By Dr. Jennifer Curtin, Guest Writer
Coming out of residency and landing a job in a region of California where rent for a one-bedroom apartment costs a cool $3,000/month, I decided to look into buying. With a mountain of student loan debt, minimal savings, and only a new job contract to show a potential lender, I knew my only shot at being approved for a mortgage loan was through a physician loan program. And thus my foray into physician mortgage loans began.
Shopping for a Physician Mortgage Loan
Physician mortgage loans were designed by banks to capitalize on cash-poor new attending physicians, dentists, lawyers, and other traditionally high earners who may not qualify for a typical mortgage loan because of their educational debt. Typically, physician loans have a 0-15% down payment, no prepayment penalties, no mortgage insurance requirement, and a relatively small increase in interest rates over standard mortgage loans.
Credit score requirements vary between lenders. Additionally, physician loans can use one's salary as stated in an employment contract, in some cases up to 3 months before the employment start date, as proof of income.
The exceptions to this reduced proof of income requirement are physicians hired as independent contractors with no guaranteed minimum income or equivalent (number of hours, visits, etc.) in their contracts or those with contracts shorter than 6 months – 1 year in duration. These folks must have 2 years of tax returns at their attending-level income to qualify for a physician mortgage loan. (Supposedly BBVA requires just 1 year of tax returns.) So if you fit in either of the exception categories, consider obtaining a pre-qualification from your loan underwriter before entering into escrow on the word of your broker alone.
Not every bank offering physician loans offers them in every state. Also, not every standard mortgage broker may be aware of their bank's physician loan program, so save yourself the angst and just call the physician lender reps serving your state directly.
Surprisingly, the required down payment percentages and the physician loan maximums vary A LOT between lenders. Below are the breakdowns for the lenders I contacted offering physician mortgages in CA:
BBVA
5% down up to $1M, then
10% down up to $1.25M, then
15% down up to $1.5M (cap)
CapitalOne
10% down up to $2.5M
SNB
0% down up to $417,000, then
5% down up to $1,250,000, then
10% down up to $1,750,000, then
15% down up to $2,250,000
BofA
5% down up to $1M, then
10% down up to $1.5M (cap)
The house I was considering buying was a fixer-upper, so not only did I need a mortgage loan, I needed a construction loan to cover the cost of renovations. It turns out several lenders offer physician construction loans. The physician construction loans have similar qualifications and terms to the physician mortgage loans but the down payment may be higher. Additionally, physician mortgages can be used for the purchase of a second home, though some lenders will require the physician to be less than 7-10 years out of training to pursue this.
All in all, physician loan programs can be a great option for a new attending looking to purchase (and/or renovate) a home, but be aware of the significant variation in offerings between lenders and the unique qualifications & exceptions for physician loans that may not be typical with standard mortgages.
Key Lessons Learned from Pursuing Physician Mortgage Loan
- Physician mortgage loan down payment requirements and maximums vary greatly by lender, so shop around.
- 1099 contractors with no guaranteed minimum salary or with contracts less than a year in duration need 1-2 years of tax returns to qualify for physician mortgage loans.
- The buck stops with the loan underwriters, not the mortgage brokers, so when in doubt, obtain a pre-qualification from the underwriter before jumping into escrow.
- Physician mortgages can be used for a 2nd home.
- There are similarly structured physician construction loans available to cover costs of renovations on a home.
What do you think? Have you purchased a home using a physician mortgage? What was your experience like? How many different lenders did you look at? Comment below!
[This updated was originally published in 2017.]
I did this for a home starting residency and will again now that we are moving again. The good (and maybe even equally bad) is that physician loans are pretty painless and allow a cash strapped resident easy access to a large mortgage. We’ve stayed conservative and due to good (accidental) market timing will likely win against renting. I broke down all the numbers in a post on my site. But I’m sure a lot of residents more than lost during the housing crisis and physicians loans make it easier for that risk to happen. Just have to know risks/benefits and need a little luck but overall I’m a fan as well.
Worked out well for me as well but you hit the nail on the head – don’t overreach and understand your current and expected situation. Definitely no one right answer for everyone.
If you really want to advertise your physician loan to my readers, you’d be better off contacting my business manager at cindy(at)whitecoatinvestor.com to purchase a listing on this page: https://www.whitecoatinvestor.com/websites-2/physician-mortgage-loans/
Good article. In addition to the big lenders, some local banks in medical communities will also offer a physician mortgage. There were 3 local banks in our town that had a product offering zero down with competitive interest rates. So buying local may make sense in your area.
