Mortgage Questions

[ENT Doc]

We're two years away from (possibly) buying a home.  In the event we do I need to strategize now for this possibility.  Only debt we have is a mortgage on a rental property that is paid off by our renters monthly.  Plan is to sell this next year so that we will have down payment money available for the (possible) home purchase, and also because it's a condo in a high property tax area where neither the condo board HOA assessments or local property taxes know no ceiling.  I have great credit.  Haven't checked my wife's but it's probably average (credit cards and mortgage not in her name).  Never used a Doc loan, will be 8 years out of residency in 2 years, and will be expecting a good pay bump.  Want a 15 or 20 year loan.  Not interested in paying PMI or fees associated with 0 down VA loans.  So a few questions:

1. Will Doc loans be available to us?

2. If the Doc loan is not available or if the traditional loan is optimal, my understanding is that they will look at past income, and will also look at both our credit scores, both of which will limit the loan amount or possibly raise the interest rate.  I am not sure if the proceeds from the condo sale will cover 20% down.  Given these facts would you save additional cash now (and how much), bank on the Doc loan as a backup, or do something else?  I haven't ruled out renting for a year.

3. Best strategies for improving my wife's credit for #2, other than the obvious (credit card in her name)?  Get her name on the mortgage as well?  Also, how long does it take to have one's credit improve after, say, getting a credit card in their name and paying it off monthly?

Thanks!

[StarTrekDoc]

Thanks for serving.  Congrats on thinking on the move up and no debt at 8 years!  Sounds like HCOL perhaps, but not quite sure.

1.  Yes.  at least with BOA.  We were 15 years out and still qualified under doc loans, which allows for better income/debt ratios.

2.  Married and filed together, you can single mortgage (probably quit claim needed from wife).  Check her score on karma.  Her's lower because of your mortgage and cards on your name --funny how credit works.

3.  Depends on timeline. 1 year is borderline.  2 years - yes. do the credit card (low limits 1-2k);

A. https://www.annualcreditreport.com/index.action  --free annual checks from all three -  do this annually for you and her.

B.  creditkarma.com  -- check hers regularly - monthly to get small bump -- the report will tell you where the lows are.

C.  If low credit -- Cards -- Apply multiple cards on the same day --hence a single hard pull count - hit multiple companies.  If you do spend a lot, good time to get points/travel/fun.....but primary for you is card history -- so adjust credit limits down to 1-2K once received.  Buy monthly groceries, let it post, then pay off (setup auto payments to avoid late fees since hitting multiple cards).   Single inquiry is balanced by all the credit history.

D.  Rentals -- you have one rental that's balancing out.   As taxes/HOA fees rise, so should rent.  It sounds like this is a wash, so up to you if you want to keep or use a down on the future.  Really a numbers issue on down -- you'll have to show it cash flow neutral to the underwriters.

You are renting yourself too now?   Staying in the same city, just getting ready to buy the home now?  I would seriously consider 30year (despite what others say.  It's cheap loan and good tax shelter that compounds against inflation).

Don't buy too big -- you're at that point with no debt and can 'afford' it.  Banks know that.  Make sure your IPS is in order and retirement/education funds are accounted, and then budget the mortgage debt size that fits.   Banks will do the max calculation, but often runs a lot higher than your savings calculations---so be careful.

 

[ENT Doc]

StarTrekDoc wrote:

Thanks for serving.  Congrats on thinking on the move up and no debt at 8 years!  Sounds like HCOL perhaps, but not quite sure.

1.  Yes.  at least with BOA.  We were 15 years out and still qualified under doc loans, which allows for better income/debt ratios.

2.  Married and filed together, you can single mortgage (probably quit claim needed from wife).  Check her score on karma.  Her’s lower because of your mortgage and cards on your name –funny how credit works.

3.  Depends on timeline. 1 year is borderline.  2 years – yes. do the credit card (low limits 1-2k);

A. https://www.annualcreditreport.com/index.action  –free annual checks from all three –  do this annually for you and her.

