Physician Loan vs ARM 5/1 vs 30 year fixed?

Suprahelical said:

Hey guys, very very new to the whole mortgage thing. My wife and I will be a first time homebuyer starting in July after relocating to new city after finishing my transitional year and I'm thoroughly confused about my options on purchasing a home. Our options are several... I actually DO have the cash saved to put down ~ 40-45K on a new home and the price range we are looking at is the 210-240 range. If you plug this into the mortgage calculators, the monthly rate comes out reasonable. But what I question, is taxes? How much can I expect to pay in taxes monthly on say a monthly mortgage of ~ $1300-~1400? The plan is for the wife to basically take care of the mortgage w/ her job, and then my residency pay, starting at 44K should take care of the rest, no?

Would we be better off taking the 0% down physicians loan and me investing the 45K in a money market account? Also, I was originally thinking straight 30 year fixed, but am pretty sure I'll only be in the city of residency no longer than 5 years, so a ARM 5/1 sounds pretty good too.

HELP!

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Put 20% down on the house and get a conventional loan. You'll be glad you did. As far as deciding on the 5/1 vs 30 year fixed, don't get a 5/1 unless you know for sure you'll sell in 5 years or less. You'll probably only save ~ 0.25%. I got a 5/1 on my place, and it looks like I'll be moving in 2 years rather than the 4 I thought.

Taxes are locale specific. You should be able to look up the tax rate for the community you're looking at online. MLS listings will frequently list the taxes too.

Be sure to check out mortgageprofessor.com.

- You can do what you want, as long as it is a 30 year fixed mortgage.
- Go to the website of your county tax-assessors office. You can typically look up taxes for specific properties.
- you will have to buy home-owners insurance. get an idea what the rates are in your area (depends on distance to the next firehouse, flood-plane and storm exposure)
- If you have the cash in hand to put 10% down, no need for one of these 'physician loans' or anything else fancy. most banks/brokers will be glad to give you regular old-fashioned mortgage
- If you put down 20%, you will get the best rates and not have a need for mortgage insurance.
- If you are a resident, consider putting down only 10% and put the rest of your cash into a contingency fund for things like roofs leaking or litigation surrounding a new home.


BEWARE OF MORTGAGE BROKERS TRYING TO UPSELL YOU INTO SOME COMPLEX MORTGAGE STRUCTURES WHEN SOMETHING SIMPLE WILL DO. They make their money on origination fees. So if they can sell you an ARM and a home equity line, they will make twice the money than if they sold you a mortgage only.

Oh, and did you hear about the sub-prime mortgage crisis ( mostly people getting stuck with their ARMS re-setting ) ?

I had 10% down and went with ING direct. They gave me a fixed rate on the other 10%. At the time there was 0 for loan fees/etc. Nothing!!!! I paid odd days interest and my state mortgage tax (0.5%). Everything else (appraisal, title search, closing cost, etc, etc, etc) they covered. I don't pay mortgage insurance (which is another 0.5% per annum). ING will only finance 90%, so you have to have the other 10% in cash.

They only have 5/1 and 7/1 ARMs. Less than 50% of people stay in the area they trained in after completing residency, and I would guess that a majority of those who do stay in their area move up in house after graduation or shortly thereafter (more income, more kids, new hospital, etc). While I'm all about fixed mortgages for the long haul - if you know you are going to move within 5-7 years, the 0.5% savings x 5 years = 2.5% on a 200k loan = 5k. I'd rather bank the 5k then go with the fixed. Others may disagree.

Also, I would think that it would be best to put the 10% down, save the rest in an indexed fund and max out your 401k contributions if your residency offers them.

OH yeah - don't go through a mortgage broker. they all charge a loan origination fee which is robbery. There are other physician loans out there (not through a broker) if you want to go that route (which, honestly, if you have the $$ for a sizable down, I don't see the point) - several residents locally have used Bank of America. I think there have been a few treads on this, too.

Leforte said:

if you know you are going to move within 5-7 years, the 0.5% savings x 5 years = 2.5% on a 200k loan = 5k. I'd rather bank the 5k then go with the fixed. Others may disagree.

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That is what one of my attendings thought. In the end, he was stuck with his residency condo for a number of years because he ended up being upside down when his rate re-set and couldn't afford the 30k cash he would have had to bring to the closing.