Student loan debt causing mortgage problems

[perilou]

I am a current 4th year student with 3 months until I graduate and $100k in student loan debt. I went to the bank today to discuss getting a mortgage loan for buying a house. The loan officer was not that concerned with my debt (especially after I told him about IBR and that my monthly payment would likely be ~ $250 / month). However, he is unable to approve the loan unless I get a letter from my student loan lender stating what my IBR payment would be.

So, I called my student loan lender, and they said they are unable to write a letter stating what my IBR monthly payment would be until I had an income (ie. start residency) and thus could only write a letter stating what my repayment would be based on regular repayment (which is high).

The loan officer won't approve the mortgage loan with this repayment (it's like $1000/mo).

I write all this to say: I know residents buy homes at the start of residency all the time. What do I need to do? What am I doing wrong?

Thanks so much for your help!

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[Gute]

Is it possible to have a parent co-sign and then have them taken off the loan when you can "prove" your income in July?

Obviously you need to have someone who would agree to co-sign.

 

[dpmd]

When I got my mortgages, I was able to show a letter that I was in deferment. The first was in school, and was scheduled to end on my grad date which was 3 yrs away-this won't help you. The second was while in residency. I had an economic hardship deferment which was to end about 8 mths late. This isn't an option anymore either. You could avoid mentioning that you will go into repayment and just tell them you are in deferment right now (would mean you start with a new lender). You could also ask if your lender can give you a letter indicating what your payment would be on extended, or graduated repayment plans (at least one of those is a set amount not based on your income-the extended one just spreads to payments out over more years so it is less each month). You wouldn't have to actually go on that repayment plan (or if they make you, you can switch later). Or look for a cheaper mortgage.

 

[perilou]

When I got my mortgages, I was able to show a letter that I was in deferment. The first was in school, and was scheduled to end on my grad date which was 3 yrs away-this won't help you. The second was while in residency. I had an economic hardship deferment which was to end about 8 mths late. This isn't an option anymore either. You could avoid mentioning that you will go into repayment and just tell them you are in deferment right now (would mean you start with a new lender). You could also ask if your lender can give you a letter indicating what your payment would be on extended, or graduated repayment plans (at least one of those is a set amount not based on your income-the extended one just spreads to payments out over more years so it is less each month). You wouldn't have to actually go on that repayment plan (or if they make you, you can switch later). Or look for a cheaper mortgage.

My loan will be deferred for 6 months after graduation. I graduate in 2.5 months. Apparently if the loan is deferred for 1 year, then they can ignore the loan balance and I would be approved in a jiffy. Mine, however, is only deffered for ~9 months.

If I just avoid mentioning when I will go into repayment and go ahead with the mortgage, are there any repercussions? I don't want this to blow up in my face later.

Thanks for help.

 

[dpmd]

I haven't run into any issues now that I am in repayment. I don't think they check up on you. Of course, you will need to make sure you can still make payments on your mortgage.

 

[MacVA]

Doctor Loans. My girlfriend and I just bought a place (she the Doc; im just a lowly premed).

PM for contact information. What state are you looking at purchasing?

 

[perilou]

I guess I'll post an update.

So, I've been able to be pre-approved from a few different lenders. The problem I was having was just walking into Wells Fargo / Bank of America and asking for a loan. There are some companies out there who specialize in 'Doctor Loans' as the above poster mentioned.

I'm not connected to either of these companies, but physicianloans.com and Amegy bank have both treated me very well so far and have understood the unique circumstances that med students/residents are in.

 

[Guile]

I guess I'll post an update.

So, I've been able to be pre-approved from a few different lenders. The problem I was having was just walking into Wells Fargo / Bank of America and asking for a loan. There are some companies out there who specialize in 'Doctor Loans' as the above poster mentioned.

I'm not connected to either of these companies, but physicianloans.com and Amegy bank have both treated me very well so far and have understood the unique circumstances that med students/residents are in.

Could you post some of the details of your loan with physicianloans.com? I'm trying to compare apples to apples with a few different lenders and it's tough because physicianloans.com doesn't want to tell me much until I have submitted an application. What are their closing costs like?