Of course, this allowed us to buy a bigger house than we needed. It fit all of the approved numbers I could find (<2X salary, <25% after tax monthly income, etc), but even though I can "afford" this thing doesn't mean I enjoy forking out an extra $1500/mo in principle and interest payments (plus additional taxes and insurance, but there would be too much math in calculating those numbers on a cheaper house… they said there would be no math in ortho…). But we decided on taking a gamble on a good price on a house we wouldn't outgrow and would have to pack up and move again until time to downsize as old people.
This was actually our 3rd Doctor mortgage. We did one in med school through Bank of America, but instead of zero down, we took a 2nd mortgage for the required 15% down on the primary loan. Perhaps not the best idea in hindsight. Then we bought our second home in residency with a local bank in that area with zero down and no 2nd loan.
All in all it is a usable product to keep one from wasting money on PMI, but the potential downside is it might entice one to buy more house than needed.
Sounds like a bad idea to me
-I don’t think buying a house with such little money down is a good idea -you can buy a house you can’t afford, be stuck in high mortgage forever, pay a ridiculous amount in interest
-Buying a house your first year out of residency is a way to handcuff you to a job you may not like in a location you also may not like. What if things don’t work out and you have this ridiculous loan? Renting for the first year is a good idea.
Of course this can be done in a good way but I think this article is poor at highlighting pitfalls.
What do other people think?
I think you make valid points but almost all of them are irrelevant if you don’t get a “ridiculous” loan.
We got a doc home loan, aren’t staying in the same location just 3.5 years later, and still expect to come out ahead against renting. If the market crashes in the next 6mo and I can’t sell because I’m under water I still have two options:
– Rent the place out to try and recover as much as I can while market rebounds. Purposely picked a location that is easily possible.
– Suck it up and carry the full of two mortgages until I can accept the loss or break even. Because we were conservative and anesthesia pays well, that would set me back financially almost negligible amount.
Things like this are never Black and white, or inherently bad. Just need to understand the added risks and plan accordingly.
You simply got lucky with timing. Do not confuse that will how simple or smart one idea is over another. Maybe you do amazing on this house because you bought at the right time, but you’ll still have a lot of headache if it doesnt sell or you become a landlord. Even if it sells you have transaction costs on both sides, maintenance, taxes, time spent, etc…and coming out slightly ahead may or may not have been worth it. I would consider the rental angle if you think you may be up for that (not everyone is understandably), you have an asset with multiple options.
It is plain smarter in every way to wait, the statistics of how long people stay and how much you can really know about a job until you work it are not in your favor. A home is a lot of added stress and can change the way you feel about where you work and your assessment as its another problem you have to deal with.
Its just more prudent to wait, unless there is a compelling strong argument not to. Almost all of what people write on hear are justifications, we can always convince ourselves of the things we already want.
Like the author, I think its crazy to not only buy before you’ve started, but a fixer upper? Most docs will lose interest in that fast, especially with starting a new position and settling into attending life. Theres better things to do with your time, and at some point you cant stop thinking about that. I bought a house that needed a little work to convert to a rental (and I have lots of experience with this, as well as family that do it professionally), and even I was sick of it by the time we listed.
I agree with your points to some extent but you are basically saying headache = financial ruin. I knowingly took the risks of headaches but I made sure the way I did it so there would be no financial ruin, and a solid chance of gain. Obviously some people will abuse this into mortgages 3-4 times their salary with nothing down, but used smartly, understanding the risks, I think it’s a good product.
Not really. However people will underestimate the reality of the situations and that can lead to financial pain in the short term.
Buy a house at the wrong time, with a 0 down loan and you could be stuck with it for a while and have no good options and an anchor around your neck. Did this in 2006 with a 6 year residency, house only 130k. What could go wrong. Was on the market nearly 16 months after graduation and still cost 8k to me at closing. Extremely poor timing yes, but your situation is the opposite, extremely great timing and neither of the extremes are likely at this time.
The problem with just buying and not thinking probabilistically is that it limits your ability to just get up and go painlessly, not that it will ruin you. It adds stress and moors you to a place you maybe dont want to be long term. It also puts you at a huge disadvantage when negotiating your contract. Nothing would make me happier than a new higher buying a house straight away as you would have near zero leverage and just take whatever bum cut I decided to give you.
