on rate penalty and pay 1 point upfront but can get credited at closing. Any thoughts on 180 day rate lock in this environment for a 15 year fixed, and who offers 180 day rate locks?
Thanks
I’m in a similar situation, only with a ~12 month build. I’m not going to worry about rate locks. I am, however, going to get quotes far and wide. Although I plan on having 20% down at hand in closing, I’ll weigh the options including using some of that cash to pay down student loans instead.
Good questions. Not sure if any doctor loans are available for new constructions, much less with a 180 day rate lock. It’s worth a few minutes of emailing/calling to find out though. Please share what you find.
Josh Mettle will do construction loans. For most production builders, though, one need not get a construction loan.
Instead the process is get underwritten/preapproved, sign contract with builder including putting down earnest money, wait (8-12 months typical in my development), and then 30-60 days before completion of the home set up a “normal” (as in non-construction loan) mortgage with closing at the same time as the house is finished.
The only physician who followed my advice in this matter was my own daughter, but then only grudgingly. She rented all during residency and for her first two years as attending. It worked out perfectly as the practice she thought that she wanted wasn’t at all what she ultimately ended up with. Had she purchased even a very modest home in those early years she likely would have had to sell it at a loss or try to be an absentee landlord.
In all of the years that I have counselled young physicians, I cannot think of one situation where buying a home as a resident has been a successful venture. I have, however, had to work through bringing cash to closing when the sales price was less than the mortgage, being an absentee landlord, renting at a new location because the old house didn’t sell, and the joy of two house payments.
Oh, it works out sometimes. Imagine being in residency in Arizona or Las Vegas from 2003-2006.
We bought in medical school (I work, husband was in med school) and rented out our house during residency to other residents. They paid our mortgage for 4 years. I’d say it was a sound investment.
Great article. I am an out of cycle military resident just finished residency and looking to buy. I am stationed in Alaska for 3-4 years. Originally looked into rentals however they are expensive. A 2-3 bedroom, badly maintained condo rents for $1700. A good 3 bedroom condo/town home/home rents for $2200-$2600/mth. So I have decided to buy. I am factoring in the possible 3% appreciation annually in the next 3-4 years (I know it is not a guarantee), high cost of renting, low interest rate on loans (I am getting 3.2-3.5%) and the fact that it seems very easy to rent here so I can potentially hold the house a few years longer if I need to. Anchorage will have influx of residents as long as the military is here and of course there is the VA loan advantage. So I am violating the 5 year rule but it seems to me the better option. There are risks here as well. There is the possibility of a military draw down in the next 3 months, if that happens prices will fall so it will make buying cheaper (if interest rates don’t go up) but that could happen again when I am ready to sell. I haven’t bought yet so these articles make me question my decision to buy. Any thoughts?
I am looking at $350K houses.
Yea, I’ve got a thought. Rent. This one is very nice in a nice part of town for $2400: http://anchorage.craigslist.org/apa/4955076205.html
This one is $1800: http://anchorage.craigslist.org/apa/4934013045.html
Your BAH with dependents is $2502.
I guess I don’t buy your argument that buying a house is somehow a better deal than renting for 3-4 years in Anchorage. Have you been through the NYT Buy vs Rent calculator? How much appreciation will you need just to break even after 3 years? I would bet it is substantial.
I would need about 3-4% appreciation to break even depending on how much closing cost I have to pay when I buy ( vs how much of it is paid by the seller). NYT rent vs buy says if I can rent for $1812 I would be better renting. So far I haven’t found anything I would like to rent in that price range. By the way my BAH is a little over $2200 because I am single.
I looked at the rentals from Craigslist plus a ton I have looked at in person, they are really different from the pictures. I will keep looking. Thanks for your input
Maybe you can have my old room. My parents are only there half the year anyway. 🙂
Lol! I bet they live in one of those nice neighborhoods i have been eyeing….south anchorage?
Base of the hillside-barely East of the highway. Not too high end, but it was a nice place to grow up.
As a cautionary tale wife and I bought when I was an intern (2006). Ended up staying in the same house for 5 years. When I finished training and we decided to move the house was worth 50% less! Obviously the worst market timing possible. We had also put a little money into it, updating, painting etc. Definitely should have rented. Also had a co-resident who did the same thing then instead of going to a much more prestigious fellowship, decided to stay at the same hospital as his residency in order to not have to worry about trying to sell/rent his house.