 

[bitterswtmocha]

So when I talked to my student loan servicer, they said they base your IBR payments not on your anticipated income in residency, but your previous year's tax return (there by making payments your first year essentially 0). I hadn't heard this from my financial aid officer or anything, but they said it was so. I would research that, because if that's the case, your servicer should easily be able to verify that your previous year's tax return qualifies you for a certain payment. It's not like that's changing.

The real benefit I've found to special "doctor loans" is that they take your residency contract as proof of employment, 100% financing, and no PMI (which you don't get with FHA). Unfortunately they often also have higher interest rates.

And also, like the poster before me writes, can you tell us more about your interaction with Physician Loans?

 

[gstrub]

Talked to physicianloans today...they don't do "desirable locations" i.e. west coast. Oh well...

 

[TMP-SMX]

What we heard from the exit counseling at our school is that PGY1 loans are based on your paystubs. Remember you don't start repayment until December. PGY2 loans are based on your previous year's taxes. (So you were only earning income half the year and your IBR payments are likely to drop for the second year).

 

[almost_there]

Perilou, I'm in the same position as you. I've also been preapproved based on my stated likely IBR payments. However, by closing, I'll need a statement/letter from my lender that says what my IBR payments will be. But they won't give that to me until I actually switch to IBR, and I can't do that until my repayments begin 6 months after I graduate.

So I can get preapproved, but I don't think that I can "prove" my repayments will be what they will be.

How are people getting around this problem? I know others must be buying now as well. The finance people I talked to didn't seem that familiar with IBR. I talked to suntrust, bank of america, and some local banks...

 

[gstrub]

Perilou, I'm in the same position as you. I've also been preapproved based on my stated likely IBR payments. However, by closing, I'll need a statement/letter from my lender that says what my IBR payments will be. But they won't give that to me until I actually switch to IBR, and I can't do that until my repayments begin 6 months after I graduate.

So I can get preapproved, but I don't think that I can "prove" my repayments will be what they will be.

How are people getting around this problem? I know others must be buying now as well. The finance people I talked to didn't seem that familiar with IBR. I talked to suntrust, bank of america, and some local banks...

It looks like you can't. If your lender requires a 12 month note, the only thing you can do is go into forebearance immediately, then that is good for a year. You lose the 6 month grace period. Sucks. I talked to direct loans and they said they absolutely cannot put anything in writing that has any "ifs" in it...in other words if you are in 6 month grace that is all they can officially say. You may be able to start your IBR immediately as well...not sure about that one. That might also get you the 12 month note. Either way, there is no way to keep your grace period and also get a 12 month note from direct loans.

 

[JHU Texan]

I have loans through both Direct and AES. According to AES, you can not waive your grace period. You also can't apply for forbearance until you are in repayment (thus putting you in limbo as far as I can see if you want to get a house before residency).

BoA is oddly enough working with me on the issue of written documentation for IBR. The loan officer I'm speaking with who has some experience with physician loans has said that it's not a problem that my deferment ends 6 months after I graduate and it's not a problem that I won't know the exact monthly payment while I'm on IBR. I've gone through the process with a couple of other banks in the area, and even explained to BoA why the other banks would not approve my wife and I because I didn't have documentation from Direct/AES. It's been frustrating to say the least, especially because if the banks did take IBR at face value, we would be getting fantastic deals (no PMI, no points, interest rate of 5.25% on 30 yr fixed, only 5% down). We could wait until January 2012, but we don't know what rates will look like and we don't want to temporarily rent...

It sounds like people are having good experiences with physicianloans.com though

It looks like you can't. If your lender requires a 12 month note, the only thing you can do is go into forebearance immediately, then that is good for a year. You lose the 6 month grace period. Sucks. I talked to direct loans and they said they absolutely cannot put anything in writing that has any "ifs" in it...in other words if you are in 6 month grace that is all they can officially say. You may be able to start your IBR immediately as well...not sure about that one. That might also get you the 12 month note. Either way, there is no way to keep your grace period and also get a 12 month note from direct loans.

