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With BOA done with the doctor loan program, I wanted to provide advice to those shopping for a mortgage, especially with Compass Bank. I got a BOA loan 3 years ago and it was great, and I am in the process of selling my current home and upgrading. I was preapproved with BOA for my next loan, but that has since changed with their scrapping of their program. I looked into other banks, but SunTrust doesn't lend in my state.
Compass on the other hand is trying hard to take advantage of the lack of competition and the naivity of many of us getting our first loan. I have excellent credit and money for a downpayment and with my wife's job have much higher income than most residents, yet despite this, Compass wanted to charge a whopping 7.5% APR on a loan. Not only that, they were enocuraging us to put no money down despite the cash for a downpayment.
Do the math guys before locking into a loan like this. If you put nothing down with a rate this high, the amount of interest you are paying is astronomical. If you are planning on selling in 3-5 years, to make this cost effective for you, even with the tax deduction it will get you, your home would have to have quite a bit of appreciation. You can forget about that in this market. The value of your home may go down. Furthermore, it is very difficult to refinance if you have less than 20% of equity in your home. Equity can come from your monthly payment, which will take close to 10 years to accumulate to 20% of the home's value, and from appreciation of its market value, which may not happen during your residency.
Furthermore, keep in mind that we often have our homes for 3-5 years during residency. If you are moving out of the area on a certain date (eg, before starting fellowship), you have a very small window of time to sell your home. This puts you in a pinch and forces you to list your home less than what you may want to. With putting no money down, it puts you at risk of not selling your home for more than what you owe on it, forcing a bank approved short sale. For example, I bought my townhome for 208K in 2006 with no money down. Currently, we owe 199K on it. Right now, townhomes in my subdivision are selling from 190-210K because of the crappy market.
What I am saying is be sure to weigh your options. It may be smarter to rent for a year or two to save some money and build your credit to get a better loan. Or if you really want to buy, it may be much better to try and get an FHA loan or some other conventional loan and pay PMI. If you get an FHA loan at 5.5% and pay PMI, your APR will still be much less than what you will pay with no PMI at Compass. And FHA loans with good credit will permit a 55% debt-to-income ratio, making your student loans essentially a non-issue. Most importantly, you can get an FHA loan from almost any bank, so you there is more competition for your business.
Furthermore, the people with the doctor's loan programs take a commission, so it is not in their best interest to give you a good deal. Talk to as many banks as possible, because there are many that don't take a commission, and will give the best rates as possible as dictated by the current market.
So think hard about your loan. There are a lot of shady loan officers out there, and residents are prime targets for being taken advanatage of. We are responsible borrowers, so many of us will not default. Furthermore, we have little cash for a down payment, very little credit (not bad credit, but just no credit since many of us havent had credit card debt or car loans to build our credit) and high student debt, so the doctor's loan programs can exploit this and make us think no one else will give us a loan. There are honest people out there that will work with you, so talk to people and make sure you get a Good Faith Estimate from them for good measure.
With this market, it may not be a good idea to buy right now if you can't get a good loan. Even though prices are down, if your loan is outrageous, it negates the value you are getting on the home. Furthermore, always keep in mind your plan for selling. If you are going to have to sell in a short time frame, it may make it difficult for you to get the yield on your investment they need.
To be clear, I am not saying that all physician loan programs are bad. But Compass will tell you they are expanding their physician loan program with BOA stopping there's. Without that competition, you may not get a great deal. Ask lots of questions, talk to many lenders, and don't be afraid to ask for lower rates. When I got my first doctor loan, I was told it was by far the best rate I could get and there was no way he could come down on my rate. When I talked to other banks who offered a lower rate, BOA promptly came down a half-point on their rate to match it. Good luck!
Compass on the other hand is trying hard to take advantage of the lack of competition and the naivity of many of us getting our first loan. I have excellent credit and money for a downpayment and with my wife's job have much higher income than most residents, yet despite this, Compass wanted to charge a whopping 7.5% APR on a loan. Not only that, they were enocuraging us to put no money down despite the cash for a downpayment.
Do the math guys before locking into a loan like this. If you put nothing down with a rate this high, the amount of interest you are paying is astronomical. If you are planning on selling in 3-5 years, to make this cost effective for you, even with the tax deduction it will get you, your home would have to have quite a bit of appreciation. You can forget about that in this market. The value of your home may go down. Furthermore, it is very difficult to refinance if you have less than 20% of equity in your home. Equity can come from your monthly payment, which will take close to 10 years to accumulate to 20% of the home's value, and from appreciation of its market value, which may not happen during your residency.
Furthermore, keep in mind that we often have our homes for 3-5 years during residency. If you are moving out of the area on a certain date (eg, before starting fellowship), you have a very small window of time to sell your home. This puts you in a pinch and forces you to list your home less than what you may want to. With putting no money down, it puts you at risk of not selling your home for more than what you owe on it, forcing a bank approved short sale. For example, I bought my townhome for 208K in 2006 with no money down. Currently, we owe 199K on it. Right now, townhomes in my subdivision are selling from 190-210K because of the crappy market.
What I am saying is be sure to weigh your options. It may be smarter to rent for a year or two to save some money and build your credit to get a better loan. Or if you really want to buy, it may be much better to try and get an FHA loan or some other conventional loan and pay PMI. If you get an FHA loan at 5.5% and pay PMI, your APR will still be much less than what you will pay with no PMI at Compass. And FHA loans with good credit will permit a 55% debt-to-income ratio, making your student loans essentially a non-issue. Most importantly, you can get an FHA loan from almost any bank, so you there is more competition for your business.
Furthermore, the people with the doctor's loan programs take a commission, so it is not in their best interest to give you a good deal. Talk to as many banks as possible, because there are many that don't take a commission, and will give the best rates as possible as dictated by the current market.
So think hard about your loan. There are a lot of shady loan officers out there, and residents are prime targets for being taken advanatage of. We are responsible borrowers, so many of us will not default. Furthermore, we have little cash for a down payment, very little credit (not bad credit, but just no credit since many of us havent had credit card debt or car loans to build our credit) and high student debt, so the doctor's loan programs can exploit this and make us think no one else will give us a loan. There are honest people out there that will work with you, so talk to people and make sure you get a Good Faith Estimate from them for good measure.
With this market, it may not be a good idea to buy right now if you can't get a good loan. Even though prices are down, if your loan is outrageous, it negates the value you are getting on the home. Furthermore, always keep in mind your plan for selling. If you are going to have to sell in a short time frame, it may make it difficult for you to get the yield on your investment they need.
To be clear, I am not saying that all physician loan programs are bad. But Compass will tell you they are expanding their physician loan program with BOA stopping there's. Without that competition, you may not get a great deal. Ask lots of questions, talk to many lenders, and don't be afraid to ask for lower rates. When I got my first doctor loan, I was told it was by far the best rate I could get and there was no way he could come down on my rate. When I talked to other banks who offered a lower rate, BOA promptly came down a half-point on their rate to match it. Good luck!
