Welcome to Match Week! On Thursday, graduating medical students get to find out where they're going to be spending the next 1-5 years of their lives. Thousands of them will choose to buy a home, either with or without a physician mortgage, although many of them probably shouldn't. In honor of Match Week, we're going to talk all about these physician mortgage loans. Today's post is a survey of what is currently available out there in terms of these mortgages. Wednesday and Thursday are a two part guest post by Josh Mettle about “The Flawless Home Purchase.” Friday will be a very interesting Friday Q&A post from an incoming resident who wants to buy a house, but can't find anyone willing to lend sufficient money to do so.
I don't write about physician mortgage loans very often. However, my doctor mortgage loan page, first written at the very beginning of the blog, continues to be one of the most heavily visited pages on this website. I've never actually had a physician mortgage. I used an FHA loan for my first home, and saved up a 20% down payment for a conventional loan for the second and third. I think that's a great way to go. However, it is tough to argue that someone with $200,000 in student loans at 8% should use their cash for a down payment instead of paying off those loans, even if it means using a mortgage with higher fees and interest rates and not having the safety of a lower loan to value ratio. Even docs without high-interest student loans may find themselves in situations where a physician mortgage loan makes sense. Just remember that just because someone is willing to loan you money doesn't mean it is actually a good idea to borrow that money under the terms offered.
A typical doctor's mortgage has the following features:
- Less than 20% down payment required (generally 0-11%)
- No Private Mortgage Insurance (PMI)
- Student loans sometimes not taken into account in calculating debt to income ratios
- A contract adequate for documenting income (no pay stubs required)
Bear in mind that loan terms and requirements are highly variable among the various lenders offering special doctor programs. Also keep in mind that not all of these programs are offered to dentists.
I thought it would be interesting to include a post where I did a brief overview of what is out there right now as far as physician mortgages. So I have emailed a representative at each bank or lender that offers these loans and asked for what is available in each of four different scenarios:
Scenario 1: The Graduating Medical Student
- Income: None currently, but a contract to make $50,000 per year starting July 1.
- Downpayment: As little as possible.
- House Value $150,000
- Loan Desired: Fixed, 30 year or 5/1 ARM
- Student Loans: $200,000 at 7%
Scenario 2: The Graduating Resident
- Income: Currently $50,000, but a contract to make $200,000 per year starting July 1
- Down payment: As little as possible
- House Value: $400,000
- Loan Desired: Fixed, 30 year
- Student Loans: $200,000 at 7%
Scenario 3: The Jumbo Loan
- Income: Currently $50,000, but a contract to make $400,000 per year starting July 1
- Down payment: As little as possible
- House Value: $800,000 (Assume a state where this amount is a jumbo loan
- Loan Desired: Fixed, 30 year
- Student Loans: $200,000 at 7%
Scenario 4: Conventional Loan (the doc who lived a resident until loans were gone)
- Income: Currently $200,000, well documented with 2 years of W-2s
- Downpayment: $100,000
- House Value: $500,000
- Loan Desired: Fixed, 15 year
- Student Loans: None
I also assumed that each of these docs had top tier credit scores.
The Big Fat Disclaimer and Disclosure
Remember that every lender quoted in this article has paid me money to advertise on this site. I have a massive financial conflict of interest in listing them here. Although I received no EXTRA money to do this post, you need to be aware that I have financial relationships with all these guys.
Also, keep in mind that the rates and fees in this article are now hypothetical. I asked them to give me quotes for what was available on March 3, 2014. By the time you read this, all of these quotes are out of date. In fact, many lenders were very hesitant to provide rate and fee information at all (thus the gaps you'll notice in the information below), and I wouldn't be surprised if I'm later asked to remove some of this data from the internet. However, I thought having some “ballpark” information, even if it isn't currently available, would be useful to those considering getting one of these loans. Rates and fees are subject to change without notice and you should contact the lenders individually to get current information. Remember also that just because one lender's rates are lower than another lender's on any given day, doesn't mean they're lower the next day. Mortgage rates change once or twice a day and stale data is exactly that. Also keep in mind that not all programs are available in all states or to all buyers. This post is an exercise showing how you might shop for a loan, not a substitute for you actually shopping for a loan and choosing a lender.
For more information on physician loans, including state availability for lenders, see my physician mortgage loan page.
The Graduating Medical Student
Physician Home Loans @ Fairway: A little unique as they use multiple banks and thus have multiple options. Option 1: No down payment, contract acceptable, PMI due but first year and a half or so paid by National Home Buyers Fund, student loans considered. 30 year fixed available on 3/3/14 at 4.25% without points or fees. Option 2: No down payment, contract acceptable, no PMI, student loans considered. 30 year fixed available on 3/3/14 at 5.375%. Option 3: 5% down payment, contract acceptable, no PMI, student loans considered. 30 year fixed available on 3/3/14 at 5% with $3563 in lender fees. 5/1 ARM available on 3/3/14 at 3.875% with $3563 in lender fees.
Huntington Bank: No down payment, contract acceptable, no PMI, caps student loan payments at 15% of gross income. 30 year fixed not available, but a 5/1 (or even 15/1) ARM is. A 7/1 ARM on 3/3/14 with no points was 3.75%. Obviously the shorter the fixed period, the lower the rate on these ARMs. No fee information available for this post.
Suntrust Bank: No down payment (in many areas), contract acceptable, no PMI, student loans ignored only if deferred for at least 12 months. A 30 year fixed at 4.3% had a $625 application fee on 3/3/2014. A 5/1 ARM at 3.1% had a $625 application fee on 3/3/2014.