This exact scenario happened to a colleague of mine. Had a baby and bought a house right upon starting a new job.
Got locked into a horrific 2 year contract, managed to get abused lifestyle-wise in a supposedly lifestyle-friendly field, took call every week. Finally gave his notice last month upon the completion of the 2 year contract.
The kicker? His noncompete will drive him at least 1 hour from his pricy new home.
The plus side is that the real estate market has surged upwards, hopefully he can put this nightmare behind him.
Whether or not physician loans are a useful product (I think they are) has almost nothing to do with the wisdom or folly of buying at any particular time. There are many cultural factors, advertising, etc that heavily promote the idea of home ownership but I would urge new attendings to resist those.
In my case we went under contract late in 2006 to build a home in a subdivision in an “up and coming” part of town. By the time we moved in early in 2007 the market had fallen significantly. Sold in 2014 for about 2/3 what we paid (lost about $130k). My wife and I were lucky that we had the earning power to escape that because many of our neighbors were (and are) trapped in their underwater mortgages and could only escape by getting the bank to do a short sale.
Take this cautionary tale for what it’s worth, but I shake my head whenever I hear someone dismiss the “headache” of being unable to sell or renting out unless they have gone through it. Physicians have enough on their plate that piling this on is can be very stressful. It’s a monkey on your back that can feel like a gorilla at times.
I agree with the other post that it almost always makes sense to wait until you are happy and settled in your job and ready to buy a house that meets not only your current needs but also your potential needs for the next 8-10 years.
Whether or not physician loans are a useful product (I think they are) has almost nothing to do with the wisdom or folly of buying at any particular time. There are many cultural factors, advertising, etc that heavily promote the idea of home ownership but I would urge new attendings to resist those.
In my case we went under contract late in 2006 to build a home in a subdivision in an “up-and-coming” part of town. By the time we moved in early in 2007 the market had fallen significantly. Sold in 2014 for about 2/3 what we paid (lost about $130k). My wife and I were lucky that we had the earning power to escape that because many of our neighbors were (and are) trapped in their underwater mortgages and could only get out by engineering a short sale.
Take this cautionary tale for what it’s worth, but I shake my head whenever I hear someone dismiss the “headache” of being unable to sell or renting out unless they have gone through it. Physicians have enough on their plate that piling this on is can be very stressful. It’s a monkey on your back that can feel like a gorilla at times.
I agree with the other post that it almost always makes sense to wait until you are happy and settled in your job and ready to buy a house that meets not only your current needs but also your potential needs for the next 8-10 years.
Trading no PMI for a higher interest rate seems like it could cut either way and needs to be calculated out. I know when we purchased our current home following my wife’s fellowship, the numbers worked much better to get a regular loan with PMI and pay down to 20% in a year to eliminate PMI.
Very interesting. I suppose a possible “advantage” of the physician loan would be that you could deduct the mortgage interest from your taxes, which you wouldn’t be able to for PMI.
Docs can’t deduct PMI, but most people can.
http://www.shamrockfinancial.com/is-my-private-mortgage-insurance-or-pmi-tax-deductible/
I’m a 1099 guy / independent contractor. My contract has no guarenteed life (somewhat evergreen) but it did specify a minimum number of hours per month for a minimum hourly pay. At one point I thought I couldn’t get a physician loan but I found !1! bank in my area that did offer me one which happened to be SunTrust. Zero percent down on $380k at 4.125% 30yr fixed. The reasons I went with buying? Basically no rental market here. My field has plenty of replacement jobs in my area due to good competition. We didn’t want to move again in a year with a 1 year old since it is expensive and stressful. My mortgage is about 1 day’s work for me so I don’t feel tied down by it. I can refinance in the future but I only see rates going up so I’m glad to have a reasonable rate locked in.
I had an extremely tough time trying to figure out these physician home loans out of fellowship 5 years ago. I made dozens of calls and without any prior experience, felt like I had no idea what I was doing. I ended up at a lot of dead ends or felt like I was just being told whatever to get me to commit.