Renting gives you flexibility, helps you save money and gives you more financial security by minimizing unknown risks (like heater going out, or in our case a complete market collapse etc). On the bright side I learned a ton about home ownership on a small “starter” home.
Best renting scenario for the military doc is on base housing. Probably my favorite rental. Unfortunately it takes usually a year or so to get on base.
Not necessarily. Often times swapping BAH for an on-base rental is a serious loss. If you can rent a similar place for 50% of BAH, then you can do so and pocket the difference.
Yep. My BAH in Hawaii was $2700. My Rental was $1800. The difference paid my wife’s college bills.
I would caution anyone from buying a house during residency unless the market is really in favor of buying. I bought a house during residency and made a nice profit before transaction costs. Just for fun I looked up the house on zillow and over 10 years later the house sold for 20k less than I sold it for. Add in transaction costs and this was a big money loser for them. Every resident that bought a house the year I sold was likely significantly underwater 3-5 years later. The mortgage payment may be more stable than rent payment but house prices are so volatile at times they can overwhelm modest increases in rent. Also rents typically rise in small predictable amounts…just like resident salaries.
Just to share my experiences…and to be honest, not sure I would repeat the same if I had to do it all over again…
Medical school 2009-2013 in Vegas… Bought starter home (married – 1 kid at the time) for 105K; 4% 30 yr FHA – Sold for 150K at end of school.
Residency in Texas – Bought 165K home (now 3 kids) using 25K down-payment from previous home, 3% 15 yr BofA Doctor’s Loan – Approved on contract, not pay stubs.
I truly hope this will be the right financial decision, but I do feel I’m stressing over this stuff WAY more than if I had just rented…in both scenarios…despite what is appearing to be approximately 60K – I think this fresh out of school is NOT the time for me to be worrying about if the dishwasher leaks, garage door breaks, or garbage disposal goes AWAL (all of which have happened just this year) – I’m still LEARNING how to be a DOC!!
Thanks for the topic updates, and WCI, I appreciate your time helping us all out- Love the book!
RENT. I was in residency 2006-2009 and our program director really encouraged us to buy houses. I even remember one of the local banks would give you 110% home value so you walked away from closing with a check. Luckily I wasn’t quite that dumb but over the next several years the value dropped significantly had several repairs and it took two years to sell (rented it for about 6 of those months). Talk about a miserable day at closing, wrote a 20K check to sell a 115K house and was running a temp of 102 with the flu.
I am buying (under contract, now) with the following situation:
Family of 6, but house is typical (1500sqft, 3bd, 2bath)
Med school paid off (via HPSP)
Starting 3 year advanced residency this summer
Location is Springfield, MA
5/1 ARM at 2.875% (currently floating until within 60 days of closing)
20% Down $26k
NYT calculator suggests break even at 32 months, given modest assumptions
We are okay converting the place into a rental after residency, if selling is not a good option.
We see renting as having more liabilities than previously described: loud neighbors in a multi family, landlord sells or moves back in or gets foreclosed on, who wants to be forced to move during residency?
Alright, let it fly.
Let what fly? You have a down payment and a plan to keep it as a rental if selling doesn’t work out. What’s to criticize? Keep in mind you may end having to be an absentee landlord- which is a big pain. What did the NYT calculator tell you your required rate of appreciation would be to break even?
NYT Calculator Assumptions of inflation at 1.5%, rent increases at 1.0%, investment returns of 6.6% provides a toleration of -5.0% per year for break even at three years. This seems like a generous cushion. Just happens that this is also the lowest level of value loss the calculator allows for input, no question insufficient for those holding real estate in 2008.
Figured I would obtain some more pointed criticism given the espoused aversion to home purchases for residents. Of course, I welcome hints and warnings that some have been providing. Guess I’ll start a contingency list of local handymen, in case the place becomes a rental with my absence.
Cheers,
We bought for residency. All our friends who are renting homes in our area are paying around $1400-$1800 a month, but our mortgage (including taxes/insurance) is just under $1000 so we felt like it was the right move for us (I’m a SAHM with 3 kids). As a result, we’ve been putting $600-700 in savings per month, as an emergency fund but also on the off chance that we may have to pay out some money when we sell (over 4 years, that savings really adds up). Thankfully, that won’t be the case. We just put the house on the market and it looks like it will sell for around 10-15k more than we paid for it, plus we have around 20k of equity in the house (we put 5% down). So, it has worked out for us (thankfully!), but I will be honest – I’m looking forward to renting during my husband’s fellowship.