Physicianloans.com: No down payment, letter of hire acceptable, no PMI, use estimated IBR payment when running debt to income ratios. Rates are in the “3s and 4s.”
BB&T: No down payment, contract acceptable, no PMI, student loans considered. A 30 year fixed was available on 3/3/2014 at 4.875% with a credit covering about half of the $300 online application fee. A 5/1 ARM was available on 3/3/2014 at 3.375% with a credit covering about half of the $300 online application fee.
Citizens/Charter One: 11% down payment, contract acceptable, no PMI, student loans considered. A 30 year fixed was available on 3/3/2014 at 4.5% with an $800 fee. A 5/1 ARM was available on 3/3/2014 at 3.5% with an $800 fee.
Bank of America: 5% down payment, contract acceptable, no PMI, student loans ignored. A 30 year fixed was available on 3/3/2014 at 4.5% with a $750 fee. A 5/1 ARM was available at 2.875% with a $750 fee.
The Graduating Resident
Physician Home Loans @ Fairway: 5% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 30 year fixed was available on 3/3/2014 for 4.625% with lender fee of ~$5700.
Huntington Bank: No down payment, contract acceptable, no PMI, student loans considered but shouldn't be an issue. No 30 year fixed available, but a 7/1 ARM was available on 3/3/2014 at 3.75%. No fee information available for this post.
Suntrust Bank: No down payment, contract acceptable, no PMI, student loans ignored only if deferred for at least 12 months. 30 year fixed available at 4.3% with fee of $625 on 3/3/2014.
Physicianloans.com: No down payment, contract acceptable, no PMI, student loans considered but should not be an issue. Rates in “3s and 4s.”
BB&T: No down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 30 year fixed was available on 3/3/2014 at 4.875% with a credit covering the $300 online application fee.
Citizens/Charter One: 11% down payment, contract acceptable, no PMI, student loans considered. A 30 year fixed was available on 3/3/2014 at 4.5% with an $800 fee.
Bank of America: 5% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 30 year fixed was available on 3/3/2014 at 4.5% with a $750 fee.
The Jumbo Loan
Physician Home Loans @ Fairway: 10% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 5/1 ARM was available on 3/3/2014 at 3.5% without any significant fees. No competitive 30 year fixed product.
Huntington Bank: 10% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 7/1 ARM was available on 3/3/2014 at 3.75%. No 30 year fixed product available.
Suntrust Bank: 5% down payment, contract acceptable, no PMI, student loans ignored only if deferred for at least 12 months. 30 year fixed available at 4.375% with fee of $625 on 3/3/2014.
Physicianloans.com: 10% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. Rates in “3s and 4s” (reportedly lower for jumbo loans than smaller ones)
BB&T: 5% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 30 year fixed was available on 3/3/2014 at 4.625% with a credit more than covering the $300 online application fee.
Citizens/Charter One: 11% down payment, contract acceptable, no PMI, student loans considered. A 30 year fixed was available on 3/3/2014 at 4.375% with an $800 fee.
Bank of America: 5% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 30 year fixed was available on 3/3/2014 at 4.5% with a $750 fee.
The Conventional Loan
Physician Home Loans @ Fairway: 20% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 15 year fixed was available on 3/3/2014 at 3.5% without any significant fees.
Huntington Bank: 20% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 15 year fixed was available on 3/3/2014 at “standard Fannie Mae pricing.”
Suntrust Bank: 20% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 15 year fixed was available on 3/3/2014 at 2.99% with $625 fee.
Physicianloans.com: 20% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 15 year fixed was available on 3/3/2014 at “standard Fannie Mae pricing.”
BB&T: 20% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 30 year fixed was available on 3/3/2014 at 3.25% with a $300 online application fee.
Citizens/Charter One: 20% down payment, contract acceptable, no PMI, student loans considered. A 30 year fixed was available on 3/3/2014 at 3.125% with an $800 fee.
Bank of America: 20% down payment, contract acceptable, no PMI, student loans considered but should not be an issue. A 30 year fixed was available on 3/3/2014 at 3.25% with a $750 fee.
Some Observations
In doing this exercise, I found a few very interesting things.
First, if you are looking for a physician mortgage loan there is a huge amount of variability between the various loan products. Fees, rates, willingness to ignore student loans, available states, and even availability of a 30 year fixed loan is highly variable. The more flexible you can be, the more choices you're going to have.
Second, for those lenders who would actually give me a rate quote, the difference in interest rate on a 30 year fixed physician loan and 15 year conventional loan was about 1-1.5%. On a $400,000 loan, that's $333-500 less in interest paid per MONTH. This is the reason I recommend living like a resident until you can get a down payment saved up (not to mention pay off your student loans, which may be 4% higher than your mortgage).
Third, for a loan product as standardized as a 15 year fixed conventional loan, there was still a 0.5% variation between available rates on the day I checked. This emphasizes the importance of checking with at least 2 lenders, and “playing them off against one another” to get the actual market price. Many times a lender will “match” the rate/fees offered by another lender (assuming they can still make an acceptable profit at the lower rate/fees), but only when you're comparing apples to apples. Just calling up one lender and never checking with any other is probably a mistake that may cost you thousands of dollars in extra interest or fees. If you want to learn more about physician mortgages, I suggest either Josh Mettle's soon to be published book or Tal Frank's free webinar (next one March 19th or 23rd).