After a rough process, I eventually got a physician loan and into my house. After a few years, I was able to refinance into a conventional loan. Luckily rates had continued to drop and it made absolute sense to do the refi. If I had waited to purchase the house until I had the full 20% down payment, with the uptick in the market, I wouldn’t have been able to afford the house or neighborhood I’m in today. So, I’m thankful I got the loan when I did. However, the rent vs buy situation is unique to everyone’s situation.
I thought it was such a crazy process without any guidance, that I felt compelled to create a service to help my friends, colleagues, and other physicians through it all. I’ve spent a good deal of time and research to understand these physician loans and stay current on the every-shifting market. Feel free to reach out if you have any questions.
Thank you for the information. My husband and I are also looking into this loan as well. We can use some guidance my email is [email protected]. any information will be appreciated. we are like a deer at the headlight.Thank you
I could use some guidance as well. Email is [email protected]
Can you expand on the idea of “a small relatively increase in interest rates over standar mortgage loans”
On average, what is the difference between interest rates with 1) physician loans vs 2) loan +PMI vs 3) loans putting 20% down?
Thanks
Maybe one of the lenders can answer what the current delta is, but it was surprisingly small the last time I looked. As low as 0.25%.
At my bank there was zero difference in rates. I saw a bank with 2.67 when I got 2.75 they didn’t have a zero down option. 8 basis points over 5 years isn’t going to be much money.
Though recently it looks like rates have been going up!
Somewhat depends on the bank, the loan program (we have 7 for MD, DMD, DVM, DPT, CRNA, etc.), and the market as bond prices have moved lower (rates higher) pretty quickly this year, but in general a .125 to .375% rate differential is what I’m seeing Jim.
Hi MDThinker,
At the Bank I work for, our Doctor Mortgage Rates are BELOW Conventional and Jumbo Rates. Our Bank Fees run roughly $750 (Admin, Credit Report, Flood Cert, etc.) Title, Appraisal, Inspection and Government are 3rd Party Fees.
I find it interesting that everyone is talking about HIGHER Rates for the Doctor Mortgage. I closed Mortgages in 2016 (August and September) for Doctors (Jumbo) on a 30-Year Fixed at 2.875%, normal $750 Bank Fees – NO Points. Rates are no longer that low, but still more attractive than Conventional, Government and Jumbo.
Feel free to email me (see if your current rate is a good one or not): [email protected]
Thanks,
Kent Costello
We did mortgage loans twice…one during residency (before we found WCI and didn’t know any better…but we got lucky and came put $75K ahead due to market timing) and again for our current home, 6 months out of residency. Loved both experiences and got great rates. Friends of ours bought a home 6 months after we did using a traditional mortgage and our rates were better than theirs with 20% down. So it’s not a guarantee that physician loans always equal a higher rate…it’s more dependent on your timing and the interest rates as a whole. We have also stayed conservative in our buying and got a home less than 1.5X our income so it’s not a burden financially. I think physician loans are a great tool available to a physician and if used appropriately can still help a financially savvy physician reach their goals.
We have done this 3, yes that’s 3 times. All through Suntrust. If you have a relationship with them for at least 1 year they will let you get a mortgage in areas they don’t typically service (Louisiana and California in our case). I shopped around each time and Suntrust consistently had the lowest rates (I don’t have a financial relationship with them other then them being my loan provider).
I agree with the above writers though. Buying in residency is likely a bad idea and the physician loan makes that bad idea easier. If we had held on to our first house then we would have been ahead, instead we sold and broke even. I know others, including my brother, who were stuck with properties due to poor timing.
I’ve also done 2 physician loans through SunTrust Mortgage and had great experiences with them each time. Compared to other lenders, they gave me the best rate as well. The one time they didn’t, they happily beat out their competitions rate.
We did a physician loan out of residency. This was when I was using Larson financial. They found the best loan for me would be through 5th 3rd Bank. 0% down. Up to $500,000. No closing costs. They paid inspection fee. No PMI. No prepayment penalty. Proof of income was with a signed contract.
As a new attending with student loans, we could have abused the physician loan to make our lives much worse. However, we did 2 things right to make this a great choice for us. First, we did not go with the maximum amount possible, but rather chose a house for $138,500. This was less than my yearly salary. Second, we chose the 7/1 adjustable rate mortgage. We figured that we could pay off the mortgage well before the interest rates went up, and if this job didn’t work out, we wouldn’t be anchored to strongly to the location.