So my question is… assuming we sell the house, what should we do with the money we have in savings? Worst case scenario, we sell low and get around $15k back (most of the equity), making our savings around 45k. Obviously, our move is going to cost a bit, and we don’t feel comfortable having less than 20k in savings, especially since we are unsure of what our budget will look like for fellowship (totally different part of the country). I would love to fully fund a couple of Roth IRAS (which, if done in the next 2 weeks, could be for 2014, leaving 2015 available for funding later this year). We also have an additional 17k in a retirement account that my husband’s residency has been funding, but we won’t be touching that.
Congratulations on your success! But you’re a good example of what it takes to be successful- a P&I much less than $1000 for a house that rents for $1600 plus a market with some appreciation.
As far as what to do with your money, it depends. First an emergency fund, then maxing out Roth accounts, then perhaps paying down loans if you’re not going for forgiveness then perhaps saving up toward a down payment on your next home.
Thanks for the update!
My wife and I are looking to move closer in from the burbs… a doctor loan just might be the best trick to allow us to buy a house without having to sell our house first, get a bridge loan or do some contingency purchase.
It’s interesting how sometimes doctor loans refer to graduating residents with an attending contract, and sometimes they refer to students with a residency contract.
Like many things, timing and location are critical factors in making the rent vs. buy decision. Back in the housing boom times of the early 2000s, my wife and I bought a brand new home for $115K and sold four years later for $170K. That leaves a nice chunk of change even after realtor fees and closing costs. It also kept food on the table while I was awaiting my first paycheck after residency. 🙂 We kept a close eye on the market those four years and one resident in my program actually sold his house prior to finishing because he was worried about a housing bust. So much for the talking heads who seem to think nobody saw the housing bubble developing.
I generally agree that resident’s shouldn’t buy homes, especially if there residency in only 3-4 years long. However, in the after the recent mortgage crisis homes in affected markets were often sold at below peak values. Combine that with low interest rates and it can make for a successful venture into home buying. That being said, most residents either won’t qualify for a doctor’s loan or will not have enough for a 20% down payment.
I agree that timing is everything. Any resident who bought a home in 2010 or 2011 should do just fine after 3-4 years. Many residents absolutely qualify for doctors’ loans. They use them because they don’t have a 20% down payment. That’s the whole point of a doctor loan.
Thanks WCI for educating the next generation of physicians on personal finance. I am graduating med school and in the process of purchasing a home and will share the following lessons learned so far:
1. “Doctor Loans” are not a special discount on a mortgage to reward you for your professional status, they are lenient lending terms that in return carry a higher interest rate.
2. Doctor Loans typically are adjustable rate mortgage (ARM) products (i.e. 7/1), so if you are considering staying after your training for a fellowship or attending position, or if your training is interrupted for whatever reason, be aware of the rate reset potential.
3. If possible, for those with spouses that work, a conventional mortgage seems preferable to a doctor loan
4. You have to have a signed contract with a seller to lock in an interest rate
5. Mortgage rates are still very low historically. Rates generally track the 10-year treasury note, which you can follow using the ticker ^TNX.
6. Applying for a mortgage involves more paperwork and energy than applying for residency
7. For those looking to sell their home after residency, it probably does not make sense to buy “mortgage points” (or pay prepaid interest upfront)
Thanks
There are plenty of 30 year fixed/15 year fixed/5/1 ARM doctor loans.
who has the fixed loan doctor loan products?
i haven’t been able to find any either. have even spoke with a few people on your links on this page and all I can find are ARM’s.
Most of them offer a fixed product. Who is telling you they only do ARMs?
We offer fixed rate loan products, Jon. Please go to http://www.utahphysicianhomeloans.com or click my name above to contact me.
We closed on our house recently and came away with a check for $8,000 after 4 years of ownership. Was it worth it? Yes. I never had anyone come to my door telling me what to do or telling me they needed to inspect the place. You can’t put a price on being left the eff alone. I’ll never rent.
