Resident Mortgage Loans

What up guys, I'm a PGY 2 and went through all of this. I ended up getting a 7 yr ARM with BOA and it was awesome. They were very helpful. Granted, this was 2 years ago and rates were better. But I still think it's a great program and it seemed to be the best package when I researched it all vs. the .com programs mentioned.

I did just refinance to an I/O this past fall and I'm saving about $200 a month. A doc I work with actually talked me into this, and I'm glad. The way I see it is you want to use your house as a money-saving tool during your residency. You're not there for 30 years where your gonna get a ton of equity, etc. So use your house like a bitch for 5 years with the tax breaks, etc. and then dump it and hopefully have some cash left over for a new house. On a limited resident's budget are you more concerned with A) equity, investment, blah blah blah, or putting out the least money each month and getting some tax breaks? The first few years in a conventional mortgage, 80-90% of your payment is interest anyway. The number of $200 that someone else mentioned as the amount of payment towards principal each month is a bit high I think. (depends of course on how big your mortgage is.)

And let's be honest, even if the real estate market slows down, what are the odds that the value of your house will actually go down? Over 5-6 years, at least here on the East coast, that risk is about ZERO.

thanks dr_sawbones for the post. please check your pm inbox.

I just wanted to post and let people know that the best rate I have found is from a local bank. I'm starting residency in Ann Arbor, MI and contacted Midwestern Financial Credit Union.

They offer Michigan residents a 100-0-0 5-YR ARM at 5.875% with no PMI and no points but a 0.25% origination fee. They also contribute $250 towards your closing costs if you open a checking account with them. I called Smela at physicianlender.com and his package was not nearly as good as this.

Anyway, I know this doesn't apply no non-U Mich residents, but just wanted to post that it might be worth looking into local options.

I was able to secure a rate with a 3 year arm of 4.75% with no down payment and no PMI. My mortgage agent was able to break it into 2 loans, and somehow use the second loan as a down payment. I think that the second loan is actually a home equity loan. I don't entirely understand it, but it dropped my payment $200 a month. I do have the option of fixing the rate after the 3 year arm term ends. It is capped at a 2% rise, so my worst fixed rate at 3 years is 6.75%, not too shabby. My advice, find a mortgage agent you know and who will work for you. This loan didn't have anything to do with me being a future resident. Resident plans exist, but there are so many options that regular mortgages are still feasible.

anyone happen to know what credit score is required for physician lenders?

Recently there has been a change in government regulations, and the way student loans were previously "ignored" is no longer. This is going to make it more difficult to obtain standard fannie mae approved loans...banks will have to get more creative.

Pick up the phone and talk to a mortgage loan office for more details!

Just thought I'd bump this for all those looking for a house now that we know where we're going.

This may be repetitive, but if you are interested in a residency loan, my understanding is that most of them are available up to 6 months after graduation and after that, you are on your own. The "residency" part of the loan really just refers to getting you started in residency - because at the PGY-3 stage, no one is making any loan offers. So my advice is, if you think you might need it, take it out now.

I don't know about some of the "national" physician lenders, but most local banks that offer programs for residents will offer such programs regardless of whether you are an intern or chief.

I have done a lot of research on this and it seems that most lenders, regardess of who they are, will offer either an ARM or 80/20 loan with a second mortgage. That way they avoid PMI.

The key is to find a lender that will ignore your student debt.

Last year I was in the same position. We ended up using BOA through their corporate headquarters in Charlotte instead of a local branches. We did everyhting over the phone and by fax, and found them very helpful and convenient to work with. We did a 5/1 ARM I/O with 80% financing, got a great deal, and have been very happy. We've save about $350/month in mortgage payments. The important thing to consider is that if we did not do I/O, we would not be putting all $350 towards equity. Actually, our accountant calculated that onlyabout $100/month would go towards equity over the first 2 years, and about $175/month the bext 3 years. Additionally, that extra part of the mortgage is not tax deductible as it is not interest. Over the first 5 years, we'd be losing money, as we'd be building less equity than we put in (by how our mortgage would eb structured). Now, even if the market was to drop, we'd be SOL regardless of whether we have an I/O loan or a standard loan. In fact, If we own 20% of a home that loses 10% of it's value over 5 years, that's better than owing 30% of a home that loses 10% of it's value. the only difference is that you've already essentially paid the bank part of the deficit through your building equity. However, you did not same that extra money, invest it somewhere else (making money hopefully), to pay for the deficit. In all, if you are only planning on staying in a place for 5 or 6 years, and you can get a good rate or deal, depending upon the terms of the loan, you will likely be much better off at the end of the 5 years with an I/O loan (ARM can lower your rate further), if you invest minimally/wisely and do some calculations (including tax deductions).