In two years we paid off our student loans. A year later we paid off our mortgage. The slightly higher interest rate (probably 0.2%) was minuscule for such a low cost house for only 3 years. But now we own our own house. It is smaller (1600 square feet), but just fine for my wife and I and now a daughter. Most of my attending friends live in McMansions in the new suburbs. Utilities, taxes, and cost of furnishing my house are much lower.
Do a few big things right (like house size, right spouse, cars) and you don’t have to be perfect on other financial aspects of life. Maybe we’ll get a bigger house someday. But we are happy.
Are there any down payment assistance programs that can be paired with the physician loans?
Now that would be stretching it too far.
If you work for Kaiser Permanente in Northern California they have a down payment program for first time home buyers. You have to pay it back, but it is in 10 years at 0% interest.
I am curious do you happen to know any details about this, it sounds like it could be really nice or it just ties you to a job you may not want in 10 years. My questions would be the following:
1) What is the max allowed to be borrowed or is it a percentage of the home price, I mean, obviously if you could have them do a 100% down payment that sounds great.
2) Can you prepay off the borrowed amount?
3) If you leave are there interest penalties?
There are some lenders that will do a 0% loan depending on what state you’re in, up to a certain loan size of course.
There was a small one a few years ago that residents qualified for, but it has expired.
The loan is part of the recruitment packet- all of this has possibly changed but:
– There is a maximum allowed up to 10% of the loan. I believe it is in the $150K range.
– You can prepay without penalty, but at 0% interest what would be the benefit?
– If you leave, there is a interest penalty and the loan has to be paid off (or when you sell the house). I am no sure what the rate is but believe it is lower than typically provided with mortgages.
Wow so you can get 10% down on a 1.5M dollar house, California real estate is crazy. Probably buys a shack. At least they are giving you something that’s a nice side benefit.
I guess the question about pre pay is could you pre pay off the loan to avoid interest penalty if you wanted to leave the job or are you trapped in the job, sounds like you can get out of it at cost if needed so that’s nice.
There are a few lenders that will do a 0% down payment loan (up to a certain loan limit of course) depending on what state you’re in.
Why would you need Down Payment Assistance, if you receive a 100% Mortgage?
You can have 3% to 6% Seller Concessions to Pay for Closing Costs and Pre-Paids (Taxes, Insurance and Interest.)
Just curious,
Kent Costello
The reason for the assistance is that it has 0% interest. Any amount of mortgage will have some interest while if they can get 10% assistance from Kaiser for the down payment and remaining 90% mortgage, they save 10% in mortgage interest. That’s a pretty easy one.
@Taime – Yes we have grant programs for residents and fellows in specific approved areas throughout the country. Grants are between 3% and 7% of the loan amount. These loans have location and income restrictions, but we can do them for new residents and fellows, close up to 90 days before the start of your new employment and the grants are tax FREE with no repayment. Some of the grants require you to live in the home for up to 3 years, some have zero restrictions.
Visit http://www.fairwayphysicianhomeloans.com for more information or to request a consultation.
I had a really tough time trying to get a physician home loan out of fellowship 5 years ago. I made dozens of calls and without any prior experience, felt like I had no idea what I was doing or what was best. I ended up at a lot of dead ends or felt like I was being told whatever just to have me commit to a particular lender.
Eventually after a rough process, I got a loan and into my house. Later on, I refinanced into a conventional loan. Luckily rates had continued to drop and it made absolute sense. If I had waited until I had a 20% down payment, I wouldn’t have been able to afford the home or neighborhood I’m in today. So I’m happy I got my loan when I did. However, the rent vs buy debate is unique to everyone’s situation.
It was such a crazy process without any sort of guidance, that I felt compelled to create a service to help friends, colleagues and other physicians through it all. I’ve spent a good deal of time and research to understand these loans and stay current with them. Feel free to reach out if you have any questions.
I actually just recently went through the same process. I finished residency in 2015. Did the WCI strategy and paid off all my student loans over the next 17 months ~300K, maxed out all pre-tax retirement and roth, rented and looked for a good buy on a home. I wanted to rent initially to make sure I liked my job and the area (small midwest town) and to get the loans out of the way, it actually made be a bit nervous to take on a mortgage just because for the few months that the loans were paid back it was nice to be owned by no one. When looking for a home I was looking in the 300-550 range and I was all really to pull the trigger on a 540K home, I am so glad I didn’t. I ended up finding a home at 355K 3b2.5b villa (all yard work/snow/exterior painting is taking care of) yes I know this is built in to the HoA but at least I don’t have the think about it or manage a yard care company and hey if they do a bad job and it doesn’t look nice at least it is the associations issue since they hire them and not mine.
