"Dr. loan" - 5/1 ARM...6.69%! WTF!!!!

[randomedstudent]

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Ok, so I just met with the first lender today (still plan on calling several more, but this is supposedly the only physical bank in my city that does 100% financing for residents). Background - my husband is already a resident and I will be starting this summer but don't officially have a contract yet, but we just wanted to get pre-approved based on his salary anyway since that would be plenty for us.

So this guy tells me he can give me a 5/1 ARM at 6.69%!! I am in so much shock that I don't even know what to say. I guess he could read the horror on my face b/c then he was like, "Yeah, it's high, but that's b/c of the 0 down, yada, yada". I was expecting something closer to 5.69% - am I totally off base here? I'll admit I'm no expert, but I've been reading up on this stuff (on here, other websites, books) for months, and definitely expected a much lower rate.

Somebody tell me where I need to go to get a better rate, please help!!! (We live in Kentucky so no BofA)

Forgot to mention - we have excellent credit (lowest score between the 2 of us was 737, all others were 750 and higher) - we have zero debt other than student loans which are deferred and not used in calculation.

 

[mshheaddoc]

No, that is about what rates are. I called 2 physician lenders.

Tower mortgage - 95% (5% down)- 6.125% 5/1 with one point and the usual fees. Said 100% has disappeared.
80% mortgage /15% home equity /5% down - 6.125%/8.5%

Another mortgage company, 100% 5/1 - no points - 7 and 1/8th% 1 point was 6.625 (not worth the point).

Your going to find horrible rates at 100% and for the arms. Its due to the whole collapse. 🙁

 

[randomedstudent]

Well, my guy called me back today and said now the rate is 6.19% so much closer to what I was expecting (although still slightly higher). I guess I just didn't think the mortgage crisis would really affect the true "resident loans" much given that we clearly don't fit the mold for a typical 100% financing client. With rates for a traditional 30 year fixed being in the 5.1% range I figured the doctor's loans rates would still be under 6.0%. Especially since people last year were getting rates around 5.7-5.95%. Shows what I know.....this sucks.

 

[Bobblehead]

Make sure that whatever mortgage you end up with that you're not in danger of becoming house poor.

 

[randomedstudent]

Make sure that whatever mortgage you end up with that you're not in danger of becoming house poor.

Uh, thanks for the advice, but not sure what that has to do with my question. FWIW, we are looking at houses in the 175-200k range on two resident salaries, should be easily affordable.

 

[mshheaddoc]

I think they meant value-wise. Some area values are dropping and people are over-leveraged on their house. Esp those that did 100% financing or close to it.

 

[The White Coat Investor]

Well, my guy called me back today and said now the rate is 6.19% so much closer to what I was expecting (although still slightly higher). I guess I just didn't think the mortgage crisis would really affect the true "resident loans" much given that we clearly don't fit the mold for a typical 100% financing client. With rates for a traditional 30 year fixed being in the 5.1% range I figured the doctor's loans rates would still be under 6.0%. Especially since people last year were getting rates around 5.7-5.95%. Shows what I know.....this sucks.

I've said this before and I'll say this again...there is no company out there looking to cut "doctors" a break. You want a better rate? Put 20% down.

According to Amerisave, with $1000 in fees/points and an estimated $1400 in closing costs, you can get 7.0% on a 100%, 30 year fixed.

A similar 30 year fixed, 20% down with $1400 in fees/points and an estimated $1400 in closing costs has a rate of 5.625%.

Forget the "doctors' loans" and come up with a downpayment if you really want a lower rate. Beg, borrow, and steal...that's what relatives are for.

When shopping for mortgages, you have to compare fees, points, and rates on the same day/time of day. Just comparing rates is like shopping for boxes of cereal just looking at the price per box and not caring how much is in each box. You have to look at both to make a wise decision.

 

[randomedstudent]

I've said this before and I'll say this again...there is no company out there looking to cut "doctors" a break. You want a better rate? Put 20% down.

