[Editor's Note: Josh Mettle (Physician Home Loans At Fairway Independent Mortgage Corporation) and I go way back. He originated my now paid-off mortgage loan, has been advertising on the site for years, has done several guest posts, and has even sponsored some of my speaking engagements. But I initially told him I wouldn't run this post because it read like an ad, despite the importance of the information in it. So he rewrote it from a more educational perspective and here it is.
This information is important because it could potentially change my mind that buying a home as a resident is a bad idea. The main problem with buying a home as a resident is you won't be in the home long enough for appreciation to overcome the significant transaction costs of buying and selling, not to mention the other costs and hassles of homeownership. But when someone is subsidizing the transaction costs, then it's easier for buying as a resident to work out well. You still have to run the numbers and consider the other factors of course. In this post, Josh tells us about some programs that subsidize the transaction costs by giving you free money.]
Home Finance Agencies (HFAs) across the country have been allocated money from the Federal Government [as part of the settlements from the Global Financial Crisis-ed] to be used for down payment assistance for low to moderate income borrowers. Each state or county may have a different HFA and their specific grant amounts and guidelines will vary accordingly. Currently, the counties and institutions below are within the footprint of qualifying HFA’s where money is currently available for residents and fellows if they qualify under the income restrictions for the particular HFA they will reside in.
Challenges for Resident Physicians Wanting To Buy A Home
One of the biggest challenges with down payment assistance programs has long been the issue of student loans and the way underwriters calculate payments on deferred and Income Driven Repayments. The general rule has been to default to one to two percent of the outstanding student loan balance as a MONTHLY payment. 2% of $200,000 equals a monthly payment of $4,000, which means the applying resident will be lucky to qualify for a Cracker Jack box to live in.
Another challenge has been the issue of qualifying for the loan and down payment assistance, without being able to present any pay stubs, in the case of a transitioning medical school student graduate with only a Match letter in hand. Most incoming residents don’t want to move twice. Having to start residency, obtain two pay stubs and then apply for a loan is about as appealing as switching places with the cadaver in gross anatomy lab.
The problem has been finding a loan that accommodates the unique challenges that resident physicians face in qualifying for a loan, and that will work in conjunction with down payment assistance. Some lenders have been able to successfully solve these challenges for incoming and existing residents and fellows – thus qualifying you for the down payment assistance money.
Programs vary from county to county, so I’m going to give you a general overview of the pros and cons. Feel free to post additional questions in the comments section or to email them to me at [email protected].
Pros of a Mortgage Down Payment Assistance Program
Depending on the county in which you are buying, the down payment assistance equals between 3.5% and 7% of the loan amount. For example, if you buy a $300k home and your loan amount is $291k (less required down payment), your down payment assistance would be between $10,185 and $20,370 depending on the county you buy in.
Once you qualify and receive the down payment assistance funds, there are no strings attached. You do not need to pay that money back. You can sell at any time with no recapture fee. The down payment assistance is not taxable It is your money to be used towards down payment, closing costs, or any other fees directly associated with buying the home. This sounds too good to be true but is exactly how the program works.
Only 3% Down
The loan program only requires 3% down, plus the entire down payment and a portion of the closing costs can come from the down payment assistance. You can also ask the seller to cover any remaining closing costs up to 3% of the purchase price, meaning you can actually buy a home with no minimum investment from yourself.
You do NOT need to be a first-time homebuyer. All loans are 30 year fixed, with no prepayment penalties or down payment assistance recapture.
No Pay Stubs
You can close up to 60 days before you start your residency with your Match letter with some lending institutions.
They Treat Your Student Loans Fairly
It is possible to qualify even with large student loans because the underwriters only consider your Income-Driven Repayment amounts, which means most residents will qualify for a decent home in these areas.
Cons of a Downpayment Assistance Program
Higher Interest Rate
These loans do not have the best interest rates. Rates are actually set by each agency, which varies by county and has nothing to do with a lender's margin.
Higher Closing Costs
Closing costs are a little higher – roughly 3% of the purchase price of the home.
It's Not a PMI-free Doctor Loan
These loans may have monthly private mortgage insurance – however, the mortgage insurance is at a significantly lower factor than traditional conventional or FHA loans. The private mortgage insurance costs on these loans are roughly half the cost of an FHA loan.
Your Spouse Better Not Make Much
There are income limits. They vary by county, but one I recently looked at was $88,350. Most residents and fellows will not have a problem with this, but it could be an issue if you wanted to use a spouse’s income to qualify and combined your income exceeded the county limit.
Where Are These Programs Available?
These are the areas and institutions within the area we’ve verified funds are currently available:
Phoenix & County of Maricopa
- Abrazo Central Campus-AZ Phoenix
- HonorHealth-AZ Scottsdale
- Maricopa Med Ctr-AZ Phoenix
- Mayo Clinic School of Grad Med Educ-AZ Scottsdale
- Phoenix Children's Hospital-AZ Phoenix
- St Josephs Hospital-AZ Phoenix
- U Arizona COM-Phoenix
Tucson Pima County
- Tucson Hospitals Med Ed-AZ
- U Arizona COM at South Campus Tucson
- Colorado Health Foundation Denver
- Denver Health Med Ctr-CO
- HealthONE-CO Denver
- St Joseph Hospital SCL Health-CO Denver
El Paso County
- Penrose Hospital-CO Colorado Springs
Escambia County (Pensacola and Century)
Hillsborough County (Tampa)
- U South Florida Morsani COM-Tampa
Pinellas County (Clearwater, Gulfport, St Petersburg, Largo)
- Bayfront Med Ctr
- Johns Hopkins All Children's Hosp
- Largo Medical Center
Lee County (Fort Meyers)
Manatee County (Bradenton)
- Blake Medical Center
- MountainView Hospital Las Vegas
- U Nevada Affil Hosps-Las Vegas
- U Nevada SOM-Reno – Las Vegas
South East Texas Housing
City of Baytown
City of Pasadena
Legal Stuff- Eligibility subject to program stipulations, qualifying factors, applicable income and debt-to-income (DTI) restrictions, and property limits. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency. Copyright©2017 Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. All rights reserved. This is not an offer to enter into an agreement. Not all customers will qualify. Information, rates and programs are subject to change without notice. All products are subject to credit and property approval. Other restrictions and limitations may apply. Equal Housing Lender. Licensed Nevada Mortgage Lender. TX Location: 1800 Golden Trail, Carrollton, TX 75010. AZ License #BK-0904162. Josh Mettle NMLS #219996 Fairway Independent Mortgage Corporation. NMLS#2289. 4801 S. Biltmore Lane, Madison, WI 53718, 1-877-699-0353. Other restrictions and limitations may apply. Equal Housing Lender. Disclosures
What do you think? Would the ability to get $10-20K of free money entice you to buy a home in residency when you would otherwise rent? Why or why not? Have you used one of these programs? How did it work out for you? Comment below!