I ended of going with a physician loan my local back was offering 0% with same rates as their 20% down loans you had to be a physician be working for < 10 years, and have a contact (I obviously had a years worth of income as well). They would do 0% up to 417K then 5% upto 650K. I was able to get 2.75% at 15years fixed 355K loan.
Normally I wouldn't want to do zero down, and I actually thought about putting some down but it wouldn't have reduced the rate. Obviously it would reduce interested based on the smaller loan amount by I make about 2.5 x the required payment a month it looks like I'll pay about 20K in interested over the 4.5 years of the loan this way and it allowed me not to blow a bunch of my checking account on a down payment that wouldn't really help with that much as well as making me cash poor and as I've learned moving and fixing things in a house is expensive. I am glad I waiting a year to buy a house. I tell all the people I know coming out of residency … don't buy … rent!
17 months and $300K in student loans! Great job.
You’re going to be very wealthy, very soon by the way.
We used a physician loan to buy a condo when I was starting residency in 2008. The market was good for buyers at the time and we got a 5% down loan in a downtown neighborhood that was going through a renaissance. We spent around 137k on it (I think I was making 56k/yr and my wife around 42k/yr at the time). So, we didn’t over do it.
The process was very easy. We got a good rate and cheap closing costs. 4 years later we sold it for 150K and bought our current house. We were fortunate to have bought when we did and in a neighborhood where the home prices were rising even in the midst of the financial crisis.
We were simply lucky.
I think it’s very important for people not to underestimate the very real risk of buying a house with so little money down, especially when you will likely want to move somewhere new after residency just a few short years later. The housing market could drop again and you could be stuck with a house that is worth less than what you owe on it. There’s a good reason why banks traditionally required people to put 20% down. In my opinion, if you can’t afford a 20% down payment on the house you’re trying to buy, you can’t afford that house. That’s true whether you’re a physician with a big salary contract or not. You’d be better off renting and saving first. I know I didn’t follow my own advice back then, but I’m much more financially conservative these days and would not do something that risky again.
Hi All! Great post and the comments are very helpful. Just to add my 2 cents, I have a podcast called Docs Outside the Box (www.docsotb.com) where I interview interesting doctors doing extraordinary things outside of the medicine. On one of my more recent interviews, I had Dr. Peter Kim who is an anesthesiologist on the show. I had him on the show because he has a company called Curbside Real Estate (www.curbsiderealestate.com/) that helps people purchase homes in a concierge type model. Based off the comments on this blog post – his company can help people here too.
Here is the link to his podcast episode http://bit.ly/2eqxsAy
I almost sent you a similar email about our experiences last June/July. We recently did one of these through Bank of America, chose them solely because they offered the lowest interest rate at the time.
One item that became a bit dicey – I’m an active duty Army EM doc, so ~1/3 of my annual salary is “bonuses” tied to contracts I sign each year. Since these are not part of my main compensation, they were officially disallowed from being considered when determining how much of a loan I qualified for. Luckily my wife (a civilian NP) got a very generous job offer while we were house hunting or I don’t think we would have gotten the loan.
Another thing that bit us in the butt(s) – phrasing of “offer letter” vs “employment contract” for my wife. Her practice only issues contracts to people who are being brought on as partners, everyone else just gets an “Offer letter.” Bank of America wants an employment contract. Nevermind that my wife’s letter includes all the elements of an employment contract (explicitly stated pay rate, signatures of both her and her employers, etc), the fact that the top of the document said “Offer Letter” took weeks of arguing to finally get accepted by B of A.
Oh yeah and B of A requires you to open a checking account open with them as well (you have to have a “pre-existing banking relationship”). The only checking account they would let us use for this has a $12/mo fee if your balance drops below $1500. Not a big deal, I just don’t like my money being held hostage.
Aside from that they’ve been nothing but peaches to work with though!
I have a checking, savings, and SEP-IRA with bank of america and am a Platinum Honors or some such member, so when I got a home about a year ago I went with them for ease of accounts. It was a disaster. Every other day the underwriter changed and I had to give new info, or more commonly, the same info that they for some reason couldnt see. Nothing more irritating than referring to prior emails weeks before. Took forever and was painful.