I would like to thank the following people for information used in this post: Josh Mettle, Sandra Frith, Stephanie Arcelay, Tal Frank, Holly Walsh, and Anne Swane.
Did you get a physician mortgage loan instead of a conventional? Why or why not? What bank/lender did you use? Were you happy with the experience? Comment below!
I got a zero down doctor loan when I started residency. Details: 7 year arm on a 150k house through fifth third bank at 3.1%. No points/fees, etc.
We looked for a place to rent, but in the end we could not find the square footage nor the quality of our current home on the rental market in the short time period we had to house hunt prior to starting residency.
We crunched the numbers and felt we could arrange our other finances around our mortgage, and we have had good luck with the home thus far (no major repairs, etc).
It was a gamble, for sure, but it’s paid off so far.
I had saved enough for a 20% down payment but still ran into trouble with the total debt to income ratios when they included my student loans. Ended up with a 30 year fixed FHA loan through WellsFargo. It was a very painful experience as they said at the start of my application that they would not count my student loans in the ratio but changed their minds 3 days before closing!! I was able to refinance at Suntrust with a “Doctor” portfolio loan with very favorable rates on an ARM.
I found when I called a few banks who did not advertise a doctors loan they actually had one. I ended up using Key Bank and at the time (last year) they would approve you for a very high mortgage (recently finished residency). Their 30 year rate on the doctors loan with no money down was pretty much the same as what they were offering for conventional 30 year loans with 20% down. I ended up putting 15% down because the rate was so low (3.6%) but you did have to show that you had a certain amount of assets.
I think the best advice from WCI is that just because they approve you for a certain amount doesn’t mean you should spend that much. Key bank would approve me up to a million, but there is no way I could afford that. Banks love loaning to doctors. Even if they don’t take into account your student loan debt, you still have to.
Amen.
The situation in 2013 was quite different from 2010 also. Banks are currently in the process of loosening up requirements. It isn’t 2006 yet, but it’s certainly easier to get a doctor loan than 2010. I couldn’t believe how tough it was to get a conventional loan in 2010 with a 20% down payment!
Who was your contact person at Key for physician loan?
WCI, I am a resident who is finishing residency this summer and has a contract for over $400k.I currently have an appartment and do not need to move, but feel compeled to do so in order to lock in the current low rates. If rates were higher, I would save up the 20% and pay down my current medical school loans (6.5%) first. I feel pushed to go for the physician loan in order to lock in the low interest rates currently available before conventional rates jump past the higher interest rates of current physician loans. I am looking for a home for $450k or less. Could you offer any advice in my case?
Don’t buy it. Stay where you are in your apartment and pay off your student loans. You didn’t mention what your income will be once done, nor how much your loan balance is but if you can pay off your student loans in a year or two, that will more than make up for the potential 1-2% increase that mortgage rates may increase by that time.
The best thing you can do is get out of debt before you buy a house.
If you’ve got 6.5% student loans, those are likely a better use for your money than a down payment. So if your only choice is buying a home now on a physician loan and directing money toward the student loans or directing money toward a down payment, then there is a great chance that you’ll be better off with the physician loan. However, that’s a false choice. You can stay in the apartment for a year or two (live like a resident) and pay those loans off completely, max out your retirement accounts, and save up a down payment for the house you really want. Will interest rates go up dramatically? Maybe, maybe not. But since your student loans will be gone and you won’t have to make payments on your down payment, your total debt service is likely to still be lower in that scenario. If you must buy a house now, then a physician loan is probably a good choice. This isn’t a huge decision all things considered. The better choice is probably only a little better. The most important thing is how much of that new $400K income you carve out to build wealth.
Don’t buy a house until you want to deal with owning a home. Don’t be compelled by interest rates. Live like a resident in your apartment for a few more years or move up a little in an apartment, pay off loans and save up a big down payment or even 100%.
My wife graduated Med School last May and her envelope on Match Day relocated us to a city 8 hours away. The physician loan (through SunTrust, $194k 3.625% 30 year $0 down) was the only way we were able to get a mortgage as other banks/brokers wanted at least a month of paystubs from jobs in the new city. We experienced some problems, though they were unrelated to the physician loan aspects of getting the mortgage.
To future graduates: If you have serious doubts that you can to look for houses in a new city, negotiate with banks, get the mortgage, and sign the paperwork between Match Day and Day 1 of residency… I was right there this time last year. After a few long weekends, a bunch of phone calls, and a bit of pressure, we made it happen just in time. Don’t be discouraged! It certainly beats moving twice and trying to find time to look at houses while being a resident.
are there any “origination fees” for any of these loans, a lot of banks are asking for like 1%. Do the doctors loans not have these fees? I also looked at a loan program from PenFed which has good rates but a 1% origination fee
Many doctor loans (and nearly all who responded to this request for information) waive those 1% origination fees or cover them with a lender credit.
Got a physician mortgage loan after finishing residency. I believe this was considered a “jumbo loan” but not quite sure. Went through Suntrust who offered the best rates. 30 year fixed with zero down at 4.5%. I’m not sure I’d believe the rates stated above since we have perfect credit and applied at a time when interest rates were lower. Loan was for 530K. Overall a good experience and in my opinion, the best option out there.
IMO, you should NOT buy a house in residency. I had the itch to do so but can’t tell you how glad I am to have waited.
Rates change every day. Jumbo loans also used to be higher than conventional, so I suspect that’s why your rate may be higher.
yogabbapentin, your username is hilarious
WCI-
what do you think of the VA loan?