According to Amerisave, with $1000 in fees/points and an estimated $1400 in closing costs, you can get 7.0% on a 100%, 30 year fixed.

A similar 30 year fixed, 20% down with $1400 in fees/points and an estimated $1400 in closing costs has a rate of 5.625%.

Forget the "doctors' loans" and come up with a downpayment if you really want a lower rate. Beg, borrow, and steal...that's what relatives are for.

When shopping for mortgages, you have to compare fees, points, and rates on the same day/time of day. Just comparing rates is like shopping for boxes of cereal just looking at the price per box and not caring how much is in each box. You have to look at both to make a wise decision.

I wish we could put 20% down - we would do it in a second. Unfortunately, we can't. My husband and I both entered med school straight from college with very little savings (maybe 15k for me just from high school/college jobs, not sure for him). We skimped all through med school and took out the bare minimum in student loans, which in hindsight maybe wasn't the best idea, since by the time my husband got his first residency paycheck we were down to about $2k to our names. We have saved as much as possible this year while living on only one salary, but it's nowhere near enough for a true downpayment. I by no means am one of those people who feels entitled to buy a house despite not having a downpayment - but figured we would check out the "doctor loans" and try to exercise one of the last remaining perks of being physicians. I just didn't expect the rates to be a point higher than last year. And, to each his own, but I would personally rather eat dog food to save money than borrow from relatives. So, maybe we should just wait, I don't know.....Thanks for the advice guys.

 

[mshheaddoc]

While ActiveMD has his personal feelings, the average student can't put 20% down. I used a doctor loan and got the best money out there. They also can do things like get you closer to 100%. Just check with a whole bunch of lenders in the same time period and see what you've got.

 

[The White Coat Investor]

So, maybe we should just wait, I don't know.....Thanks for the advice guys.

Renting isn't a bad option either. I think far too many people look at buying a home as some utopia. I've had a 100% loan before for 4 years and walked away with a loss AFTER paying more for my mortgage each month than I would have for rent on a comparable place. People know renting is throwing away money, but they forget that in the first 5 or 10 years, most of your mortgage payment goes toward interest (a fancy word for rent with a small tax benefit) anyway.

There is a great calculator at mortgageprofessor.com that helps you make the decision between buying now with an unfavorable loan and buying later with a favorable loan. You might try running some numbers through that before you make your decision. Try this link.

http://www.mtgprofessor.com/mpcalculators/MPBuyVsRent/MPBuyVsRent.asp

 

[Bobblehead]

People know renting is throwing away money, but they forget that in the first 5 or 10 years, most of your mortgage payment goes toward interest (a fancy word for rent with a small tax benefit) anyway.

There is a great calculator at mortgageprofessor.com that helps you make the decision between buying now with an unfavorable loan and buying later with a favorable loan. You might try running some numbers through that before you make your decision. Try this link.

http://www.mtgprofessor.com/mpcalculators/MPBuyVsRent/MPBuyVsRent.asp

In addition to the calculator I'd offer up the contrarian view that renting makes a lot of sense in higher priced markets. For what I'm paying in rent I'm getting far more than I could get for a pure mortgage payment. So in addition to a better quality of life by living where I want to live, I can save the differential and apply it to a down payment or other investments as I choose.

I always advocate putting a real dollar amount to your own peace of mind when considering the rent vs. own equation. Would you worry about being upside down on the loan? Would you count down the days until the ARM adjusts? How much do you value being able to paint your walls whatever color you want vs. living with basic white? How much do you value being able to have more "means" to live below on a monthly basis? And so forth.

The way I see it you have to factor in tax advantages vs. additional utility costs, insurance costs, association fees or equivalent, maintenance costs in addition to the pure rent vs. mortgage calculation. And in the higher cost markets these could be substantial recurrent costs that will push the limits of what you can afford, especially as a resident.