Bought another house this year and went with Wells Fargo, local agent. Closed in 3 weeks and was seamless. Im sure each time is different and cant be compared but BofA was no fun at all.
don’t confuse the issue of whether or not physician loans are a good idea with the issue of buying a house right out of residency. It’s two separate issues. I think all of us would agree that purchasing home straight out of residency is a BAD idea, as pointed out above. That being said, if you’ve decided to make that rather bad decision (I did 3.5 yrs ago and got “lucky”) there is no reason not to go with a physician loan. If you can save some cash upfront that’s always a good idea…just make sure there’s no prepayment penalties
For most people, whether right out of residency, 6 months later, or 12 months later, there is a better use for your money than a down payment to knock a quarter point and some fees off your mortgage. If you’re a living like a resident supersaver, you can probably pay off the student loans, max out the retirement accounts, and save up a down payment.
Just a note about a bad experience with BBVA.
I am sorry to leave this comment, but want to share a bad experience to hopefully help my peers. BBVA provided me with a mortgage loan and allowed me to qualify under 1 year’s returns after a solo start up practice. This was tremendously helpful. That is the end of the good part.
The actual mortgage processing experience was not good — late close despite promises to the contrary, losing our info multiple times, almost falling out of escrow due to bank issues, etc. I’m sure many out there have similar experiences, but I thought that me being on top of things (being an anal doc) would make for a relatively streamlined process. Not so much.
The real bad experience I wanted to share was based on a business line of credit I took out for my solo practice that was sold to me as a “annually renewing, no fee line of credit” exclusively for physicians and dentists. Fast forward 2 years and there is a $150 charge on my billing statement. No notice, no phone call, no nothing — just a charge on the first bill I have received for the LOC because I had never exercised it. I called my business banking contact who said he would “look into it.” Took 3 weeks and 3 more emails/calls to finally get a response, and was told “Yep, that’s a new fee. Sorry, nothing I can do.” I talked to the branch manager, thinking there must be some mistake given that it was sold to me as a “no fee” line of credit, and that even if there was not a mistake, that the fee would be waived given that I had not received notice and that all my banking was through this bank including business account, home mortgage, HELOC, business line of credit, etc. that was supposed to give me VIP status. I was told “No, we sent you a letter, it must have arrived, and the fee will stand.” Somehow the fee letter didn’t arrive but the billing statement did, which was the first billing statement I had received in 2 years since I had never exercised the line. Also interestingly, I had received the other 40+ billing statements for my other 4 products over the previous 3 years. Needless to say, I had a heated discussion with the branch manager about whether he really wanted to throw away a relationship of this size for a $150 fee notice that was never received on a product that was falsely advertised. After 10 minutes of arguing with me on the phone and trying to talk over me, he said he would try to talk to someone above him…to which of course I wondered why that had not been done previously.
They eventually reversed the charge. Needless to say, I will be moving every account I can to another bank. Is a $150 fee such a big deal? Of course not, especially given the amount of time that it required, but given the shady business practices, I will be looking elsewhere for my future needs. I did re-review the LOC contract and it does say that the contract can change annually, so technically they were within their right to change the terms despite their sales pitch.
Buyer beware when dealing with BBVA. Hopefully, this comment will help a fellow physician avoid a similar situation.
I had a physician loan from citywide. I went with them because I read a book on these loans from one of the loan officers that had a litany of closing day disasters supposedly caused by physicians getting loans from traditional banks. On the day of my closing (last day before earnest money given up) they almost torpedoed the deal because they did not like the state requirements of the title policy in my state, even though they are licensed here. My loan officer stopped answering the phone at 11 am. His secretary stopped answering the phone too. I had travelled a long way for the closing process and was left in limbo. I had to be back at work out of town the following morning by 7 for a case. We ended up having to use a mobile notary and had no idea what we were signing because it was 1130 at night when the approval came through. The ironic thing is my disaster of a closing day was almost exactly like the cautionary tales in his book. There was no follow up afterwards either. Don’t forget about local banks with in house underwriting. I have since spoken with many local bankers here about my experience and they could have easily matched the loan terms. They were blown away by the lack of service. And now 6 months in to my mortgage it has been sold twice….