Fees are high, but at least there isn’t a big down payment due. My favorite loan is conventional. If you can’t get that then most of the other options are fairly similar.
Unless you can get yourself a 30% disability rating, which is not hard to do, then the funding fee is waived.
Don’t get me started on the military disability system.
The fee’s really aren’t that high. It comes out pretty equivalent to paying PMI, you just pay it up front. Its not free by any means but overall I was pretty happy with the VA loan. Zero down if you desire and pretty much guaranteed the lowest rate available unless you credit is crap. Now had I not had enough on hand to cover the funding fee I may be singing a different toon.
Oh and I agree on the disability system…
Just started residency 2013, 200K+ with student loan debt, 3 kids, & got 145K doctor’s loan, nothing down, 3.125% 15 yr loan from B of A; I had to provide contract, but no pay stubs. My neighbors rent is $400/month MORE than my mortgage…with a 15 yr note! Looking back, maybe I should have gotten a 30 yr note and used the difference to pay down some of my loans…but a 15 yr note would have been closer to 4.5% vs the 3.125% I have now and my loans are consolidated at 7% (ouch, I know). What are your thoughts?
I felt like I had no choice but to buy; it was so much cheaper for me in the area I’m living in to buy than rent…plus any potential for appreciation.
The doctor’s loan has treated me very well so far…worst case scenario is I break even after 3 years of Primary Care Residency.
No, the worst case scenario is the market tanks, you won’t be able to sell at all, you can’t get a renter or you get one who destroys the house etc. But it does sound like it will work out okay for you. Remember that the mortgage payment SHOULD be less than rent, because rent needs to cover not only the mortgage, but also taxes, insurance, repairs, transaction costs, maintenance, and an adequate profit.
I would expect you to do about the same as renting, perhaps a little better, perhaps a little worse, over your three year residency once all is said and done.
All real estate transactions are local. The fact that Kirby has 3 kids means he needs a big place unless he wants a triple decker bunkbed. Rent is controlled by supply and demand (unless a ‘rent-control’ city). Lots of cities and towns have so few large places to rent that the supply-demand curve is dramatically shifted. Learned it first-hand.
http://www.houzz.com/triple-bunk-bed
You really think a 15 year mortgage SHOULD be less than rent of a comparable sized home? I may be in a bit of a unique renter’s market with the above mentioned children, needing a larger home, but….
145K at 4.125 for 30 yrs = $702 + PMI, etc.
145K at 3.125 for 15 yrs = $1010 + PMI, etc.
Comparable rent for similar property = 1400
I understand the need for adequate profit, maintenance etc, but that’s DOUBLE on a 30 yr note, but only 1.4 X as much for the 15 yr note
I still feel very comfortable that I’m not renting, regardless of the fact that it’s another loan. I’m using the $400 I’m saving every month to pay down my student loan while in residency.
Plus, the mortgage insurance tax benefits (not that I really need them at this point with my intern salary). In three years, I will have paid down roughly 25K of that 145K home loan.
Even if the housing market tanks, I will have paid $400/mo/yr on my student loans, enjoyed the mortgage insurance on my taxes each year and, in essence, still come out ahead.
Granted, I’m very juvenile at this finance stuff, and I’m sure I’m missing something that may come back and bite me in the butt, but it seemed too good to be true for me (which usually means it probably is). Thanks for your input – not trying to be critical, just trying to learn the ropes a bit…and as a plug, LOVE the book!
No, I think you’re going to do just fine because your mortgage is much less than rent. It’s important to realize that mortgages SHOULD be less than rent. Otherwise, it’s usually a terrible investment. The 15/30 year issue is separate. But realize there isn’t a monstrous difference between them, even at today’s relatively low rates. On a $100K loan at 8%, a 15 year is $956 and a 30 year is $734. At 4%, it’s $740 and $477. My point is that taxes, insurance, maintenance, repairs, and transaction costs dwarf the difference between those two.
Ah but your rent doesn’t include taxes. Does your mortgage calculations? Granted my home is worth a bit more than yours but is by no means extravagant and my property taxes come out to almost $700 a month. Your home value in my market would run about $180 extra in taxes and $80 or so of insurance. Renters insurance would only cost about $40-50.
I find comparison wise Rent vs. Buy is pretty even unless held long term. Most people fail to factor in the cost of buying (10-20K) a selling (5-10K) into the comparison.
In general, does a physician loan have higher interest rates and/or fees? I”ve been research this and physicians loans provide a service for people who have high income debt ratio or no significant down payment. If i have enough down payment 20% and no high debt ratio, wouldn’t it be better to do a traditional loan or would a “physician loan” with 20% down have a lower interest rate?
I got a doctor loan through Regions in mid 2011 (fresh out of residency, though still with three years of fellowship left to go). Zero down, no PMI, no points or origination fees, total closing costs were about $5K. 5/1 ARM, 4.875%. Rates on a conventional 5/1 ARM were about 3.6% at the time. I’m currently looking at refinancing (probably to another ARM, as we’re rapidly outgrowing this house).
If I had to do it all over again, I think I’d still go the same route (I’m lucky in that real estate here in New Orleans has been skyrocketing), but that’s more to keep the wife happy than because it was the smartest financial move.