 

[JHU Texan]

Update:
Physicianloans and other related companies are unable to originate loans where I'm buying, so I ended up having to consolidate my loans, thus forgoing my grace and deferment periods in order to choose IBR and show a monthly payment. The advantage of this is that I'm paying my loans based on our 2010 tax return (only my wife's income). The disadvantage is obviously that I need to start repaying my loans 6 months earlier, but we figured it was worth it (and can afford the payments) in order to obtain a mortgage. The nice thing this year is that there is a temporary provision allowing you to consolidate loans that are in-school status. This way I get to include all of my federal student loans, even if they haven't reached their grace periods yet. This provision is set to expire July 1, 2011, so I don't know what next year's classes are going to do unless the banks write in IBR in their underwriting guidelines.

I have loans through both Direct and AES. According to AES, you can not waive your grace period. You also can't apply for forbearance until you are in repayment (thus putting you in limbo as far as I can see if you want to get a house before residency).

BoA is oddly enough working with me on the issue of written documentation for IBR. The loan officer I'm speaking with who has some experience with physician loans has said that it's not a problem that my deferment ends 6 months after I graduate and it's not a problem that I won't know the exact monthly payment while I'm on IBR. I've gone through the process with a couple of other banks in the area, and even explained to BoA why the other banks would not approve my wife and I because I didn't have documentation from Direct/AES. It's been frustrating to say the least, especially because if the banks did take IBR at face value, we would be getting fantastic deals (no PMI, no points, interest rate of 5.25% on 30 yr fixed, only 5% down). We could wait until January 2012, but we don't know what rates will look like and we don't want to temporarily rent...

It sounds like people are having good experiences with physicianloans.com though

 

[Guile]

Update:
Physicianloans and other related companies are unable to originate loans where I'm buying, so I ended up having to consolidate my loans, thus forgoing my grace and deferment periods in order to choose IBR and show a monthly payment. The advantage of this is that I'm paying my loans based on our 2010 tax return (only my wife's income). The disadvantage is obviously that I need to start repaying my loans 6 months earlier, but we figured it was worth it (and can afford the payments) in order to obtain a mortgage. The nice thing this year is that there is a temporary provision allowing you to consolidate loans that are in-school status. This way I get to include all of my federal student loans, even if they haven't reached their grace periods yet. This provision is set to expire July 1, 2011, so I don't know what next year's classes are going to do unless the banks write in IBR in their underwriting guidelines.

After you applied for consolidation, how long did the whole process take before they were consolidated? I am considering doing this as well because the public service forgiveness clock doesn't start until they are consolidated and I'd rather make 6 months of payments as a resident versus 6 months of payments as an attending.

 

[Shah_Patel_PT]

I am a current 4th year student with 3 months until I graduate and $100k in student loan debt. I went to the bank today to discuss getting a mortgage loan for buying a house. The loan officer was not that concerned with my debt (especially after I told him about IBR and that my monthly payment would likely be ~ $250 / month). However, he is unable to approve the loan unless I get a letter from my student loan lender stating what my IBR payment would be.

So, I called my student loan lender, and they said they are unable to write a letter stating what my IBR monthly payment would be until I had an income (ie. start residency) and thus could only write a letter stating what my repayment would be based on regular repayment (which is high).

The loan officer won't approve the mortgage loan with this repayment (it's like $1000/mo).

I write all this to say: I know residents buy homes at the start of residency all the time. What do I need to do? What am I doing wrong?

Thanks so much for your help!

4 years ago, it used to be easy. I saw fliers offering 1,000,000 homes, no down when I began my residency.

I am buying a house now, and I had to go through so many obstacles/forms/documents.

I think it is much harder to obtain loans now.

 

[NINJALoans]

Why are you surprised by this? If I were working for a bank, I wouldn't loan medical residents money for a house unless the interest rate was high.

Student loans can't be dismissed. The first loan they're going to default on is the mortgage and housing prices are way overinflated. That means if they default on the mortgage, the bank is stuck with a house that's worth less in a few years...

 

[IMer22]

I'm not sure the below logic (see copied quote) makes sense because your IBR payment is supposedly reviewed annually.

