Yet another mortgage question

I have a doctor's loan on my house through Bank of America. It required no money down, and I don't have to pay PMI even though I don't have the standard 20% equity. I do have to pay both principal and interest.

It doesn't sound like you need a doctor's loan since you have so much cash to put into it. You may be able to find an interest-only loan, but I don't understand why you would want to do that. If you're putting so much cash down, your payments will already be low enough to be able to pay some principal, unless you're planning on buying in a really high-cost area.

THP said:

I keep hearing about these "doctor's loans" for houses: are they generally interest only loans for a period of time? At what point do you have to start paying principle on these loans? Do the payments balloon at some point as well?

I am going to be an intern this summer and my wife is planning on quitting her job so she can stay home with the kids. We are planning on putting around 45-50% down on a house which should allow us to get a good conventional loan. However, this still may be difficult with just one resident's salary (which is definitely less than my wife's current salary). Is there any sort of loan where I can pay interest only to keep expenses low and not have to suddenly pay a much higher monthly payment during residency?

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I would suggest you consider putting down something like 30% and keeping the extra 10-20% (depending on the actual amount you are talking) in a separate account the help supplement your payments (ie 1000 from your paycheck and 500 from your savings each month to make a 1500 dollar mortgage payment). Budget this so that you have the amount you need to continue to supplement through your residency and you may be able to get a loan where you pay principle from the beginning rather than interest only. This will expand your loan options quite a bit. You will still avoid primary mortgage insurance if you put down at least 20%. The major benefit of MD loans is to reduce the down payment you need and to not calculate your future student loan payments in your monthly expenses (In a normal home loan, if you have student loans they will calculate your future payment amount as a monthly expense even though the student loans are currently in deferment. This would make it look like you have even less money to pay your mortgage and thus reduce the amount you could borrow. Doctor loan lenders are just smart enough to understand that your loans are deferred until you are out of residency and at that time your income will be much higher so they can just forget about these future student loan payments when calculating the money you have available to pay your mortgage now.) Just a thought.

If you did this you could put the money into a money market fund that pays like 3-4%/yr interest. This would help reduce the effective interest rate on the money you borrowed for your mortgage.....for example, if you kept 20,000 in a savings/money market account for payments rather than putting this down on your new home, you would be making 3-4% interest on this money. So, even though you financed an extra 20,000 on your home loan (rather than putting it in the down payment) and are paying 6.5% (guessing what your home loan interest rate would be), you will really only be paying 2.5% on that money (6.5% home loan - 4% money market return= 2.5%). Hope that makes sense and gives you some help.

THP said:

I am going to be an intern this summer and my wife is planning on quitting her job so she can stay home with the kids. We are planning on putting around 45-50% down on a house which should allow us to get a good conventional loan.

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Good God, why? You are missing the point of investing in real estate (earning on the value of the house, most of which is financed with easily and cheaply borrowed money.) Put down 20% or as much as it takes to get a conforming loan (should be 20%) with the best interest rate, and have your wife work until you secure the loan/close on the house.

If you insist on spending extra money on the house, it might be more advantageous to buy down the rate by paying points at that point, but you could probably use that money, or could invest it in better ways.

To answer your original question, you are not in "doctor's loan territory." Doctor's loans are for people without downpayments. Get the best conventional loan that you can (and you seem like "uber-prime" borrowers, so you should have little difficulty in this, regardless of what brokers may tell you to try to trick you into accepting a higher rate.)

Definitely just ask around! If the lender is pushy, drop him. Try both loan types (doctor loan & regular loan) and see what gets you the best rate.

However, in times like these, I would say you're better off not stuffing a ton of money away in a house. Why not put 0-20% down now, and in 5 years revisit the idea of paying down the mortgage? You'll earn at least 3% on that money and it will be safe. I totally understand you wanting to pay the house down as soon as possible (I'm usually the same way), but right now it just seems risky. Good luck!

THP said:

I keep hearing about these "doctor's loans" for houses: are they generally interest only loans for a period of time? At what point do you have to start paying principle on these loans? Do the payments balloon at some point as well?

I am going to be an intern this summer and my wife is planning on quitting her job so she can stay home with the kids. We are planning on putting around 45-50% down on a house which should allow us to get a good conventional loan. However, this still may be difficult with just one resident's salary (which is definitely less than my wife's current salary). Is there any sort of loan where I can pay interest only to keep expenses low and not have to suddenly pay a much higher monthly payment during residency?

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The main points are the doctor loan vs. the traditional loan is:

1: debt to income ratio --> student loans don't count
2: down payment --> zero
3: closing costs --> builder can pay 3-6% of home value in closing costs

If you have a traditional loan, the student loans can count against you and you most likely will have a down payment.

It is a bad idea to put down that much money on a house. It is a bad investment.

Been out of mortgage lending for a year, but with the market mayhem, the whole problem was with 0 or little downpayment. Good luck finding a Doctor loan at a reasonable rate.

I agree - the MOST you should put down now is 20%. ANy other funds should be long term, diversified investments. Nobody knows what is going on with the housing market. Like the Dutch tulip market, and the NASDQ/tech market, and Sir Isaac Newton, what goes up will come down.

Conventional, 30yr fixed money.

CorpusERdoc said:

The main points are the doctor loan vs. the traditional loan is:

1: debt to income ratio --> student loans don't count
2: down payment --> zero
3: closing costs --> builder can pay 3-6% of home value in closing costs

If you have a traditional loan, the student loans can count against you and you most likely will have a down payment.

It is a bad idea to put down that much money on a house. It is a bad investment.

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