We purchased a house in 2010 after my wife finished medical school. We at first tried to go the conventional route as the rates were better than the physician loans- BAD IDEA. We were in the final stages of the process, as in our stuff was packed, the truck was rented and my wife was ready to move into the house to start her residency when the lender backed out. They changed their mind at the last possible minute because the underwriter decided he didn’t like the wording of my new work contract and our total student loan debt. They proceeded to tell me that no lender would approve us because of “new government regulations”. Fortunately, Suntrust came to our rescue. They were able to approve us without a problem and we took a 5/1 arm at 3.99%. As a bonus, what we put down didn’t matter in regards to the interest rate. This gave us more cash to shore up an emergency fund. Though Suntrust was quick and easy to work with, we had to go through the whole agonizing application process again, in addition to paying for a second appraisal and all the associated application fees. I was able to convince the seller to rent us the house for a month before we closed on the Suntrust physician loan. If they had said no, I really don’t know what we would have done. Do you think this whole episode caused unnecessary stress on my wife and I as we were trying to move to a new city a thousand miles away and she was about to start an ER residency? You better believe it. Now at the time with my salary we were two doctors (me a DVM) with excellent credit making 140k/year trying to take out a loan for $225,000. If we couldn’t get a conventional loan, I’m not sure who was getting approved. Sadly, our story in not unique. Lenders are not above pulling the rug out from under you at the last second. Knowing what I know now, if I was in the same situation today with the same student loan burden- I would ONLY go to lender who does physician loans. For some reason, the rest of the financial industry doesn’t understand that people who are graduating with professional degrees will be carrying a large amount of student debt. Does that make us high risk to lend to? I don’t think so, otherwise why is SOFI so successful and why do several banks do physician loans? When we purchase our next home, our student loan burden will be gone and we can go the conventional route. Perhaps lenders in general have “loosened up” a bit, but trust me, you don’t want to get that last second phone call explaining that the underwriter for your conventional loan changed his mind because of your debt and you are SOL. If you have a student debt load of any significance, I would strongly suggest going the physician loan route.
Med Students and Residents WITH BIG STUDENT LOAN DEBT read above.
Some of those conventional rates must be 15 year and not 30 as stated. Rates vary daily but nobody is doing 3.2% on a 30 year fixed in march 2014.
I’m only able to rely on the word of those I contacted about this as they were very well aware I wasn’t actually going to lock a loan with them. That said, many of these loans are kept in house so it wouldn’t surprise me if from time to time the terms were quite good. I tried to note the type of loan in each individual case (note many were ARMs not 30 year fixed and some were 15 year fixed.)
FHA loan in 2010 with I think 3% down 5/1 ARM was 2.85% including PMI for me.
Another option for a high income physician is private banking. Some smaller local banks will offer private banking services to high income individuals. Coming out of residency with a signed contract I am able to get 0% down up to ~ 1 million (based on future income) @ 3.8% on a 5/1 ARM, no PMI, no requirement for escrow of tax and insurance. No need for “seasoned funds” prior to closing. Closing costs ~3,000. This is a non conforming loan that the bank will keep on their books so they can be quite flexible on the requirements. It might be worth looking into for some people.
Another consideration for MDs is BBVA Compass Bank. Sometimes you don’t have much of a choice because of the lenders available in your area. I am in SoCal and the only bank I could find that would do a physician loan was BBVA. Suntrust was out of my area and BofA told me they no longer did physician loans.
I believe BBVA’s terms are 0-5% down up to $1M, no PMI, and fewer fees in closing costs. However, I believe their physician loan was 0.5-1% over a conventional. Their conventional loans were competitive.
Another important point in physician loans is how many years of income history they require. Having moved to a new city and started my own practice from scratch, I was cash flow negative for quite a bit and my taxes reflected that. BBVA was willing to give me a loan based on 1 year’s tax returns rather than 2, which made a HUGE difference in what I was able to buy. The 2 years in question were right around the inflection point of me going from cash flow negative to positive, so my income quadrupled from one tax year to the next. You can argue whether this accommodation was good or bad, depending on how conservative you are and your faith in the finances of medicine as well as a new practice, but it is definitely food for thought. Citibank wanted to average the two years, which would have cut my buying power in half.
BBVA/Compass is listed on my mortgage page but declined to participate in this post.
I’m graduating 2015. My take away from this is that I should definitely buy a home for my radiology residency. I am really wishing I bought during med school.
I don’t understand how people gripe about losing money on a home and then say they should have rented. If you rent a 3 bedroom home for your family, prices all around my city (Houston) run $1,100, and that’s on the cheap side in a bad neighborhood. 4 years of school or residency means you are dumping $52,800 down the drain if you rent. That’s a lot of money. If someone is unhappy that they lost some money on the house that they bought, do they mean that they lost $50K on their home? If so, then yeah that stinks. Maybe some people who bought before 2008 actually lost that much money. However, I get the feeling most people nowadays do not lose anywhere near so much money. And, as has been stated, some people make money on their homes. Others break even, which is still awesome. Free rent for 4 years. And for those that lose money, again I see it as very unlikely that they would lose as much money as they would lose when they rent.
Your article that you linked to about 10 reasons why you should not buy a house also makes it seem like you can rent just as nice a house as you can buy for the same money. In my experience in Houston and Arizona, that’s bogus. We would have been in a much nicer house if we bought, had a mortgage many hundred dollars cheaper than the rent, and probably ended up breaking even when we moved. Instead, we rented a cheap home, lived in not the best neighborhood for 4 years, and spent close to 50K doing it.
Round trip transaction costs on a $200K home run about $30K. The home has to appreciate by that much over 3-5 years in order for you to break even, assuming equivalent rent = mortgage + taxes + insurance + repairs + maintenance + what you could have made with the down payment/closing cost money etc. You can’t just compare rent to mortgage.