Hello my name is caroline, My life is back!!! After 8 months of marriage, my husband left me and left me with our two kids. I felt like my life was about to end, and was falling apart.I saw a testimony on how roborobo reunion a marriage so I contacted this prophet and after I explain my problem to him. In just 3 days, my husband came back to us and apologize for all the pain he brought to the family. We solved our issues, and we are even happier than before with much love.i really appreciate the love binding this prophet did for me to get the man back to my life i will keep sharing more testimonies to people about his good work Thank you once again.incase you are in any relationship problem you can contact this prophet for help he is always there in his temple to help you solve your problem.Email> [email protected]
My husband and I are looking to move to Palo Alto for his1 yr fellowship. At that point I would be an attending. The rent is outrageous: easy $3600-5k for same quality as the place we are staying in . Given zillows home value index of 6.4% & hot buyer market I am contemplating buying and after our year using as a long term and possibly short term ( air bnb) rental investment . what are your thoughts?
So you’re purposely buying in a hot market expecting it to continue? Seems odd.
I don’t know anyone that would advise you to buy a home for a period of one year. Buying an investment property is one thing, but I find that people who buy a home with the plan to live in it then rent it out generally buy it more as a home to live in rather than evaluating it strictly by investment property criteria, which they should.
I know this is an old post, but you wouldn’t happen to have any quick info on what investment property criteria are would you?
What do you mean by criteria? What info are you looking for?
I was referring to WCI’s post above mine. The last sentence where he says “Buying an investment property is one thing, but I find that people who buy a home with the plan to live in it then rent it out generally buy it more as a home to live in rather than evaluating it strictly by investment property criteria, which they should” I’m curious what the investment property criteria are? I’m sure I could google stuff but a starting point would be appreciated as I will be looking for investment property at some point in the future.
My story: hpsp, 150k student debt, no other debt aside from car loan <20k. Great credit. About to head to DC area and deciding whether to rent or buy. Wife works ~70k a year for her.
When you buy investment property it’s all about the return, not the school district or the curb appeal, or whether your furniture goes well with it etc. It’s cap rate and expected appreciation in the area and upcoming repairs etc.
Ah ok, makes a lot of sense. Thank you for the responses
You mean can you get a doctor mortgage loan on an investment property? Generally no.
But if you bought the house to live in it and then either sell or rent after 4 years depending on the market?
I’m almost 6yrs out of residency, and now we are in the market to buy our first ever home.
My only question to WCI and those offering physician loans is, are the rates competitive?
For example, with 20% down, Penfed is offering a 15-year fixed rate conforming loan at 2.625% (APR is 2.88% with 0 points) today. So, assuming I want to put less than 20% down, will I be able to get these rates and no PMI?
Thank you.
No. You’ll generally pay 1/8-3/4% more. If you want the lowest possible rates, put 20% down.
Thanks, WCI.
@VK- That rate is outstanding for a 15 year fixed. I’m seeing rates about .5% higher for the physician products, keep in mind that could depend on loan amounts, credit score, etc. Typically, I advise clients to calculate their after tax deduction effective rate. You can find a great calculator at: http://www.bankrate.com/calculators/mortgages/loan-tax-deduction-calculator.aspx
If you have debt to pay off that is at a higher rate than your after tax effective rate, it might behoove you to take the higher rate and put less down. If you are at the point where all other debt is gone or very low, I’d take the fantastically low 15 year rate you mentioned above.
Thanks, Josh. My loan amount would be under 400K and my credit score about 800.
The only reason why I even mentioned less than 20% down is to give ourselves some extra cushion in terms of emergency fund. Otherwise, we can put down 20% for our price range.
If you can budget it, I would do the 20% down, it will save you a ton over the life of your loan. Those rates and terms you are being quoted are awesome.
Good Luck!
Thanks for such a great site.
Hoping for some comments/feedback on my current situation:
Married with no kids, likely a kid in the next 2-3 years. I will be finishing training this year and have signed a contract in Miami, FL at 350k with yearly increases of 20k. First year this works out to about 18k/month after federal, SS, and medicare withholding. Current expenses are student loan payments on a debt of ~290k (~3k/month). I will likely consolidate the >5-6% loans and aggressively pay these down with larger payments, while paying down the rest with minimum payments (have some as low at 2.2%). All that said I plan on a monthly loan payment of 5-6k, more if I can while saving. I own an income property, valued at ~170k with 80k left on it, rented out and putting 100% of the rent right back into the home. No other assets or major debt. Am looking at North Coconut Grove homes priced at 700-800 (yes there are cheaper options and other areas, but this is where we want to be for sense of community, etc). Would it make sense to use a physician loan and end up with a higher apr as I obviously don’t have the capital for 20% down? Should I instead rent for a year or two and save so I can put 20% down? Can I take a higher APR physician loan out and then refinance with someone else?
