First time home buyer: with how many Lenders should I get Preapproval?

[Benjamin]

I am finishing my PGY6 yr of training, and will be starting my practice back in Florida, actually back with the hospital where my training was based.

As I know the physicians in the practice and the city well, I feel comfortable with moving forward to buy a very reasonable home no more than 1.2x my salary and from 18 to 11% of my monthly income depending on the terms (15 vs 30 yr).  The interest deduction and good asset protection laws in Florida are appealing reasons to move forward with the purchase, especially with how comfortable I feel with the job.  The current rates are pretty good as well.

I am considering a doctors loan to purchase the home, which would otherwise be considered a jumbo loan. This would be my first home purchase.  I have seen many posts on the blog and information on other websites, and in books that discuss the importance of prequalification and preapproval.  I have contacted many different lenders about their typical terms and downpayment requirements, but have only been prequalified by one lender, Bank of Nashville. The process was very straightforward and they have been very professional. How many more prequalification or preapprovals should I get? Should I try to get multiple preapprovals even if credit checks are required?

Thank you for any help you can offer.

[The White Coat Investor]

1 preapproval is plenty to go shopping with. I think it's worth getting two lenders when it comes time to actually get the loan. You can play them off each other a bit in order to make sure you're getting a fair price.

[rolerogers]

Benjamin,

I'm in a somewhat similar situation and went with CityWide. My rate is good at just less than 4% and we close next week. The only other lender in my area was BofA, whose terms weren't as good for my situation.

I bought a little higher as a proportion of my income, around 3x annual salary. This was primarily because I'm in a 'pre-partnership' track and will likely 'make' partnership next year. At that time my income will double, making the purchase very affordable.

I hope this helps.

[Marko-ER]

@Rolerogers:

I am also going with CityWide and not many options in my area.  I considered Navy Federal Credit union, but that turned out to be a no go.  Anyway, I am curious for my own comparison shopping purposes:  with the APR a tad less than 4%, is that for a 30 year or a 15 year term or some type of ARM?  How much are you putting down on the mortgage (just ballpart:  nothing, less than 5%, 5-20%, over 20%)?  I presume conventional MD loan no PMI, right?  Are you paying any points?

It's hard to judge these drs. loans, and what constitutes good rates.  Obviously the rates are going to be higher than with a conventional, 20% loan but how much higher is still reasonable?  It's not like bankrate.com can help...

@WCI:  unfortunately the NHF program you previously detailed that granted up to 10K to low-income individuals like residents has been suspended indefintely as of Feb 2016.  Also, the very favorable USDA loan rates were changed in Oct 2015, so that is no longer a palatable option for individuals putting very little downpayment.  At this point, it seems the only options are US Navy Federal Credit Union 0% down or in some specific markets doctors loans:  otherwise it is a strong "no go", collect your 20% downpayment and just rent for the vast, vast majority of residents/fellows or even freshly minted attendings like me.

[EH]

Depends how crazy your market is. Normally one should be just fine. Where I am a 20 day close is standard so you have to be pre-approved and ready to go when you put your bid in - so be happy with who you choose (this is what I did) or get more than one if you want to have options.

[Benjamin]

To Marko-ER,

 

The interest rates are, um, interesting.  We are applying for the physician's loan with 0% down because we want to use what would be the "downpayment" savings to pay off my wife's dental school loans.    We have preapproval through Bank of Nashville, and they have been giving us numbers (not final by any means) of 3.5% for 15 year fixed and 3.625% for 30 year fixed.  I think that those rates seem pretty good.  It all depends on the state you are in I suppose.  Florida has tons of options. Good luck!!

[Gas_Doc]

Benjamin wrote:

The interest rates are, um, interesting.  We are applying for the physician’s loan with 0% down because we want to use what would be the “downpayment” savings to pay off my wife’s dental school loans.    We have preapproval through Bank of Nashville, and they have been giving us numbers (not final by any means) of 3.5% for 15 year fixed and 3.625% for 30 year fixed.  I think that those rates seem pretty good.  It all depends on the state you are in I suppose.  Florida has tons of options. Good luck!!

Click to expand...

3.625% for a 30-year fixed with 0% down seems like a very good deal. I closed on a house a week ago in the Midwest and got 3.25% on a jumbo with Wells Fargo, but we put down the traditional 20% and were already banking with them (which gave us an additional drop in rate). If your wife has student loans at the usual 6-7%, it makes sense to pay those down if you can get a rate like 3.625% on a 30-year fixed 'doctor loan.' Read the fine print though, making sure there isn't a pre-payment penalty or any other prohibitive terms.

(Also, bigger banks will frequently give you better rates on traditional loans, but dealing with them can be a huge pain in the a$$. I wanted to strangle some people at WF by the time we closed...)

[stace]

Also in the midst of buying a home and CityWide is quoting me 4.87% with 5% down. A lot of colleages are in the high 3s with their physician loans. Seems like a high interest rate.

[jhwkr542]

This was my experience as well. Interest rates too high for a doctor's loan to make it worthwhile

[Benjamin]

I think it depends a lot on what lenders you have available in your state.  In FL, we have a lot of lender options.  We were able to lock in 3.875 percent for the jumbo-sized physician loan.  I would definitely shop around though. There is a lot of variation in terms of max loan size and also the rate.  Make sure there is no prepayment penalty and no balloon.  Also, no matter what, I would keep a close eye on the rates and lock them when you feel comfortable. I waited a little too long and missed the 3.6's, but fortunately I was able to get under 4%. No matter what, even in the 4 to 5% range, they are still good rates historically.

[stace]

Can you explain what repayment penalty and balloon is? Also, once you are under contract with a house, I feel like there is limited time and almost have to lock in whatever rate you can get so as to not lose the house?

[Marko-ER]

To Stace:

 

If you can afford the monthly payment (& you should, if you follow advice on this site), drop down from a 30-year to a 15-year loan with countrywide.  I was also getting a 30year fixed in the 4.5-4.75% APR range from them, but at around 3.7% APR for a 15 year fixed.  Then when mortgage rates dropped (such as right now, after that bad jobs report, & expectation that FED will not raise rates in the very near future), I nagged them repeatedly until the dropped the rates again by 0.75% to 3.625%.  Nag may be a strong word, but ask & ask firmly.  Depending on your credit score, other debts & how long you intend to stay in the area, it may also make sense to look at ARMs.  A 7 year ARM should offer rates similar to 15 year fixed, a 5-year or a 3-year ARM should be lower.  If you are on an attending salary and want to pay off your mortgage on an accelerated schedule, ARMs make a ton of sense; alternatively, if you are a resident for 5-7 years (IM + fellowship, most surgical subspecialties), and you want to stay at a place for 5-7 years but you are ABSOLUTELY sure you want to leave the area after you are done with training, then ARMs also make a ton of sense.