I’m not just comparing rent to mortgage. My point is that renting is a guaranteed way to lose a lot of money. If buyers lose some money, are they really losing as much money as they would lose renting? It seems doubtful in most cases.
A $200K home? Well if it’s that nice of a house we’re talking about, then those usually rent for $1400 a month. Let’s say you got a steal and rented it 4 years for 1300 a month. That’s $62,400 dollars lost over renting for 4 years.
Are you trying to tell me that all the fees, taxes, insurance, interest, and maintenance for this home will likely cost me $62,400 dollars? That seems extremely unlikely. And in a market that has already bottomed out, the odds seem in your favor that the house will appreciate at least a little bit.
Obviously, it’s more of a gamble to buy a house. You might lose more money than you would if you rented, but that seems unlikely. It would be educational for people who think buying a house was a poor financial decision for them to lay out exactly how they lost more money buying their house than they would have lost by renting.
That’s exactly what I’m telling you. Make some reasonable assumptions and you’ll come to the same conclusion.
Buying costs – $10K
Selling costs $20K
Interest on a $200K loan at 4% for 4 years- $32K
Maintenance- 1% a year, or $8K
Insurance- $1K a year or $4K
HOA Fees $2K
Taxes $3K per year or $12K
Total: $88K
Now, your estimates may differ and even be lower. But just to break even with the renting scenario, you need that house to appreciate $7K a year, or about 3.5%.
Sure, renting is “throwing money away” but so is paying property taxes, insurance, interest, maintenance etc.
How does what you can deduct from income taxes come into play? My understanding is that interest and property taxes can be deducted from your income taxes yearly. So in the example above the total comes out to $44K and the home would have to appreciate less than $7K a year to break even if you count the deduction you can take from your income taxes. Is this right?
I currently have an attending (IM) income and my husband has a resident’s income. I’m trying to figure out how owning a home comes into play with income tax. Last year we paid what felt like a ton!
Yes, the interest and property taxes are generally deductible, reducing the cost. How much it reduces it depends on your other deductions and your marginal tax rate. For a resident, it doesn’t reduce it much, if at all. It may reduce it by as much as 50% if you’re a very highly paid attending with high state/local income taxes.
For reference, back when I was single and owned a home, the interest and property tax deduction got me back roughly 30% of what I paid for those two alone. I was in the 25% tax bracket at that time.
I’ve had a house in med school, another in residency, and another in fellowship. We have tried to sell them at different times but it hasn’t worked out until recently. At any rate, many people are touting Suntrust’s Physician Loan program, but my experience with them was a bit underhanded in 2007. We were set to close and were working out of state during the closing process. It was my understanding that the product was a 7/1 ARM. However, on closing day, it was a 7/1 ARM INTEREST ONLY loan. While we could enjoy some lower monthly payment, I would have liked a conventional P&I loan. We made principle payments along with the interest payments and gained a little equity during the process. When asked about the interest-only loan, the Suntrust person said that’s the only way we would qualify.
Anyway, be careful of last minute switches by your lenders. (Of note, a few years later, we were still in the interest only mortgage and were renting the house out. Suntrust approached us to refinance with no cost to us and make it a conventional mortgage at a lower rate. It was a no brainer to us and they liked the new loan because it was “less risky” to them.)
Another thing about the lenders that were listed: physicianloans.com may have ok terms, but they require 6 MONTHS of reserves in the bank. This can be a gift from someone but they have to have it at closing time. If your mortgage payment is $2000, then you have to have 12K in the bank. If you have a rental property and are buying a new house, you have to have 6 month reserves for BOTH houses. So, new payment is 2000/month and your rental is 1200/month = you need 19200 in reserves at closing. That may be too much for someone right out of residency or fellowship.
While $12-19K might seem like a lot to a resident, that’s probably about what you ought to have before you buy a home. I mean, $12K is what should be left of your first month’s paycheck if you’re living like a resident.
Umm…not for us lowly FP’s it aint. My monthly check isn’t 12K after taxes. Not even close.
I tried to post on a previous page buy my post wouldn’t go through so I will throw it on this one.
In a previous post you discussed savings percentages and you argued for 20% for physicians which I think is a great goal but really isn’t very realistic for primary care doctors. In the US the average primary care physician made less than $220K last year. If you remove hospitalists from that equation the number drops to $175K (incidentally they tend to work more hours than any specialty other than internal medicine).
I think many specialists don’t really understand how much of a difference in pay there is between themselves and their primary care brethren. For instance: The WCI can put away 20% of his income to retirement/savings and still have a take home pay that is higher than most family doctors BEFORE tax income.
Its really not comparing apples to oranges. You talk about living like a resident but honestly if most family doctors put away 20% their whole career they would live like a resident their whole career.
I chose my career because its what I like to do. Its my calling. I understand I don’t get paid like an ER doctor. However I do get tired of the population thinking I get paid like one.
Oh and just an aside I learned.–> Internists are the least satisfied physicians
I’m graduating from residency in June and I’ll be making an above average salary in Texas. I’m going to be renting for at least one year and quickly paying down my debt as I have $340,000 at either 6.8% or 8% rates and hoping to decrease the rate by refinancing with either SoFi or DRB.
My question is this: while saving money for a down payment, will my debt to income ratio be too high after one year of paying down the loans that waiting for a conventional loan not make sense? Should I just go for the physician mortgage in 16 months time?
