Question about Physician Loans

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Im still a few years away from from buying a house, but am curious about mortgage loans. I hear a lot about these physician loan programs that offer great rates with 0-5% down, high med school debt and no PMI as long as you have a good credit rating. Are these for real and are there any disadvantages? Is there anything that would make a standard loans better than a physcian loan? I an basically looking for a 15-30 year fixed rate loan with the lowest interest rate.

As of now we have 5% put away for our future home and I haven't started moonlighting yet. If i work at it through residency, i could prob get ~15% before I buy, but if the physician loans are just as good Id stop at 5% and just dump all the extra on my student loans as i still have ~ 150k in debt around 6.55%. Thanks for the advice.

Originally Posted by Scorcher31

Im still a few years away from from buying a house, but am curious about mortgage loans. I hear a lot about these physician loan programs that offer great rates with 0-5% down, high med school debt and no PMI as long as you have a good credit rating. Are these for real and are there any disadvantages? Is there anything that would make a standard loans better than a physcian loan? I an basically looking for a 15-30 year fixed rate loan with the lowest interest rate.

As of now we have 5% put away for our future home and I haven't started moonlighting yet. If i work at it through residency, i could prob get ~15% before I buy, but if the physician loans are just as good Id stop at 5% and just dump all the extra on my student loans as i still have ~ 150k in debt around 6.55%. Thanks for the advice.

Most of the ones that I have seen offered by the people coming and presenting at my school are 5/1 or 7/1 ARMs. I haven't seen anyone pushing a 15 or 30 fixed.

They say its because most people will sell during those 5-7 years and either move locations or upgrade houses. I wonder if we just wouldn't qualify for a competitive fixed rate.

Yeah I will be buying after residency and am not planning on reselling. My wife has a pretty descent job and it wouldnt be easy for her to pick up and find a new one wherever so there is a darned good chance ill be staying within an hour to 2 hour radius of that area.

I really was just curious if these doctor loans were basically standard loans with no PMI and little downpayment. Was curious to the upsides and downsides of standard loans vs fha vs doctor loans. . Again trying to decide if I really need to save up ~20% for a downpayment makes better sense than the 5% for doctors loans and putting all the extra money on my loans.

You really have to decide what works best for you. BBVA Compass offers 15 and 30 yr. fixed rate loans, but I have to agree with going with the 7/1 ARM in most cases. The rate is a lot lower, you can pay extra to the principal anytime you want, there is no pre-payment penalty, and there really is a good chance you will be selling/moving up at the end of the 7 years. Or, if you pay the balance down a lot during that 7 year period, even if the first adjustment maxes out, the payment won't go up any. And, at the end of the 7 year period chances are the income will be much higher, so if the payment does go up, it's not noticed so much.

As far as a larger down payment, again that's truly a personal preference. Something to keep in mind is that for every $1,000 you reduce the loan amount, you are saving about $5.00 a month on the monthly payment. So in essence, you might be spending $20,000 cash to save $100 a month on the mortgage payment.

FHA loans are going to be even more expensive come April 9. At the present time the Up-Front Mortgage Insurace Premium is 1.00%. On April 9 it goes to 1.75%. The annual mortgage insurace is now 1.15% and is going to 1.25%. Based on a $200,000 purchase price with 3.50% down payment this calculates to a monthly increase in payment of about $26 a month higher than what FHA is charging now. Monthly MI on this loan would be $201.04 every month. Yes, FHA rates are lower than 30 yr. fixed rates on Physician loans but the Mtg. Ins. every month is a lot. Plus, since mortgage interest paid is currently tax deductible and mts. ins. isn't, it really nets it down.

I don't know about other companies, but our 7/1 ARM rate is currently 1.125% less then a 30 yr. fixed. On a $200,000 loan amount, that is a difference of $130.19 a month. That is almost $11,000 in savings over 7 years.

When the time comes for you to buy, sit down with a good loan officer and let him/her help you decide what would work best for you. Look at all the options, not just what they want to try and sell you. You have choices. If I had any advice to give you, that would be it.

Just so you know, Compass will only do this loan in California, Arizona, New Mexico, Colorado, Texas, Alabama, and certain areas of Florida. We do require a 5% down payment and the maximum loan amount with 5% down is $1 Million. There is no minimum loan amount. The Seller can pay all closing costs/prepaids. All funds can be gifted. Minimum credit score is 700.

I hope this helps. It might be too much information, but I prefer you know your options. If you have any more questions, just PM me and I will get right back to you.

By far the best way to buy a house is a standard loan, 20% down, and a 15 year note. Anything less than that costs more and is not as well for you in the long run.

At current interest rates, some will argue the above loan is better than paying cash as its not overly hard to beat ~3-4% in an index fund...

With the way housing is and the way our generation (I am 31; assume you are that age or younger) tends to not know what we want till we find it (i.e. we change jobs a lot). I would not get one of these physician loans and spend the time saving the down payments and such and knowing you are going to stay at your job...