Since I'm in the process of applying for mortgages and wanted to do an I/O loan, I thought I'd clarify for everyone that the "MD loan" through B of A does not do I/O. They will do conventional fixed and adjustable rate mortgages, and they will do 3/1, 5/1, or 7/1 fixed/adjustable ARMS, but not I/O ARMS. I assume the loan asl17 mentioned is not the MD loan, since they only did 80% financing (not to mention I/O), and must have paid the downpayment out of pocket. Also, they may have expanded their states, since they now do this MD loan for Pennsylvania, which is where I have been approved.

The MD loan is 100% financing, covering the full price of the house, i.e. no downpayment is needed. If you can come up with the 30-60K for a 20%downpayment, than go for it, but most of us can't. This loan does not cover closing costs. The MD loan ignores your student debt as long as it is deferrable, while the other B of A loans, including their I/O loans, do not ignore student debt. There is a $50 up front application fee, and another $150 fee after you close on a house. Thier credit score criteria are greater than 720 FICO, but they do, and did for me, make exceptions for those between 700 and 720. The conditions of the loan I was just approved for also state I need to show a bank statement with sufficient funds in it to pay for the closing costs, and the first 2 months of payments. This works out to be between $3-5,000 and I'm not sure if I can swing this.

The interest rates as of yesterday were:
5/1 ARM, 30 yr amortization = 6.375%
5/1 ARM, 40 yr amortization = 6.5%
7/1 ARM, 30 yr amortization = 6.375%
7/1 ARM, 40 yr amortization = 6.65%

Based on a typical resident salary (42K), you can get approved for about $175,000. If you have some debt (credit cards, car payment, etc.), than the amount will be lower. If you have $10-15,000 of debt, and pay about $400/month, than you can only get $150,000.

Using the rates above for a 5/1 ARM, 40 yr amortization, here's what they estimate you're monthly payment will be including property taxes and insurance:
$150,000 = $1,187
$175,000 = $1,400
$200,000 = $1,563
$250,000 = $1,979

These monthly payments are higher than I feel comfortable with, so I am looking into interest only (I/O) loans through Physician Lender. I've heard you can save between $100 to $200/month with I/O loans. Physician Lender is just a mortgage broker - they use B of A, and numerous other financial instututions to get you the best possible mortgage. They don't charge an application fee up front, rather a point (1% of the cost of the house) at closing, thus for a 200K house, they get $2000, much higher than B of A. While there is the risk that the house will not appreciate, or worse depreciate, this is a risk I'm willing to take to make my life during residency a little easier. Even if I ended up in the small minority that actually lose money by buying a house, I will be making 300K in 5 years, and that loss won't have a giant impact on my life, while paying an extra $100/month right now would.

I just got back the numbers on a $150K house:
30 yr fixed
Interest rate of 6.875%
Principle and Interest Payment $985.39
Homeowners Insurance estimate $100.00
Property Taxe estimate $200.00
Total payment $1285.39

Interest only option has to be divided into two loans 80/20 for 5/1 ARM
80% first mortgage @ 6.625% for $662.50 per month
20% second mort @ 7.125% for 178.13 per month
Insurance and taxes $300
Total payment of $1140.63

Thus by doing I/O the total savings = $145 (however, this would really only save me $47/month over B of A, which I'm not sure is worth the risk)

Hopefully this helps some of you.

If anyone who has worked w/ Mike Smela could post their opinions that would be great.