Hard to tell you to save up a down payment when you have an 8%, $340K student loan. You have a much better use for your money. The real question is should you be buying or “living like a resident” for a couple more years? You could use a physician loan to get a starter home, live inexpensively, pay off the student loans and pay down the mortgage, effectively saving up your down payment in home equity. Whether or not you use a doctor loan isn’t the big issue. The big issue is what percentage of your income you’re going to be carving out to build wealth.
I’m looking to put 25-30% of my monthly paycheck into 401K, savings, and stocks while aggressively paying down my debt hopefully to pay it off in 7 years. It’s going to be budgeted monthly into separate silos.
My wife and I are in our mid 30s and this is a second career for me. At this point, she wants to have a house to call home and I’m not sure I can tell her to “live like a resident” for much longer. I’d like to buy a starter home sooner than later with the caviat being that we will build-up equity.
Sounds like you’re on the right path to me. When someone writes me and tells me that I know they’re going to be very wealthy soon, no matter what kind of mortgage they decide to get.
I tried to post on a previous page buy my post wouldn’t go through so I will throw it on this one.
In a previous post you discussed savings percentages and you argued for 20% for physicians which I think is a great goal but really isn’t very realistic for primary care doctors. In the US the average primary care physician made less than $220K last year. If you remove hospitalists from that equation the number drops to $175K (incidentally they tend to work more hours than any specialty other than internal medicine).
I think many specialists don’t really understand how much of a difference in pay there is between themselves and their primary care brethren. For instance: The WCI can put away 20% of his income to retirement/savings and still have a take home pay that is higher than most family doctors BEFORE tax income.
Its really not comparing apples to oranges. You talk about living like a resident but honestly if most family doctors put away 20% their whole career they would live like a resident their whole career.
I chose my career because its what I like to do. Its my calling. I understand I don’t get paid like an ER doctor. However I do get tired of the population thinking I get paid like one.
Oh and just an aside I learned.–> Internists are the least satisfied physicians
I tried to post this earlier but it didnt’ work. In response to WCI comment about having 12K a month left over.
In a previous post you discussed savings percentages and you argued for 20% for physicians which I think is a great goal but really isn’t very realistic for primary care doctors. In the US the average primary care physician made less than $220K last year. If you remove hospitalists from that equation the number drops to $175K (incidentally they tend to work more hours than any specialty other than internal medicine).
I think many specialists don’t really understand how much of a difference in pay there is between themselves and their primary care brethren. For instance: The WCI can put away 20% of his income to retirement/savings and still have a take home pay that is higher than most family doctors BEFORE tax income.
Its really not comparing apples to oranges. You talk about living like a resident but honestly if most family doctors put away 20% their whole career they would live like a resident their whole career.
I chose my career because its what I like to do. Its my calling. I understand I don’t get paid like an ER doctor. However I do get tired of the population thinking I get paid like one.
Oh and just an aside I learned.–> Internists are the least satisfied physicians
hey WCI, just a long time lurker, wondering if you can chime in a little wisdom into my situation. I am a first year resident currently renting in Cleveland. I wanted to buy a triplex or quadruplex in Chicago. My finances are 130,000 student loans @ 6.6%. First home ~ $300,000 paid off, and second home condo ~ $70,000 paid off, both of them in Chicago. No car payments, and no credit card payments. Currently I have a $ 50,000 in emergency funds. My question is should I use it to pay off student loans or use it toward down payment. In other words, would I get lower mortgage rates from having less student loans but no down-payment or have more student loans but a bigger down-payment? I am concerned with rising mortgage rates. Thanks for any input.
Oh I forgot in say I have annual combined income with wife of ~ 100,000 a year pretax.
That changes things a bit, but not much. I’d still be doing Roth IRAs and paying off those 6.8% loans like mad. In fact, I’d probably take out a home equity loan at 3% variable or sell the condo in order to get rid of that debt.
I’m a little lost. You’re a first year resident (presumably making less than $50K), you owe $130K (not too bad) yet own two homes and have $50K in the bank? Where did the homes come from?
If that is really your situation, why not sell the home you don’t want to live in and pay off the student loans? If I were a resident, I’d probably feel pretty comfortable with a $10K emergency fund, and use $40K of that money in the bank to pay off loans. It’s a little mysterious to me why you have loans anyway with all those assets from somewhere (gift, inheritance, previous career, working spouse ?)
And explain to me why you’re interested in buying another property as a resident? Are you trying to be a real estate magnate while working 80+ hours a week as an intern? It would seem to me that if you were looking to invest some of that $50K salary, you would be better off doing personal/spousal Roth IRAs, getting any available match, and paying down those 6.8% loans.
Umm.. sorry my post wasn’t very clear. The first house came with the marriage and actually belong to wife but can’t touch it (can’t sell it, can’t take out HEL or HELOC, she won’t let me, period). Bought the condo in medical school through foreclosure auction (numbers worked out better than rent at that time but I am in agreement with your general philosophy on renting vs owning) and it had appreciated nicely since than housing crash but has family member living in it now so can’t touch it either until I buy a multiplex. So those two properties are in my name but for liquidity sake it might as well not exist. My emergency funds grew out of 20 K i put in market during the crash in med school. I think it was extreme luck and being at right time with right place. I have no stock picking ability and am exiting the market now. The question is what to do with that 50 K. Down payment or pay off student loan. So which one gives you lower mortgage rate: having more debt with bigger downpayment or having less debt but also smaller downpayment? Yes I intend to enter real estate investing the long haul, this has been one of my life goal since undergrad.