Also, 401k doesn’t kick in until the following year, 12 months after start of employment. Best bets for saving? I’m a noob at all this…
Yes, you could take a physician loan. You’re right near the maximum I recommend for home buying. I would recommend growing into that new income a little slower than you seem to be doing. For example, don’t buy the Coconut Grove home until the student loans are gone. You can use the equity in that rental property to speed up the process of (most importantly) paying off the student loans and (slightly less importantly) saving up a down payment. But mostly, you just need to grow into that massive income as slowly as you can.
I have been trying to search about international Medical graduates going to residency. I am going to go to residency in the DC, and was reading on the high renters market and I am considering buying a home. Pros for me: 1. No student loan 2. 10% down-payment saved already. But I have not found anything on lending to a foreigner (I do have credit history in the US). Do you have any insight on this?
I do not, I’m sorry. I’d check with the individual lenders listed on my doctor mortgage page.
Hello WCI,
Thanks for the amazing site, I’ve used it throughout my residency and fellowship and will continue to do so, please keep up the great work! Just wanted your thoughts on my situation.
I am part of a physician couple, both in training at the same institution, I’m completing my oncology fellowship this June, signed to a stable, academic job (at same institution) for ~210K a year and I expect to stay long term. Wife is in anesthesia, also completing residency, will do a one-year fellowship @ ~100k a year, then a faculty job afterwards at ~300K a year. We love the institution and area and expect to be here a while. No kids, but who knows, that’ll probably happen in the next 1-3 years.
We have rented the same 1100 sq ft apt throughout all of our training and have been very happy doing so. But for many reasons, its time to move on, lease it up this July.
We are looking to buy a ~400K home in what I think is a stable market. I am torn between getting a physician loan versus a traditional 20% down mortgage. Our current financial situation:
~200K student loan debt, no other debt
~70K in our “emergency savings” (just sits in an online savings acct)
~45K in Roth IRAs (which we started contributing to since start of training)
We could theoretically afford the 20% down, but that would eradicate our emergency savings and dip slightly into our Roths, which I would prefer to avoid doing. Does the Physician loan seem like a reasonable idea? Or should we just bite the bullet, eradicate our emergency savings, and get a traditional mortgage with 20% down?
My wife’s plan is to stay in this house for ~5 years, but once we have kids that approach school age, probably move to another area of town for school system reasons. Right now we’d rather live closer to the downtown area, which we won’t have much use for once we have kids. Then again, who knows, we may just stay in this house for a longer amount of time, we both hate moving very very much…
Thoughts?
So you will soon have an income of $260K+ and are having a hard time coming up with a down payment of $80K? Let’s be totally honest and just call this like it is-silly. You don’t need a $70K emergency fund. How much do you guys spend a month? $5K? Okay, so you need a $15K emergency fund. That leaves you $55K of your savings for a down payment. How long will it take you to save up $25K plus closing costs once you become an attending? Maybe two months. You could pretty easily extend the lease two months I bet.
But if you want to use your $80K to pay off your loans instead, that’s totally reasonable. Just get a doctor loan and throw the cash at the loans. Although with both of you going into academics, maybe PSLF is in the cards. If that’s the case, I’d use the cash for a down payment. Certainly DO NOT raid the Roth for downpayment money.
If you absolutely have to buy the house in July instead of September, I’ll bet you can figure out another source for $25K or just use the doctor loan. Sure, the rate will be slightly higher but that’s not the end of the world. My first mortgage was 8%.
Yea, you have a good point, that does seem a bit silly…. Multiple real estate agents are telling us that buying in the spring is the best thing to do in our market, also it would be really nice to get all the moving out of the way prior to starting our new positions (we have a lot of flexibility in May/June).
Our financial plan was to aggressively pay down our student loans, for me, I have ~60K with no plans to use PLSF since I deferred in fellowship for 3-years. Her loans are larger, but we mentally hate the idea of our student loans and their 6.8% interest rate, so our plan was to use our emergency fund and any extra money (after maxing out retirement accounts), on paying down the student loans as quickly as possible.
I guess it really comes down to two choices, either use our current emergency money to pay down our student loans, or continue on our payment plans for the loans and use our funds on a down payment. Seems like either choice would be reasonable financially?
In that situation, then sure, get the doctor loan and pay off the loans. That’s totally reasonable.
Thanks for the advice and quick responses!
