Non-Qualified Loan

What Home Loans for Teachers With Bad Credit are Available?

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Teachers with bad credit still have many home loan options. While a high credit score speaks volumes, it’s not the only way to get a home loan. Teachers are eligible for the same loan programsborrowers in any other profession can get. In addition, though teachers may be eligible for some ‘special programs’ that make homeownership more affordable.

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FHA Loans are a Good Fit

Oftentimes teachers with bad credit turn to FHA loans. As long as you have at least a 580 credit score and 3.5% to put down on a home, you may qualify. Teachers can get a home with little money down and as much as a 41% total debt ratio.

FHA loans do charge mortgage insurance for the life of the loan, so keep that in mind. You do have the option to refinance at any point, though. Once you improve your credit score, and owe less than 80% of the home’s value, you can refinance into a conventional loan and ditch the insurance.

If you are a teacher with a credit score between 500 and 579, you may still qualify for an FHA loan. However, you’ll need at least a 10% down payment. You’ll also go through what’s called manual underwriting. Rather than a computer underwriting your loan, a person will do it. That person will go through your file with a fine-toothed comb, so to speak.

With a 500 – 579 credit score, you may need compensating factors. These qualifying factors help make up for the risky credit score. A few examples include:

  • Low debt ratio – If you only have a few debts, you leave more money available to make your mortgage payment. This lowers your risk of default, which lenders like to see, especially with a low credit score.
  • High down payment – Even though FHA loans only require a 3.5% down payment, you can make a larger down payment. Investing your own money shows your desire to be a homeowner and make your payments on time. If you don’t, you risk foreclosure and losing your entire investment.
  • Stable employment – Lenders like reliability and consistency. If you change jobs often, they won’t have that feeling of consistency. If you stay at the same job for many years, though, you show lenders that you are reliable, which lowers your risk of default.

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USDA Loans are Good for Rural Areas

The USDA loan is another government-backed program. You must live in a rural area in order to use this program, though. Your total household income also must not exceed 115% of the average income for the area. You can see if you are eligible here.

The USDA does have slightly higher credit score requirements, though. You need a 640 credit score. But, you don’t need a down payment. You can borrow up to 100% of the home’s value. While the credit score requirements are higher, they aren’t as high as conventional lenders require and you could save money without a down payment requirement.

USDA loans are for modest homes. They do charge mortgage insurance, but it’s only 0.35% of the loan amount each year. On a $150,000 loan, you would pay $43 per month in insurance.

Subprime Loans

Finally, you may want to explore your subprime options. These loans come from smaller lenders in your area that keep the loans on their own books. Subprime lenders create their own guidelines and rules. They can accept low credit scores, high debt ratios, and low down payments. Each lender has their own programs, so shop around to find the one that suits you.

Read the fine print when looking at subprime loans. Make sure you know the interest rate, term, closing costs, and any other terms of the loan. Is the rate fixed or is it adjustable? Will you pay points to get the loan? Is there a prepayment penalty?

The Teacher Next Door Program

HUD also offers the Teacher Next Door Program. It’s an extension of the FHA loan, but it comes with great rewards. Teachers and other service-oriented individuals, such as police officers and firefighters are eligible for this program.

HUD designates specific properties in the area that qualify for the program. They are foreclosed homes in an area that could use a positive influence to boost the economy. If you win the ‘lottery’ to buy the home, you only need $100 down on it. You must have FHA financing and agree to live in the home for at least 3 years. If you do, HUD writes off half of the cost of the home after three years.

This means after three years you could sell the home for its value and make a 50% profit or more. Because you only need FHA financing to buy the home, even teachers with bad credit may qualify.

Teachers with bad credit have many options for home loans. The key is to shop around and see what options are available to you. Get offers from at least three lenders to see which lender/loan program will give you the best deal.

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Understanding ITIN Loan Programs

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Foreign nationals often want to set down roots in the United States. Most loan programs require a social security number, which you don’t have. This may make you feel like it’s impossible to get a mortgage, fortunately, there are ways around it. If you have an ITIN, and you meet the loan requirements, you may secure the financing you desire for a mortgage.

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Credit is Important

Before lenders will approve you for a mortgage, they need to see your financial habits. Do you pay your bills on time? Do you overextend your credit? Lenders need these answers.

The only way to get those answers is with a credit history. Without a social security number, though, you won’t have one. Fortunately, many creditors extend credit with just an ITIN.

We recommend starting small. Apply for a secured credit card, which is a credit card with a deposit. The credit card company reports your credit card usage and payments to the credit bureau in exchange for a deposit on your account. The credit card company will give you a credit line equal to the deposit. If you put $100 down, you get a $100 credit line.

