Physician Mortgage Question

[traderm]

Hi all,

I am finishing internship and beginning my residency in dermatology in July. The clinic where I will spend most of my time is of course in one of the most expensive/swanky areas of town. The average time for a home to be on the market in this area is 3 days. I found a condo for $200,000 that is a 2 minute walk from the clinic. Similar apartments/rentals are going for around $1,500 a month. I ran the numbers on the NYT rent vs buy and I would have to find a rental for less than $1,150 which is not going to happen.

I applied for a physicians mortgage at SunTrust which required 5% down since I am purchasing a condo. My first question is whether most physician mortgages require 5% down if purchasing a condo. Second, the origination fee is $1,900 which I think is reasonable and a $600 application fee which I'm not really sure about. The total closing costs will be around $4,000 (origination, taxes, escrow, insurance). Does this seem reasonable to others who have gotten physician loans? Finally, the property is completely livable but will need 15-20k of work to make it very appealing for a resale...we would like to do this on the front end to make it nicer for the time we are going to be residing in the condo. I have the money to do it out of pocket but would prefer to increase the amount of the loan; is this doable with a physician mortgage? I just want to make sure that I don't need to shop around any more because this all had to happen very quickly given how quickly I had to move in order to get the property.

Thanks!

[Zaphod]

traderm wrote:

Hi all,

I am finishing internship and beginning my residency in dermatology in July. The clinic where I will spend most of my time is of course in one of the most expensive/swanky areas of town. The average time for a home to be on the market in this area is 3 days. I found a condo for $200,000 that is a 2 minute walk from the clinic. Similar apartments/rentals are going for around $1,500 a month. I ran the numbers on the NYT rent vs buy and I would have to find a rental for less than $1,150 which is not going to happen.

I applied for a physicians mortgage at SunTrust which required 5% down since I am purchasing a condo. My first question is whether most physician mortgages require 5% down if purchasing a condo. Second, the origination fee is $1,900 which I think is reasonable and a $600 application fee which I’m not really sure about. The total closing costs will be around $4,000 (origination, taxes, escrow, insurance). Does this seem reasonable to others who have gotten physician loans? Finally, the property is completely livable but will need 15-20k of work to make it very appealing for a resale…we would like to do this on the front end to make it nicer for the time we are going to be residing in the condo. I have the money to do it out of pocket but would prefer to increase the amount of the loan; is this doable with a physician mortgage? I just want to make sure that I don’t need to shop around any more because this all had to happen very quickly given how quickly I had to move in order to get the property.

Thanks!

Click to expand...

Their calculator seems off. A 400 dollar difference shouldnt go that close it really should be the other way around. Maintenance, hoa, etc..etc...emergencies and transaction costs that dont occur with rentals. You could probably rent at 15-2000/month and still come out ahead. I wouldnt buy for a residency as short as derm unless there are extenuating circumstances. Like you will for sure live in the are forever, or view it as an excellent rental opportunity to add to your collection going forward.

[traderm]

Thanks for the quick reply. The rental market in this area is outstanding. Similar condo rentals (without the upgrades I am planning) are minimum $1,250 all the way up to $1,500. This is the reason I purchased the condo. Furthermore, I've seen upgraded condos (not to the extent that I am planning) in the same complex going for $235,000. Even if the housing market crashes, there is little doubt that I would be able to rent this based on the occupancy rates from 2008-2010 in this area. The monthly payments, including the HOA fees (which include sewer, water, and trash), I will still be getting out cheaper than the least expensive rental. From my calculations, I would basically have to lose $35,000 on the sale to make it not worthwhile...and this just doesn't happen in this area, even during the 2008 crash. I will actually probably just hang on to it after I finish (there is also a chance I may end up working where I do my residency, in which case we would probably just stay in the condo) and keep it rented until I get an outstanding offer.

My main concern is whether the terms of the loan from SunTrust. I have a fairly extensive portfolio of rentals in another city with a tougher market so I am confident in the purchase. I forgot to add that the rate is 3.675% for a 30 year fixed.

[Zaphod]

If you have experience doing this sort of thing then go for it, build your assets as long as you know what you're getting into its fine. With down payment and transaction costs, you'll already be bumping into that 235k, and as Im sure you know, if the area/market is good, you're probably better off not over upgrading as it doesnt always translate into premium rents or ROI.

3.675 is pretty good after tax.

Since you're in derm you'll have the time so thats not as big of a concern as other residencies.