Scenario 1: Keep most of your grace period and start paying in Dec. '11
-This will mean your IBR payment is based on either 2010 taxes or a paystub (the opinion on this seems to vary and people are reporting different experiences on this forum)
-In Dec. '12 your payment will change and will be based on 2011 taxes (1/2 year working)
-In Dec. '13 your payment will change again and will be based on 2012 taxes (full year working)
-Now let's say it is Dec. 2014 and you finished your IM residency in June 2014 and have been working as a hospitalist since. Sure, your 2014 income is much higher than previous years but your IBR payments for the next year will be based on 2013, so the payment should remain low.
-The payments made from Dec. '15 - Dec. '16 are based on 2014 and become higher since half the year was spent working as an attending.
-Starting in Dec. '16, payments become high because all of 2015 was spend working as an attending.
-The 120th consecutive payment (assuming PSLF is the goal) is made in December 2021.

Scenario 2: Give up grace period and start paying in July
-The above scenario would play out the same way because like above, payments are starting in 2011. Therefore the payments are based on the same tax year as the above scenario.
-From July '15 through July '16, you would be working as an attending for the entire period but IBR payments are based on 2014 taxes.
-The 120th consecutive payment occurs in July 2021.
-You end up making the same number of "low" payments (based on resident salary), "medium" payments (based on half year as resident, half as attending), and "high" payments (based on attending salary).


I think the key to the 1st scenario is making your first IBR payment BEFORE 2012. The benefit of holding on to your grace period (or at least some of it) is that the government is paying the interest on your subsidized loans. I assume money is also tight for many early on during intern year and not having to make loan payments is probably pretty nice.

If my logic is wrong, please let me know. After thinking about this I decided it makes the most sense to keep most of my grace period and start IBR in late fall / early winter. But, if I was looking for a mortgage like some of you, then consolidating earlier might make sense.

For what it is worth, one of my classmates got a mortgage company to not consider his debt because one is guaranteed forbearance on Stafford loans. So, if he couldn't afford both his mortgage and his student loans while in training, he had a guaranteed way to push off his student loans. This person only has Stafford loans, so I'm not sure if private loans would of make a difference in his situation.

After you applied for consolidation, how long did the whole process take before they were consolidated? I am considering doing this as well because the public service forgiveness clock doesn't start until they are consolidated and I'd rather make 6 months of payments as a resident versus 6 months of payments as an attending.

 

[dpmd]

But instead of making your 120th payment in December 2022, you make it in July 2022. The payments you make from July through December can either be in 2011 (at the low payment rate) or in 2022 (at the high rate). Doubt that the government interest subsidy on subsidized loans during grace period would be more than the difference in payments.

The money being tight thing does have some logic, but mostly depends on how much you have saved for your move, and how much it actually ends up costing you (paying loan payments while carrying a balance on credit cards probably isn't going to be a wise financial move)

 

[Guile]

But instead of making your 120th payment in December 2022, you make it in July 2022. The payments you make from July through December can either be in 2011 (at the low payment rate) or in 2022 (at the high rate). Doubt that the government interest subsidy on subsidized loans during grace period would be more than the difference in payments.

Exactly. This was my point.

 

[IMer22]

Your IBR payment is reviewed annually and taxes for the previous year are used (with possibly PGY1 year being an exception as previously discussed). Whether your "review" comes up in July or December, the IBR payment will be based on the previous years taxes so will be the same since you are starting to pay in the same calendar year.

I plugged in some easy numbers to make sure I'm not going crazy. Let's say the person got lucky and has a $0/mo payment for the first year (based on 2010 income). We'll also pretend $1000/mo is the max payment (ie the monthly amount it would have taken to pay the loans via the 10 year standard repayment plan).

Start paying in July 2011
-July '11 - June '12 (PGY1): $0/mo (based on 2010: no to little income)
-July '12 - June '13 (PGY2): $250/mo (based on 2011: 1/2 yr resident salary)
-July '13 - June '14 (PGY3): $500/mo (based on 2012: full yr resident salary)
-July '14 - June '15 (Att): $500/mo (based on 2013: full yr resident salary)
-July '15 - June '16 (Att): $750/mo (based on 2014: 1/2 resident salary, 1/2 attending salary)
-July '16 - June '17 (Att): $1000/mo (based on 2015: full yr attending salary)
-July '17 - June '18 (Att): $1000/mo (based on 2016: full yr attending salary)
-July '18 - June '19 (Att): $1000/mo (based on 2017: full yr attending salary)
-July '19 - June '20 (Att): $1000/mo (based on 2018: full yr attending salary)
-July '20 - June '21 (Att): $1000/mo (based on 2019: full yr attending salary)
Total paid: $84,000