Is Physicianloans.com a reputable broker? I have searched the NMLS license for the brokerage and the agent we are speaking with but other information is sparse.
I’ve spoken with them and have had many readers go there and haven’t yet heard a complaint.
Dear WCI,
First of all, thank you for a great site that facilitates experience-sharing among the physician community. As one with minimal (hopefully growing!) financial literacy, it has been a huge help to me. I will ask a question, then fill in some context to hopefully allow an answer.
During residency, how does one’s partner’s income effect the rent/buy balance?
I just graduated from medical school, lucky to have a wife with a professional degree and a job, and our combined annual income is about $160k. Our combined student loans, thanks to in-state tuition, are about $155k with average interest rate between them of about 6%. We are moving to a city with reasonable housing prices (about $150-180k for one of the “resident-type” homes) and plan to stay 3-4 years at minimum but potentially more. Using a conservative 3-year stay and the projected appreciation of the housing market in our city, the NYT calculator tells us to rent if we can find similar for less than $850. Similar rentals are $1,000 or a bit more. For folks in situations like ours, would being able to write off our interest from a mortgage in a higher tax bracket shift the rent/buy balance at all?
This post might only serve to show my naivete, but thanks just the same and I will continue following.
The more your partner makes, the more sense it can make to buy. But bear in mind it’s still tough to break even in less than 5 years no matter what your income. With a combined income of $160K, you’re more like a new attending than a resident income wise, but still have the same net worth issues.
Do you know if Registered Nurses qualify for this?
Most don’t offer this product to RNs, so I’d take Josh up on his offer.
Yes we have products for RN, CNA, PA, Pharmacists, NA, and other medical professionals. Feel free to email me directly [email protected]
I just completed a physician’s load through Citizens Bank. Be aware. This was the worst experience of my financial life. Their loan processing team was completely incompetent, we had to send them the same information sometimes 3 or 4 times. After telling us repeatedly they had all the information they needed they failed to make the promised closing date because they had not done an appraisal on time. Now that the loan is finally done they are harassing me saying that I do not have insurance on the place when, in fact, their own computerized information system shows that it is up to date. They give you a phone number to call for assistance but that number has no provision to talk to a person, it is simply a lengthy phone tree of recorded messages. In short. Be warned. Citizens Bank is a horrible organization that you will regret having had anything to do with. Find another lender. There are lots out there.
I bought a house with a doctor loan outside of Detroit at the beginning of my 5 year residency in 2011. I used Huntington bank and put 0 down. I listed it this summer and had 4 offers within 2 days over my asking price. Ended up selling it for more than 2x what I payed for it, so basically lived there for free for 5 years AND made some money on it. In my case it was obviously much better deal than renting.
I’m glad it worked out so well for you. How’d the guys graduating when you started make out? 🙂
We live in the Palo Alto area where we did our fellowships and rent a 2 BR apt built in the 1940s with mold growing everywhere, crying babies around us, and the inability to turn our TV up over a quarter volume without fear of it being too loud for 3200/month. We both took attending jobs in the area with a combined income around 700k and started looking for houses. We locked in an interest rate at 3.875 with only 10% down and no PMI bc we have some cash reserves that we were able to leverage. This essentially makes it so there is no reason to put down 20%. We are in contract on a completely remodeled 3000 sq ft house at 1.65 million (started out at 2 million, so actually a really great price in a good neighborhood…unless the market comes down around here). The monthly payments after property tax and insurance will be around 8700/month. This seems absolutely crazy to me, particularly bc we are going to get hard with AMT and not be able to deduct our 20k of property tax or combined 60k of state income tax. I think the effective monthly payment will be about 6200 which is still almost twice our rent. We have all of our contingencies in place on the offer (a lucky rarity in this area). With both of us working we have enough cash flow to make the payments. If she goes part time with kids then the payments become more difficult. The general consensus around here is to buy as soon as you can bc the market never goes down, which is usually what people say right before a bubble breaks….but, that’s how it has been here over the past 15 years and job growth, income, foreign buyers, and new batches of millionaires are made in the area every year which artificially holds the prices higher here than everywhere else.
I am a pretty financially sound person and actually used to be an investment banker, but the thought of these huge payments have kept me up. My wife is tired to living in a nasty apartment. We could get a nicer rental place, but it would cost around 5 k/month realistically and still not have our own space. We could also buy something cheaper around 1.3 million, but that would only get us around 1700 sq ft so the price per sq ft would actually be almost 1.5 times higher, which also makes no sense.