Bigger down payment will get you a slightly lower mortgage rate and fees. Doesn’t mean it is the right choice though. Given the interest rate of most student loans right now, I’d put the money there if I were you.
A little late to the party but wanted to get your opinion on my situation. I am one year out of fellowship and pretax salary is 220k. I have paid off about 40k of loans in the past year (on top of my required payments) as well as paid for a wedding, honeymoon, move to a new city. I have my loans down to about 180k and only 6k of that is at 6.8%. I have been renting for the past year but my wife and I are really ready to get into a house and start our family. We dont have enough saved up for a 20% so a doctor loan will be the only option. We are not sure how long we will stay in our current city but we currently have one of the hottest real estate markets in the country and estimates on housing prices in the area are expecting to see a 20-30% jump in the next year ( realizing “they” could be wrong and the market could tank but that is unlikely where I am located). We have rented for the past year and are looking at houses around 400k. I know we will be here at least one more year for sure and it could be a lot longer. Would you keep renting to try and save some money up or would you bite the bullet and buy the house hoping that things continue to work out in the current city? I dont want to get into the housing market if I cannot guarantee I will be in a house for 3-5 years but I also don’t want to be able to afford 75% of the house next year that I can get this year. Our mortgage would likely only be about 300-500 more a month than our current rent. My wife is a grad student and by next year will likely be making 60k (on scholarship so no new loans for her).
Would you take the gamble?
1 year? No way. If I thought 3-5 for sure and maybe longer than I would. Especially when buying is $500 more than renting. It should be $500 less than renting for you to have any hope of breaking even in 3-5 years unless you’re willing to count on 20%+ appreciation, a gamble at best.
Hi friends am Mrs Joy Robert and I reside in North Carolina,I am a mother of three kids namely Anita,Joe and Erika,I had a divorce with my husband in march 2014 since then life have been so hard for me and my three kids I find it difficult to meet up with their demands because my salary was too low to take good care of me and my kids and I also have to send some money to my Mum in Texas who was hospitalized due to broken ankle,I have no one to run to for help so I decided to go online in search of a genuine loan lender who can bring me back to my feet, the first lender I contacted took my hard earned money without giving me a loan living me and my family to even suffer more,I had no choice rather than to search for another lender who can help so I came across a post been made by a woman in New York on how she acquired a loan from a legit source, I gave my self a trier by contacting the same lender named Mr Larry who works with Eminent Finance,I applied for a loan luckily for me I got approved in less than four hours of my application and all the documentations and arrangements were made concerning the loan, in less than 48 hours I got an alert from my bank that my account have been credited it was all like a dream to me am so happy right now me and my kids are now living a better life and I have been able to pay off my bills,if you are interested in getting a loan I will advise you contact them via this email([email protected]) they will grant you your heart
desire.
I’m a fellow and I’ve had a very difficult time getting a physician loan, or any other loan for that matter, because of income verification of my T32 training grant funds. Make sure your institution provides you a 1099 for these funds. They are not obligated to do so. It may cost you more in taxes if the income is “1099’d” versus reported as a stipend, though I’m not sure about this point. Regardless, if you are planning to buy a home it is worth it. Lenders don’t know what to do if there is no 1099 or W-2. The other issue is debit to credit ratio. If your loans are deferred, certain lenders (BBVA and B of A) will turn a blind eye to the debit if they are deferred for >12 months from closing, most others will not. The Mettle group, for example, could not help me with either of these issues, despite their big talk about understanding the “difficulties physicians face”.
Thanks for sharing your experience. Sorry it has been so tough for you. Any reason renting as a fellow isn’t a good option?
Of course, renting is always an option. However, I was under the impression that one of the goals of this discussion is to help physicians get into a home. Also, we should take the issue of income verification into context. First, most of these physician loans tout the ability to take into consideration the special circumstances that plague young physicians like residents and fellows. If they cannot accommodate the specificities of how we are paid (usually by government funded stipends and grants) then I’m not sure what use they are to this large sub-population of physicians. Next, most fellows are well into their 30s and have been in training for 25 years or more, with the average fellowship lasting between 2-5 years. After living like a student for so many years one is ready to move on in life. Also, our 30s tends to be prime time for expanding your family and the size of a rental needed to accommodate a family may, in many cases, cost as much or more than a mortgage. Finally, in some cases, specifically physicians who want to continue with an academic research track, their pay may continue to come from government grants well into their late 30s, or early 40s. If this track record of training is not proof of income continuity I’m not sure what is. Our positions are likely to engender more stability by virtue of being on a government training grant than others in other sectors, since it is much more difficult to “fire” a trainee. It seems we as trainees committed to this field, are entering into the most productive years of our lives with one hand tied behind our back (income verification and big loans). It is unfortunate that the underwriters’ hands are also tied by strict income verification requirements which do not apply to this very well trained and mature (aged) population of our workforce.
I sure hope that I’m not giving the impression that I think it’s a good idea for residents and fellows to buy a home by writing about doctor loans. From my doctor loan page (probably the most visited individual page on the blog):
Second, I don’t think most residents/fellows are paid on stipends. I was paid on a W-2 during residency and thought that was pretty standard. I had a military stipend in medical school, and I remember mortgage lenders definitely didn’t think much of that. I had to get a co-signer.
Third, you’re right that the whole point of a doctor loan is to accommodate the weirdness of physician finances because the loan can be kept in house at the bank. I agree with you that they should be able to work with this sort of thing if you’ve gone ahead and decided to get a loan.