I'm a 4th year medical student, who will be an intern in Cincinnati starting this July. I'm looking into buying a condo. What kind of doctor loans are available in Ohio? Thanks!

For TX, these are my options for those interested.

Bank of Colorado
Bank of Texas
BBVA/Compass Bank
Regions
SunTrust (but you need a 12 month relationship for TX first)

Originally Posted by Scorcher31

Yeah I will be buying after residency and am not planning on reselling. My wife has a pretty descent job and it wouldnt be easy for her to pick up and find a new one wherever so there is a darned good chance ill be staying within an hour to 2 hour radius of that area.

I really was just curious if these doctor loans were basically standard loans with no PMI and little downpayment. Was curious to the upsides and downsides of standard loans vs fha vs doctor loans. . Again trying to decide if I really need to save up ~20% for a downpayment makes better sense than the 5% for doctors loans and putting all the extra money on my loans.

Doctor's loans are basically one of the last vestiges of subprime loans out there (that I know of.) They allow people who would not qualify for a conforming loan (Debt:Income ratio > high 30s, Student Loan debt is not counted in that) to buy a house. The downside is that the lenders that offer these loans push the ARMs with lower rates (their longer-term fixed loan rates are not competitive,) and/or you have to pay a point (1% origination fee.) However, I think that they are a fine option for their target market (e.g. residents.) I can't imagine why anyone would use one once making the big bucks after residency.....

Originally Posted by Scorcher31

Im still a few years away from from buying a house, but am curious about mortgage loans. I hear a lot about these physician loan programs that offer great rates with 0-5% down, high med school debt and no PMI as long as you have a good credit rating. Are these for real and are there any disadvantages? Is there anything that would make a standard loans better than a physcian loan? I an basically looking for a 15-30 year fixed rate loan with the lowest interest rate.

As of now we have 5% put away for our future home and I haven't started moonlighting yet. If i work at it through residency, i could prob get ~15% before I buy, but if the physician loans are just as good Id stop at 5% and just dump all the extra on my student loans as i still have ~ 150k in debt around 6.55%. Thanks for the advice.

Yes, they are for real. Yes, there are disadvantages...primarily higher fees and higher interest rates than you would get on a conventional mortgage.

If you want a 15 year with the lowest possible interest rate, get a conventional 20% down mortgage, and buy down the rate. Remember in mortgages there is a triangle of three things, and the bank doesn't care much how they're arranged. Any way you arrange them, the bank will get their cut.

Interest rate
Fees and Points
Downpayment

Lower one and another one must go up or you won't get the loan.

http://whitecoatinvestor.com/persona...mortgage-loan/

Originally Posted by Scorcher31

Im still a few years away from from buying a house, but am curious about mortgage loans. I hear a lot about these physician loan programs that offer great rates with 0-5% down, high med school debt and no PMI as long as you have a good credit rating. Are these for real and are there any disadvantages? Is there anything that would make a standard loans better than a physcian loan? I an basically looking for a 15-30 year fixed rate loan with the lowest interest rate.

As of now we have 5% put away for our future home and I haven't started moonlighting yet. If i work at it through residency, i could prob get ~15% before I buy, but if the physician loans are just as good Id stop at 5% and just dump all the extra on my student loans as i still have ~ 150k in debt around 6.55%. Thanks for the advice.

Perhaps this series of Top Questions about Physician Loans Answered will help with your questions.

I am just curious..what is the maximum any of these banks are willing to offer to a PGY-1 just starting residency? Since we won't be making much, I am wondering how high they are willing to go. Thanks.

Originally Posted by NoWayOut

I am just curious..what is the maximum any of these banks are willing to offer to a PGY-1 just starting residency? Since we won't be making much, I am wondering how high they are willing to go. Thanks.

A good question, but definitely the wrong mindset. You should be asking what's the least you can get away with.

The general rule is that the bank requires you to service the debt with 28% or less of your income. So if your income is $45K, 28% of that is $12600, or $1050 per month. Take off a little for PMI, insurance, and taxes, and assume 0% down and 4.5% interest rate and you're looking at something ~$200K.

Originally Posted by ActiveDutyMD

A good question, but definitely the wrong mindset. You should be asking what's the least you can get away with.

The general rule is that the bank requires you to service the debt with 28% or less of your income. So if your income is $45K, 28% of that is $12600, or $1050 per month. Take off a little for PMI, insurance, and taxes, and assume 0% down and 4.5% interest rate and you're looking at something ~$200K.

Most (at least all that I spoke with) lenders that offer a Physician Loan don't care about the front-end ratio. They only require the back-end ratio to be less than 45-50%, depending upon the specific lender. I'm well aware that, historically, the magic numbers were 28% and 36% for the front and back-end ratios, respectively, but that just underscores that Physician Loans are, at their core, subprime loans.