B.  creditkarma.com  — check hers regularly – monthly to get small bump — the report will tell you where the lows are.

C.  If low credit — Cards — Apply multiple cards on the same day –hence a single hard pull count – hit multiple companies.  If you do spend a lot, good time to get points/travel/fun…..but primary for you is card history — so adjust credit limits down to 1-2K once received.  Buy monthly groceries, let it post, then pay off (setup auto payments to avoid late fees since hitting multiple cards).   Single inquiry is balanced by all the credit history.

D.  Rentals — you have one rental that’s balancing out.   As taxes/HOA fees rise, so should rent.  It sounds like this is a wash, so up to you if you want to keep or use a down on the future.  Really a numbers issue on down — you’ll have to show it cash flow neutral to the underwriters.

You are renting yourself too now?   Staying in the same city, just getting ready to buy the home now?  I would seriously consider 30year (despite what others say.  It’s cheap loan and good tax shelter that compounds against inflation).

Don’t buy too big — you’re at that point with no debt and can ‘afford’ it.  Banks know that.  Make sure your IPS is in order and retirement/education funds are accounted, and then budget the mortgage debt size that fits.   Banks will do the max calculation, but often runs a lot higher than your savings calculations—so be careful.

 

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Thank you for the information!  Some more info and a few questions.  We actually had no debt shortly out of residency.  Probably would have been more immediate had I not let myself get duped by a universal life policy.   :x   6 years out now, looking to buy in 2, renting now given all the moving we do.  I shun the HCOL lifestyle; however, the ONLY thing that changes this in my mind is buying in a nicer area for the schools.  Depending on where we move I see the homes costing anywhere from 400's-800's.  Proceeds on the rental (which there is no way I'm keeping anyway because the area has been built up so much with oversupply I can't keep the rent up with the HOA/taxes) are probably going to be $80-90k after taxes and fees.  Can do locums work and can also accumulate cash fairly well because we're savers, so making up for any difference to attain the 20% down threshold (should that be necessary) can be done but will involve planning now.  I should have stated the 15-20 year thing differently.  I would like to pay the loan off in 15-20 years, so if the 30 year offers the capacity to do this (which it should) and the additional cash flows earlier are advantageous I won't rule this out.  Some questions:

1. So even though multiple banks would pull her credit on the same day independent of one another that wouldn't affect her credit?  Does pulling credit from one make it available for all on that given day?  Not sure how the credit pull works.  Or are you saying get multiple credit cards with one bank?

2. Why have low limits in this strategy?  I thought high limits with paying them off immediately "looks" good.

3.  Can you elaborate on your 2nd to last sentence?  Not sure what the IPS is or what it means to have the retirement/education funds accounted.

Thanks!

[StarTrekDoc]

If you're still in, you may want to consider staying the full 20 and get full bennies.  Something to consider to weigh the balances.  My prior roommate got out and then moved again shortly after he thought they'd settle quickly.  So, you have to think like the advise given for new grads -- first private practice position may not be the right place and may not want to immediately buy a house in a new area with new practice.  A home + mortgage is quite a heavy anchor that's more so than kids sometimes.

1. Pulls count once every 72 hours.  You can have 1000 pulls in that time and still counts as one.  This is done because say mortgage co/underwriters/banks/creditors all pull a lot at a funding, and would otherwise be a huge hit on a truly single credit request.   You're just leveraging a loophole in the credit system.    Same thing about multiple cards on the same day -- you can pull multiple credit cards from a single bank and they will count as one if same day. (use different browser or incognito mode since bank uses cookies to track!).

2.  Low limits because that will count against your debt load calculation on the mortgage.  ANY credit limit is counted as a liability -- whether you use it or not.  So a HELOC of 250,000 with 0 balance still counts as a 250,000 potential liability in the eyes of an underwriter.

3.  IPS - WCI talk -  Investing Personal Statement -  https://www.whitecoatinvestor.com/how-to-write-an-investing-personal-statement/  --  You want to make sure you have appropriate funds going to appropriate areas.   That will determine the size of house/mortgage to get into --- not the other way around -- get into a house, and then fund the retirement and education funds.

[TheGipper]

Only thing I would add is NOT to be seduced away from a mortgage longer than 15 years, even if it means buying a little less house.  When you look at the amortization schedule of a 30 year mortgage it will make you vomit.