 

[deleted126335]

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[randomedstudent]

Why are so many students gung ho about owning during residency? I know so many docs who were burdened by the house that they purchased during those years. The financial arguments against owning during this period are pretty significant:

1. Real estate is in a downturn. Such downturns typically last several years
2. As you pointed out, most students can't put 20% down, so you are not getting the cheapest money out there.
3. Even if your plans are to stay put i the same city after residency, Many of you will practice in a city different than that which you train. Even if your plans are to stay put.
4. Many of you will obtain no tax benefit from the "deductiblity" of mogage interest. Many of you will take the standard deduction.
5. Many of you will work like animals during training, for those of you that do, the house will be little more than a place to sleep and decompress.
6. When your time is at a premium it is so much easier to just call the landlord to fix those household glitches as opposed to doing it yourself or looking for a repairman.
7. When you sell, you will most likely be paying a real estate commission on the order of 6%, a pretty big deal if you only plan to be in the property a few years. Think about what will be going on when relocating after residency, new job, new community. Shopping for a new house, as well as selling your current one.

Houses are frequently wonderful long term purchases emotionally as well as financially, but frequently lousy short term ones. 🙁

Save your cash. Pay down some debt. 🙂

Well, yeah, that all sounds logical, but buying a house is not purely a financial decision for us, in fact that is secondary to the more emotional feeling of having your own home that you can decorate any way you like (decorating/design is my passion) for us. In our city the difference between renting and owning a home is only a few hundred dollars a month (including tax/insurance). We can get a 2000 sq. ft. 4 bedroom/2-3 bath home with a garage for 200k or less in a nice area 10 minutes from hospitals. We don't even want a house that big - we are mainly looking at 1300 sq/ft 2-3 bed/2baths for $160-190k. This is the city where we both grew up and plan to stay forever if at all possible and will be here at the very least 5 years anyway. I don't even mind if we did end up having a sell for a loss as it is not likely that it would be more than we would be out renting for the next 5 years at $1000/month.

Like you said, we will have very little time at home, but I look at it differently. The little time I am at home, I want to relax in a place that feels "homey" and actually enjoy being in my house. When I come home to our current rental with it's plain white walls, tiny barely functional bathroom and kitchen, and horrible mudpit - I mean yard - out back it makes me depressed. For some people, a home is somewhere to sleep and shower, for us it is much more than that.

And, we have no debt to pay down (unless you count the student loans that are in deferment which we probably will start paying on next year anyway).

 

[Sol Rosenberg]

Why are so many students gung ho about owning during residency? I know so many docs who were burdened by the house that they purchased during those years. The financial arguments against owning during this period are pretty significant:

1. Real estate is in a downturn. Such downturns typically last several years

Why is this an argument against buying?

Remember, buy low, sell high.

Also, if either of us could accurately predict the length of downturns in real estate markets, we would not be wasting our time posting on SDN; instead, I know that I would be having my pilot currently fly me to the exotic destination of my choosing.

 

[jane70]

Like you said, we will have very little time at home, but I look at it differently. The little time I am at home, I want to relax in a place that feels "homey" and actually enjoy being in my house. When I come home to our current rental with it's plain white walls, tiny barely functional bathroom and kitchen, and horrible mudpit - I mean yard - out back it makes me depressed. For some people, a home is somewhere to sleep and shower, for us it is much more than that.QUOTE]

I just wanted to say that I 100% agree with you and understand where you're coming from. Obviously buying a house for this reason alone is not worth it if it's a bad financial move, although it sounds like you guys are not doing that. We are renting now and I hate where we live; I hate our apt, our awful cramped hallway that's supposed to be a kitchen, our neighborhood, everything! I am definitely looking into the Dr loan to buy a condo once we find out in March where we're going. You mentioned having done research on buying, do you or anyone else have some good book recommendations?