Are we crazy to go forward with this? We are both employed by the hospitals but is their a way to claim home office deductions for a portion of the mortgage for both of us? This seems hard to do for doctors who are employed by the hospital and paid with a w2 and not a 1099….and I think it may still be disallowed bc of the AMT.
What do you think?
I think you’re crazy to live and practice in California at all, but I assume that isn’t negotiable. So assuming you’re going to stay there, then as soon as you’re in a stable social and jobs situation, I’d buy. My general rule is to keep your mortgage to no more than 2X your gross income. In your case, that’s $1.4 Million. So the $1.65M home would require you to put down $250K to stay in my guideline. Stretching to 3-4X is doable, but will require significant sacrifice down the line. You’re barely over 2X with your 10% down payment, so while it’s a ton of debt and should make you nervous, I actually think you can afford it on a two physician income.
How do you alter this for the uncertainty of a partner continuing to work? I think if I was 100% confident that she would work over the next 30 years then the numbers add up. My concern is as kids come into the picture etc that the income level will begin to drop. Unfortunately, physicians income will probably not be going up in the future…
While the bay area does cost a lot, one of our employers does give us a golden handcuff home loan of 10% (paid back after 10 years at no interest if you are still working there). Essentially this gets us into the house with only 16500 of down-payment.
Something else that helps with our home entry cost is that we “forced” our agent to agree to a 50% commission rebate, which will cover all of our closing costs. Any of you out there in Cali, be sure to negotiate this point. If you have any questions about this, feel free to let me know. Don’t let these uneducated real estate agents make a killing simply bc they were born in the right area of the country!
Essentially we can get in the house with no real costs. Just a crazy high monthly payment that is fine if she continues to work, but is a struggle if she doesn’t.
I hope the AMT is rescinded soon. This will be a huge benefit to people who live in these high cost of living states as we could finally deduct our state income and property taxes.
I guess I’d say she has to work until the mortgage is down to 2X your salary and you’ve refinanced it. It’s like going to med school on loans- you’ve committed to both a working plan and a spending plan for the next decade as soon as you’ve taken out the loans.
A lot of people talk about how you shouldn’t view your house as an investment. Do you think this is OK to do with california property? If I view the house as diversification of our portfolio the shear amount of money doesn’t seem like as big of a waste.
No, I don’t think that rule changes in California. But price changes, both up and down, obviously have a much larger effect.
I would argue a primary residence is not an asset. Yes it can store wealth, yes it can provide some tax advantages, but in my mind to qualify as an asset it needs to provide positive cash flow not negative cash flow. A home is more a luxury item than it is an asset. It’s a better performing luxury item than a Porsche, which value has no way to go but down, but as LONG as you are paying mortgage, tax, insurance, renovations, etc. it’s a liability that consumes your income, which could be directed towards other assets.
It’s also makes my kids, my wife, and me happy! So who cares, it can be worth the cost, but be clear it’s a luxury item not an asset.
Unless you 62 or older and have a reverse mortgage, then you have no payment, your line of credit always grows (at around 6% annually), and also provides for some incredible potential tax deductions / loopholes. At this point the home is an asset because it is cash flow positive allowing you to preserve your other assets until later in retirement, defer Social Security, and you will never make a housing payment until after you die. But that is another conversation entirely.
In some ways it is an asset/investment. It pays you a dividend- the saved rent. But I agree with your general point.
I kinda view it as a forced ROTH IRA to some extent. Obviously, like you guys are discussing, the house prices can go up and down, but land in California has a pretty impressive track record. On the other hand, it is most definitely one of the few things where we could claim a $500k increase in value tax free.
To be sure, I understand your point, but I think assuming land in California will equate to land in Missouri or Indiana is just erroneous. There are people here who just hoard cash so that one day they can eventually buy a house, and that isn’t even including the ridiculous foreign investors.
Are physician mortgages all only for single family homes? If you buy a small multi-family (2-4 units) and house hack it shouldn’t be too difficult to justify buying straight out of medical school b/c of (+) cash flow.
By the way, great site.
While I applaud your entrepreneurship, it’s tough to get a duplex-quad etc (or a SFH for that matter) to cash flow with the amount of money down that most med students have available to put down, so I’m not sure it’s the best strategy.
But to answer your question, yea, I don’t think you’re to get a traditional doctor mortgage for a duplex or quad, but give it a try and let me know what happens.
Thanks for your informative blog.