[Golfing Doc]

I have had a conventional mortgage (FHA actually) and will shortly have a doctor loan. In general, doctor's loans have slightly higher interest rates, although I have heard others state they have had equivalent rates and others still significantly higher rates. All depends on the price of the property, credit, location, etc. However I don't think doctor's loans are available in all states though. There is a list of lenders on wci (https://www.whitecoatinvestor.com/personal-finance/the-doctor-mortgage-loan/). I would email the lenders available in your state and ask for what rates they are offering for conventional and doctor's loans for your expected purchase price range and see if the rates are all that different. Doctor's loans do also have the advantage that they do not have PMI which is a huge bonus.

[jfoxcpacfp]

StarTrekDoc - were you in finance in a former life (I'm being serious)?

[StarTrekDoc]

Slept in holiday inn last night .

I was very close to going business route, but God chose a different path for me.

Always had an efficiency and stretch the dollar tilt on my choices and helped by having business minded family that ranges from bed mattress stuffers to wildcatting VC options folk.... interesting dinner table talk!

[Zaphod]

TheGipper wrote:

Only thing I would add is NOT to be seduced away from a mortgage longer than 15 years, even if it means buying a little less house.  When you look at the amortization schedule of a 30 year mortgage it will make you vomit.

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Until you factor in inflation, time value of money, etc...

[Rotish]

Aren't doctor mortgages pretty crappy deals? In a HCOL area, you could be paying hundreds of thousands more over the lifetime of the mortgage

[jfoxcpacfp]

Rotish wrote:

Aren’t doctor mortgages pretty crappy deals? In a HCOL area, you could be paying hundreds of thousands more over the lifetime of the mortgage

Click to expand...

Not necessarily, depends on facts and circumstances. A "pretty crappy deal" is rather subjective, but I imagine if it really were a pretty crappy deal, the mortgagee would refi out of it w/i a few years before paying "hundreds of thousands more". A doctor loan can work out just fine in the right situation, but I agree that it's not always the best choice.

[pulmdoc]

If you qualify, you should definitely inquire re:VA loans. They are subsidized so frequently better terms than bank loans. 0 harm in comparing them. Consider it a benefit of service.

Doc loans are useful if you have large student loans, but the terms may not be as good as a conventional loan if you have good credit and a reasonable income for the size loan you are considering.

Your wife's credit score is more important if her income/credit is needed to qualify for the loan you desire.

If you are changing jobs at the time of your desired house purchase, I strongly recommend waiting until you have a better sense that the job suits you before taking the plunge on a house.

[Hank]

If you are looking at a VA loan, be aware of the VA loan limit for your county.  San Diego, for instance, is $612,950.

What I didn't realize before we bought our most recent loan was that you can get a VA loan above that amount.  Typically you would have to pay a 20% down payment for the amount above your county's loan limit.  For instance, an $800K house in San Diego would require a $37,410 down payment.  ($800,000 - $612,950 = $187,050.  20% of $187,050 would be $37,410.)  Not too shabby to have a 4.68% down payment instead of a 20% down payment.

Sometimes doctor loans cost more than market rate loans, sometimes they cost the same.  My wife and I bought a house in Northern Virginia on a 0% doctor loan with rates that were identical to the best conventional conforming loans at the time.

[Zaphod]

I have one mortgage the guy called "doctor" which was at excellent rates for the time, and I have one conventional loan that is also at rock bottom for the time I got it. Just kind of where you're getting it and whats available to them at the time, I dont think there is a good hard rule. I just looked at all offers and took the best terms.

For your wifes credit it is like @startrekdoc mentions, very dependent on the reason why. Look up the weighted categories of whats used in the scoring system so you can see where the personal low hanging fruit is.

If its lack of history the fastest way to get it up is open up new cards and get some of your cards to add her as a user, and your histories will be merged. For people with terrible credit some even pay to do this, called 'piggybacking'. I got my score up over 100 points in 3-4 months. Outside of some serious marks on your report its simply a game. Once you know the rules its rather easy.

 

[StarTrekDoc]

Don't forget USAA too.  They are quite competitive in almost all loan and insurance cases.  @Hank - didn't know that VA could go above conforming limits.  Good to know for some of my friends.