 

[mshheaddoc]

Renting and space. That is another issue, where we bought, we are paying just as much to rent and we have 2400 sq feet (full basement) and can update our house to get more money back. We also bought in an area where we feel values will increase, strategically placed. We also wanted a yard for our dog (which is a big dog) and have 3 cats. Not the most "renting" friendly either - we had another dog that we had to give away too! Buying is NOT for all residents, but some that are married with two incomes and planning on being in an area for a period of time, its always an option. I don't want to come off as buying is the best thing ever. Its expensive!

 

[supercut]

I wouldn't get an ARM and I wouldn't get a 100% loan. Maybe you should wait.

I know, I know..."renting is throwing your money away"

You say you have no savings. Buying a house with no savings is a bad idea. What are you going to do when something needs repair? When you get a deep freeze for a couple weeks and your heating bill goes through the roof? When you have a kid? When your car dies? When you can't put off paying student loans any more? (new law=harder for residents to defer)

I say that from experience. A few months ago, I bought a house. I'm currently not a resident, making about $200K a year. House is very affordable by all standards. Monthly payments easily managable on my take home. Didn't have a lot of savings, so I went with a 3% down FHA.

Within the first 60 days, issues started popping up. Garage roof leak, furnace died, oven died, dryer died....bottom line its going to cost me about $7000 total to fix all this. I did everything right, had an inspection, everything passed. So there was no way to predict all these expenses. Add to that the fact that home values are falling, not a lot but enough so that now I'm at about 100% loan to value. They drop any more, I'm upside down. Not a place anybody wants to be. At least my interest rate is fixed.

I feel like I"m thowing my money away making all these repairs. None of them will add to the value of the house for resale. I regret, deeply, making this move. I have spent all my spare cash (after massive student loan payments greater than the mortgage) fixing things.

Moral of the current market...housing values DO NOT always go up. Buying a house is NOT always a good idea.

I know you're going to be pissed when you read this. I bet if you proceed, there will come a time during your residency when you kick yourselves for jumping the gun.

 

[mgdsh]

Why is this an argument against buying?

Remember, buy low, sell high.

Also, if either of us could accurately predict the length of downturns in real estate markets, we would not be wasting our time posting on SDN; instead, I know that I would be having my pilot currently fly me to the exotic destination of my choosing.

No, but bottoms do take time to form. Everyone likes to try to catch the bottom by predicting it, as opposed to buying after evidence of a bottom has formed.

Now I'm not saying anyone will be able to pinpoint any downturn to the day, week, or even month, but people can continue to look at the data and realize that this glut of inventory and lack of buyers we have will take a significant amount of time to work off.

Housing prices will continue to drop for years, yet people just don't want to understand that. It's actually quite amusing.

Things that get cheap, tend to get cheaper and vice versa. We have significantly more room for housing prices to fall, even if you want to measure prices in terms of inflation.

If you couldn't tell by some of the discussion in this thread, lending standards have changed. To add to it, banks are having substantial difficulties backing their current loans/investments. Even if the Fed does foolishly lower interest rates dramatically from here, the lending environment will not be anything close to what it was a few years ago (or even a year ago for that matter). And the more the lower rates, the more the value of the dollar will fall (i.e. the higher the prices of those dollar backed commodities will rise --> in short? more inflation). Needless to say the fed is in a very tough spot right now. While they want to reduce the pain felt now, the more intervention we receive, the more painful it will be in the long run.

Additionally:
- We have plenty more foreclosures to come (by some models they haven't even peaked yet).
- Home builders still have contracts and obligations to finish developing communities despite how foolish that might be.
- Most Americans can't afford to go even a few months with out their paychecks in order to pay their bills if they do lose their jobs, as savings rates in this country are about as bad as they've been since the years of the depression. --> can you imagine what that's going to do to the housing situation?


I personally would not be buying any type of a real estate investment for quite sometime.

 

[mshheaddoc]

I wouldn't get an ARM and I wouldn't get a 100% loan. Maybe you should wait.