I used Wells Fargo in California for a physician mortgage and could not detect an increase in the interest rate. It was aligned with published Wells Fargo and national rates for a jumbo loan. I have been very pleased with Wells.
How many lines of credit did they open without asking you?
We utilized a physician mortgage loan from BOA back in 2013. We had a good experience with Bank of America. We aren’t in the market for a new mortgage but when reading the article a few questions came up. Is the physician construction loan part of the original mortgage or are they two separate mortgages? In the article you state you purchased a fixer-upper that needed renovations but I wasn’t clear on how the construction loan worked. I don’t believe that was available back in 2013. Any input is appreciated.
I didn’t end up buying the place, but the construction loan was offered as a separate loan through the same bank with a downpayment of 10% on an amount up to 320K if I remember correctly. The interest rate was slightly higher for a 15 or 30 yr fixed than the home loan itself, but equivalent for a 5/1 or 7/1 ARM that could then be refinanced into the home loan after the post renovation re-appraisal.
Thanks for the response Jennifer. That makes sense that it’s separate loans. Thanks again for the article!
Wife started 6 year residency program and we had a 2 y/o + 1 otw. No debt from medschool but I am a stay at home dad. We were able to get a local lenders doctor loan zero down 225k on a 10/1 at 3.5%. If circumstances forced us to stay in this home I wouldn’t really mind. Great school enough room and a vast improvement over our 1br condo from medschool. I took the 0 down option because even tho I had the money to put down 20% conventional loans wouldn’t take a residency contract ( ugh! =P ) and increasing the down payment with this lender resulted in no reduction of the rate ( I really was not impressed with the other doc loan options BBVA, BOA, ect). I decided to keep my money invested rather than see it sunk into home equity. I know WCI discourages buying a house in residency but we valued home ownership over renting and are ok with the risks.
I hope it works out well for you. The 6 year residency should help.
Everyone MUST also check into their local banks. I practice in a town of 260k and banks you have never heard of offered my wife and I much better loans. It wasn’t even close; Wells Fargo mortgage interest rate was a FULL percentage point higher than the loan we received. We only put 5% down on our $400k home right out of fellowship. We received two mortgages at 3.5% 30-year fixed (one at 80% and the other for the “down payment” portion). We had 3 local banks that kept out bidding the other and their service was much better.
Remember to talk to your local banks. That is all.
And to play one lender off another.
My wife and I used a doctor loan 2 years ago when it made sense for us to use it. We had to much student loan debt and didn’t want to burn through all of our savings for the 20% down payment. We used [email protected] bank for a 400k loan @5% with 0 down. My wife did have a guaranteed salary multi year contract. We then used 40k of savings for a down payment on a rental property in our rapidly increasing market of north Texas. In 2 years that home has appreciated 35k. Then we attacked the 265k of student loan debt but paying off 85k and refinancing ( thanks to WCI website) with Drb. Then also thanks to WCI we contacted Citywide home loans recently and found our home had appreciated 50k in the last 2 years. We refinanced with another doctor loan this time a 20 [email protected]% essentially not increasing our mortgage payment and paying a lot more principle monthly.
Hunter, what you did here would not be good for most people. You bought a rental property when you had $265k of student loans? You are very fortunate that it has worked out. I’m sure it seemed like a no brainer and easy money for the rental property, but isn’t real estate “always” a no brainer? 5% is a high interest rate for a mortgage. I don’t know what your student loans interest rate was but it is probably around 5%. That is over $13000 a year in interest.
You’ll probably reply that your rental property investment returned more than paying your loans off would have, but you are very very lucky that’s the case.
I agree with your comment JWEb. We’ve been lucky the rental property has appreciated so much in a short period of time. I didn’t know anything about investing when I made the purchase. I discovered the WCI site and read the book a few months after the purchase. Now I’m a diligent reader and would have paid down the student loan debt with the 40k. The 180k balance left on the student loans is on a 15 year @5% with DRB. We do have a plan in place to pay off the remaining balance in 3-4 years and still be able to keep the rental. We could pay it off sooner by selling the rental property but I’m not sure of the tax implications of doing that. On a side note, I discovered this site researching whole life insurance policies. Our former CFP wanted us to sign one with a 48k/Yr premium as our “retirement account”. There are so many pitfalls out there for new attending. Thanks WCI for leading us in the right direction!
Glad it has all worked out well for you. Sometimes we do get lucky, and that’s great too.