Start paying in December 2011
-Dec '11 - Nov '12 (PGY1): $0/mo (based on 2010: no to little income)
-Dec '12 - Nov '13 (PGY2): $250/mo (based on 2011: 1/2 yr resident salary)
-Dec '13 - Nov '14 (PGY3): $500/mo (based on 2012: full yr resident salary)
-Dec '14 - Nov '15 (Att): $500/mo (based on 2013: full yr resident salary)
-Dec '15 - Nov '16 (Att): $750/mo (based on 2014: 1/2 resident salary, 1/2 attending salary)
-Dec '16 - Nov '17 (Att): $1000/mo (based on 2015: full yr attending salary)
-Dec '17 - Nov '18 (Att): $1000/mo (based on 2016: full yr attending salary)
-Dec '18 - Nov '19 (Att): $1000/mo (based on 2017: full yr attending salary)
-Dec '19 - Nov '20 (Att): $1000/mo (based on 2018: full yr attending salary)
-Dec '20 - Nov '21 (Att): $1000/mo (based on 2019: full yr attending salary)
Total paid: $84,000

Sorry to be annoying and type it all out, just wanted to make sure we were on the same page. And again, if the above is wrong, please let me know.

For those of us who haven't consolidated yet, there is little chance that we would be able to start IBR payments in July at this point. I am thinking of having my consolidation application start processing in September in order to ensure my first IBR payment is made in 2011. Lenders get 60-90 days to verify loan info so I thought September was a safe bet and would still let me use some/most of my grace period.

 

[dpmd]

Interesting. I was thinking your payment would get recalculated each time your tax info was available, not just every 12 months, but you might actually be right.

 

[TMP-SMX]

We'll see what the result is once grace period is actually done. I've been approved for the $0 IBR payments for PGY-1 based on 2010 taxes.

 

[UTPhysicianLoan]

Could you post some of the details of your loan with physicianloans.com? I'm trying to compare apples to apples with a few different lenders and it's tough because physicianloans.com doesn't want to tell me much until I have submitted an application. What are their closing costs like?

I specialize in physician loans, and here is a primer on closing costs:

1. There are essentially 5 people or stages that your loan goes through from application to closing. Each of these people, or sometimes teams of people need to be paid for their time and effort (it takes roughly 40 hours of work to approve and close each loan). The first is the Loan Originator, who is your adviser and will be responsible for managing your loan through the date of closing. This is the MOST important person in your transaction, they must understand your unique situation, the intricacies of the financing program that they've selected for you and then they must manage the timeline so that you don't lose your earnest money and you get to the closing table on time. Research this person, Google them, do they have client testimonials, have they written articles, does this person look like a true expert or someone out for a quick buck in the mortgage industry.
2. There is always an appraisal and title report created for each loan. Both of these individuals or companies need to be compensated for their work.
3. The next person who touches your loan, who also needs to be paid is the Loan Processor. Their job is to review and proof all the documents prior to submitting to Underwriting, validate tax returns, order flood certifications, update credit reports, validate employment and assets, etc. This person provides checks and balances on the Loan Originator who is the sales person and makes sure the loan fits the program guidelines and is sellable. This person is the liaison between the Loan Originator and the Loan Underwriter. You will typically pay a Processing fee for this service.
4. Lastly, the full loan file makes it's way to Underwriting. This person is the gatekeeper to the money! Their job is to make sure everything in the loan file meets the guidelines of the lender. These are the most anal people on the face of the earth! I don't say that in a negative way but their butt is truly on the line, if they fund a loan and one thing is out of guideline, the loan is unsellable and the mortgage company will have to buy that loan back and keep it. Most loans are packaged with other similar loans and sold on Wall St. to Fannie May, Freddie Mac or Ginnie Mae. Banks are NOT in the business of keeping 4% 30 year fixed loans on their books.This is not a profitable model for them, so when Underwriters mess up loans and they have to be repurchased, heads fly! The Underwriting task obviously has a fee associated with it as well.
5. All of these people are important to your transaction and must be compensated for their work. There are two ways to pay them. Most often, you would pay them in closing costs. For example, a typical origination fee is 1%, a processing fee would be around $595, Underwriting $795, title around .5% and appraisal around $450. Another way is to take a higher interest rate for the life of your loan, which you can do in some cases. If a lender delivers a rate that is higher than the par or market rate available, then the lender receives a fee for that loan, so you can in some cases offset all of your closing costs this way. But be careful: paying .5% more in rate over the life of your loan can cost far more than the 2-3% in onetime up-front closing costs. Talk to your lender, ask questions and run the numbers for yourself.