I know, I know..."renting is throwing your money away"

You say you have no savings. Buying a house with no savings is a bad idea. What are you going to do when something needs repair? When you get a deep freeze for a couple weeks and your heating bill goes through the roof? When you have a kid? When your car dies? When you can't put off paying student loans any more? (new law=harder for residents to defer)

I say that from experience. A few months ago, I bought a house. I'm currently not a resident, making about $200K a year. House is very affordable by all standards. Monthly payments easily managable on my take home. Didn't have a lot of savings, so I went with a 3% down FHA.

Within the first 60 days, issues started popping up. Garage roof leak, furnace died, oven died, dryer died....bottom line its going to cost me about $7000 total to fix all this. I did everything right, had an inspection, everything passed. So there was no way to predict all these expenses. Add to that the fact that home values are falling, not a lot but enough so that now I'm at about 100% loan to value. They drop any more, I'm upside down. Not a place anybody wants to be. At least my interest rate is fixed.

I feel like I"m thowing my money away making all these repairs. None of them will add to the value of the house for resale. I regret, deeply, making this move. I have spent all my spare cash (after massive student loan payments greater than the mortgage) fixing things.

Moral of the current market...housing values DO NOT always go up. Buying a house is NOT always a good idea.

I know you're going to be pissed when you read this. I bet if you proceed, there will come a time during your residency when you kick yourselves for jumping the gun.

Great lesson. Same thing happened to us this year as well. Resident also don't have time for the upkeep repairs, so keep that in mind.

Also, always make sure you have a homeowners' warranty plan when you purchase. While it does exclude alot of minute details, it covers the small things. 👍 It helped us in our last house. Make sure you read the small print though and get a good policy. Many sellers (agents) will include these days.

 

[Leforte]

I agree with the posters who have cautioned against buying in residency. I advocate neither, and feel it is a personal decision based on many factors. I can tell a little about my situation -

Bought right before internship - ~150k, PIMI total ~$1100 per month. Could have rented a similar house in my area for ~750-800 per month. 6 months in, furnace died ($2500), ice storm x 2 ($1500), yard work (Nearly flooded, so had to regrade, reseed, etc ($3000), fireplace bricks started falling out in the firebox ($1000), pipes burst in bathroom one winter ($500), sewer backed up and needed to be roto-ed ($500), plus a few other scatter things. Housing prices in our area never really skyrocketed in the hayday, but aren't declining either. We can probably sell at the end of residency for ~180k, less the 6% commission = $170 (we'll owe ~140 then). So 30k profit, minus ~9k in expenses = 21k. But we paid ~350 more per month x 60 months vs renting. We'll just break even vs if we rented. That doesn't count any interest/investing that the extra money if we rented could of made.

For us, owning is nice and something we are happy with - but it does come with it's headaches. If we were renting, we would of just made a phone call to the landlord. We have a pet - which may or may not of been allowed if we rented, plus a landlord can always increase the rent or worse, decide to sell and kick you out.

I have med school classmates who are now negative in their properties and can not sell at the end of their residencies because they don't yet have the cash for the difference - they are either forced to stay in their place or rent their houses (at a loss).

There is something to be said about renting in residency. You can leave when ever you want, no stress during the end of your residency re: selling. If you meet someone and decide to live together, you can find a place easier vs if you both owned, etc, etc etc.

I also agree with the statement that you don't get as much as you think from the interest deduction. Interest from a $150k note at 6% is 9k, plus the property taxes ~11k. Standard deduction is 10k. Sure you can add on other itemized stuff, but our itemizations have not exceeded $17k in any year so far. We maybe realize an extra 1200 a year from the tax benefits.

Personally, if I were single I would not buy a house. Take the difference in rent vs mortgage and stick it into a 401k. Enjoy the benefits of compounding interest, tax deduction and the start on building your retirement for when a national health care plan is passed (which it will sometime in our careers).

