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Can you do construction loans with physician mortgage?

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  • Can you do construction loans with physician mortgage?

    We're looking to buy (if we can find what we want) or build (if we cannot). While we have owned several homes (all purchased utilizing a physician mortgage), we've never bought a pre-construction home. Are there any lenders folks know of that will do a construction physician loan? I spoke with a local bank, and while they will do it, they max out at 85% LTV. We'd really like to use a 100% LTV (or near that). Our total mortgage would be less than 2x annual income, but we just paid off a massive amount of debt so our ability to come up with a large downpayment is hampered. Sure, we could save longer, but we're in a position where our rental lease would match up very nicely with the build completion estimate, so this could be a great opportunity for us to get exactly what we want...but only if we can find a lender who will finance it.

  • #2
    Forget about the 15% down payment they're asking for, for a minute. You're cash strapped. You've never built before. It's often more expensive than you think. There is a high likelihood that the cost of the project will be over 15% higher than anticipated, after you already receive your loan amount. Otherwise you will settle for more basic fixtures, cabinetry, trim, etc. Unsatisfied spouse. What then?

    Has a building completion estimate ever been on time? COVID is causing construction and supply chain disruptions. Perhaps increased material costs.

    You're also looking at a time when the lenders themselves are trying to shore up their reserves and limit their risk, so 100% LTV will be more difficult, as in times like these HELOC's are being restricted, for example. The lenders are looking at liabilities from increasing corporate bankruptcies (think retailers and oil), personal and commercial mortgage defaults, rising student loan defaults, poor interest rate spreads, etc.

    What you really want is to wait and understand the building and lending process a bit better before proceeding, you just don't know it yet but patience can avoid serious headaches and money mistakes. Doesn't sound like you even have emergency reserves in a time like this! IMO better off renting at least another year and have some money in the bank to cashflow the project, and the Fall COVID season fallout and potential 2021 vaccines and treatments put the economy back on more solid footing. Otherwise a spectacular foreclosure may present a great opportunity for you at half the cost. Who knows? Reason it out without emotion.

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    • #3
      I have not seen any.

      A few years ago I looked into something similar.. there were was one physician loan person that said we could do 10% down but then when the rubber mer the road it just wouldn’t go through or it always changed (“ our underwriter now needs blah blah blah”).

      for typically doctor houses requiring jumbo loans I doubt you can even do it at 20% right now. We’re building a big place now and best we found was 35%

      agree with the above too. You need to expect to go 10-15% over what you want. That’s why banks often require that reserve in addition to the down payment

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      • #4
        “but we just paid off a massive amount of debt so our ability to come up with a large downpayment is hampered. Sure, we could save longer, but we're in a position where our rental lease would match up very nicely with the build completion estimate, so this could be a great opportunity for us to get exactly what we want...but only if we can find a lender who will finance it.”

        •Translation: You just got your head above water and now you want to dive back in.
        •The lease is the maximum, your build completion estimate is the absolute minimum. Who made the estimate? No one but you can finance the difference on the front side.

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        • #5
          While I specifically said we have not bought a pre-construction home, we have done a full renovation (leaving only the exterior walls) so I'm at least somewhat familiar with what it's like. I also have over 20 years as a project manager, so keeping large scale projects within budget and on schedule is something I'm quite comfortable with. That said, it looks like it's not in the cards at this time. Spoke with numerous lenders (most of which will absolutely still do 100% LTV) and came to the realization that the construction physician loan just isn't going to happen. Essentially, it's not an actual product and the work-arounds offered aren't sound financially. We're still on the lookout for a home to buy, so hopefully that will work out. Thanks for the feedback!

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