One more piece of advice: When looking for a mortgage broker, always Google a mortgage lender's name to see what comes up. Are they well known and published? And how long have they been in the business? Here's one tip that you can use that will always throw off a rookie: ask them if they would be willing to provide you with the name and phone number of 2 to 3 local area Physicians for whom they have successfully managed Physician loans. If you get a YES, you are probably in good hands, the "Umhhhhhh" response is not what you are looking for!

I hope this answers some of your questions. Please shoot me any more questions you may have and I will be happy to answer them!
​

 

[Guile]

I specialize in physician loans, and here is a primer on closing costs:

1. There are essentially 5 people or stages that your loan goes through from application to closing. Each of these people, or sometimes teams of people need to be paid for their time and effort (it takes roughly 40 hours of work to approve and close each loan). The first is the Loan Originator, who is your adviser and will be responsible for managing your loan through the date of closing. This is the MOST important person in your transaction, they must understand your unique situation, the intricacies of the financing program that they’ve selected for you and then they must manage the timeline so that you don’t lose your earnest money and you get to the closing table on time. Research this person, Google them, do they have client testimonials, have they written articles, does this person look like a true expert or someone out for a quick buck in the mortgage industry.
2. There is always an appraisal and title report created for each loan. Both of these individuals or companies need to be compensated for their work.
3. The next person who touches your loan, who also needs to be paid is the Loan Processor. Their job is to review and proof all the documents prior to submitting to Underwriting, validate tax returns, order flood certifications, update credit reports, validate employment and assets, etc. This person provides checks and balances on the Loan Originator who is the sales person and makes sure the loan fits the program guidelines and is sellable. This person is the liaison between the Loan Originator and the Loan Underwriter. You will typically pay a Processing fee for this service.
4. Lastly, the full loan file makes it’s way to Underwriting. This person is the gatekeeper to the money! Their job is to make sure everything in the loan file meets the guidelines of the lender. These are the most anal people on the face of the earth! I don’t say that in a negative way but their butt is truly on the line, if they fund a loan and one thing is out of guideline, the loan is unsellable and the mortgage company will have to buy that loan back and keep it. Most loans are packaged with other similar loans and sold on Wall St. to Fannie May, Freddie Mac or Ginnie Mae. Banks are NOT in the business of keeping 4% 30 year fixed loans on their books.This is not a profitable model for them, so when Underwriters mess up loans and they have to be repurchased, heads fly! The Underwriting task obviously has a fee associated with it as well.
5. All of these people are important to your transaction and must be compensated for their work. There are two ways to pay them. Most often, you would pay them in closing costs. For example, a typical origination fee is 1%, a processing fee would be around $595, Underwriting $795, title around .5% and appraisal around $450. Another way is to take a higher interest rate for the life of your loan, which you can do in some cases. If a lender delivers a rate that is higher than the par or market rate available, then the lender receives a fee for that loan, so you can in some cases offset all of your closing costs this way. But be careful: paying .5% more in rate over the life of your loan can cost far more than the 2-3% in onetime up-front closing costs. Talk to your lender, ask questions and run the numbers for yourself.

One more piece of advice: When looking for a mortgage broker, always Google a mortgage lender’s name to see what comes up. Are they well known and published? And how long have they been in the business? Here's one tip that you can use that will always throw off a rookie: ask them if they would be willing to provide you with the name and phone number of 2 to 3 local area Physicians for whom they have successfully managed Physician loans. If you get a YES, you are probably in good hands, the “Umhhhhhh” response is not what you are looking for!

I hope this answers some of your questions. Please shoot me any more questions you may have and I will be happy to answer them!
​

Thanks for the great advice. I ended up going with Physicianloans.com and was very happy with the product. I thought the closing costs were reasonable and I got an outstanding interest rate.

You are correct: loan underwriters are the most anal people....