 

[randomedstudent]

I wouldn't get an ARM and I wouldn't get a 100% loan. Maybe you should wait.

I know, I know..."renting is throwing your money away"

You say you have no savings. Buying a house with no savings is a bad idea. What are you going to do when something needs repair? When you get a deep freeze for a couple weeks and your heating bill goes through the roof? When you have a kid? When your car dies? When you can't put off paying student loans any more? (new law=harder for residents to defer)

I say that from experience. A few months ago, I bought a house. I'm currently not a resident, making about $200K a year. House is very affordable by all standards. Monthly payments easily managable on my take home. Didn't have a lot of savings, so I went with a 3% down FHA.

Within the first 60 days, issues started popping up. Garage roof leak, furnace died, oven died, dryer died....bottom line its going to cost me about $7000 total to fix all this. I did everything right, had an inspection, everything passed. So there was no way to predict all these expenses. Add to that the fact that home values are falling, not a lot but enough so that now I'm at about 100% loan to value. They drop any more, I'm upside down. Not a place anybody wants to be. At least my interest rate is fixed.

I feel like I"m thowing my money away making all these repairs. None of them will add to the value of the house for resale. I regret, deeply, making this move. I have spent all my spare cash (after massive student loan payments greater than the mortgage) fixing things.

Moral of the current market...housing values DO NOT always go up. Buying a house is NOT always a good idea.

I know you're going to be pissed when you read this. I bet if you proceed, there will come a time during your residency when you kick yourselves for jumping the gun.

I never said we have no savings, geez. I said we don't have enough for a "true" downpayment meaning 20% or even 10% and have anything left over for all that stuff you listed. We are not idiots. I fully understand how student loans work and I already stated that we plan to start paying on most of them next year regardless of what happens with that law (we are quite debt averse and I realize that many on here would not advocate paying on SL's if you don't have to, but we just want to get rid of them ASAP). We don't plan on having kids for at least 5 years if at all, but thanks for the assumptions there. I fully understand how real estate works, I know there is a good chance that the house won't appreciate much if at all in the next 5 years esp. given the market. I already stated that we plan to stay in this city forever so would be in no rush to sell in that case. Even if we can't find jobs here and do have to move in 5 years, and even if the house did not appreciate and we sold for a small loss, it is unlikely that it would be more than the 60k we would have spent renting (and that's assuming our rent doesn't increase which it probably would) and at least I would have spent 5 years in a nice comfortable house vs. a crappy rental which is hard to put a price on for me.

Also, we really don't want an ARM, that is just all this guy would offer me (well technically he could do a 30 yr fixed, but at 7%, no thanks, I'll keep shopping). We do want a 30 yr. fixed as we would stay in the house past residency assuming we can both find jobs in this city.

My post was not intended to be a "should I buy?" post or a rent vs. buy - I don't need anymore lectures regarding these topics, I promise I am much more well versed in these issues than many of you obviously assume. So, back to my original question - has anyone gotten any good rates lately on a 100% financing "Dr. loan"? After my guy called back last week and dropped the rate to 6.19 I feel much better, and am curious to see what today's rate cut might do to the rate.

 

[deleted126335]

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[servitup]

I am starting an OMFS residency at U of L this summer. I have been in contact w/ a David Buchanon of Republic Bank who has a 100% loan sponsored by the Jefferson County Medical Society. It is 5 yr ARM and he said rate was 5.79%. Good luck.

 

[doctorloans]

Totally agree that it depends on the situation. Make sure you think things through, and plan to stay at least 3-5 years. There are numerous calculators out there that will let you figure out the real cost of renting vs. owning. One thing to keep in mind, if you are not very disciplined with saving money, renting might not be a good bet. Many calculators show money saved per month from renting vs. buying, but a good number of people will end up squandering that extra $300 - $400 a month, whereas buying forces you to "save" it (in the form of equity).

Good luck with whatever you choose!