As you use your credit and pay your bills on time, you will build up credit. You may want two of these trade lines just to build up your credit. Once you establish yourself for six months or so, apply for an unsecured credit card or personal loan. Keep your loan amount request small, but see if you can get any other type of loan that will help build your credit.

As you continue to pay your bills on time and use your credit responsibly, you’ll obtain a credit score that shows financial responsibility.

Stay Employed

Lenders also put a lot of emphasis on your employment. They want to know that you’ll be at the same job for the foreseeable future. Because you are an ITIN borrower, you already pose a risk of default. Lenders like to see at least a 2-year stable employment history when you don’t have a social security number.

In addition to your work history, you must prove your work ‘future.’ Because you are a foreign national, lenders care about your plans. Will you be here next year? Will you be here in three years? Most lenders require an employment contract that goes through at least the next three years. If you don’t have a contract good for at least three years, it could make it harder to get an ITIN mortgage.

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Make a Large Down Payment

Unfortunately, as an ITIN borrower, you’ll need a larger down payment than borrowers with a social security number. As a general rule, plan on at least a 20% down payment. In some cases, you may need more. Lenders determine the required down payment on the riskiness of your loan.

For example, if you have a low credit score, you will need a larger down payment than someone with a higher credit score. You’ll also need a larger down payment if you have a lot of outstanding debt compared to your gross monthly income.

The down payment helps offset the risk of default. The lender knows that there is at least a little equity in the home. If you stop making your payments, the lender can sell the home for a profit and keep the funds as repayment.

Before you use funds for a down payment, you have to show its origination. In other words, you need a bank account here in the United States. You also need to be able to show regular deposits. It’s best to have your income deposited directly into your account. It’s easy for lenders to source (your paystubs) and it’s consistent. Lenders want the money in the account for at least two months before they will count it for your down payment. This way they know the money didn’t come from another loan as it would show up on your credit report.

Save Monthly Reserves

In addition to your down payment, you need money in a reserve account. Most lenders require six months’ worth of mortgage payments in your savings account or any other liquid account. If your mortgage payment were $1,200, you would need at least $7,200 in a bank account. If you run into financial trouble, the reserves are there to bail you out. Lenders rely on the reserves, so the more money you have on hand, the higher your chances of securing approval.

Have Compensating Factors

Lenders look for any compensating factors that make up for the risk that being an ITIN borrower pose. The compensating factors could be any of the following:

  • High credit score
  • Low debt ratio
  • More than six months of reserves on hand
  • Long work contract

Try to offset the riskiness of being an ITIN borrower by providing as many positive factors as you can. The more reasons a lender has to trust that you won’t default on your loan, the more likely you are to get the mortgage approval.

ITIN loan programs often foreign nationals a way to buy a home in the United States. With good credit, a decent debt ratio, and enough money saved, you should be able to get the loan you need to buy a home.

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How to Get a Mortgage After Chapter 7 Discharge

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You’ve likely heard that a bankruptcy sits on your credit report for up to seven years. While that’s true, it doesn’t affect your ability to get a mortgage that entire time. In many cases, you can get a mortgage in as few as two years after a Chapter 7 discharge.

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Just how do you do it? Keep reading to learn the steps you should take.

Build Your Credit Again

First, you need to build your credit up again. A Chapter 7 bankruptcy wipes the slate clean. While that is great for your finances, it’s not great for when you apply for another loan. You need a credit history – a positive credit history.

Right after the Chapter 7 discharge, start building your credit. It sounds odd, why would you take on new debts after getting out of debt, but it’s important. Don’t jump in headfirst and drown in debt again. Instead, take it slow.

Start with a secured credit card. You may only get a credit line of a couple hundred dollars, that’s okay. Take it and use it. Don’t keep a balance, though. Pay the credit card every month. Charge expenses you normally pay anyway. Show lenders that you are financially responsible even after filing bankruptcy.

Once you have a secured credit card, apply for an unsecured credit card or personal loan. Get as much good credit going as you can. You want a decent mix of installment debt and revolving debt with good payment histories. This will show lenders that you can manage your finances again.

Get a Good Rental History

Lenders need to see that you can handle a housing payment even after the BK. If you rent, make sure you make your payments on time. Also, have proof of the payments. If you rent from family or friends, keep canceled checks. If you rent from a rental company, have them complete a Verification of Rent form for you. If it shows that you made on-time payments, it will help lenders make a solid decision on your mortgage.

Fix the Problem

While you build up your credit, think about why you filed for bankruptcy. Did you lose your job, fall ill, or just get carried away with your spending? Lenders are going to ask what happened. They aren’t nosy. They want to know what led to the downfall to see if it’s something that could happen again.

If you want to show lenders that you are responsible, show that you’ve overcome the problem that caused the bankruptcy. If you lost your job, the obvious solution is to have another job. Show lenders that you’ve been at the job for at least 12 – 24 months and that you can succeed at it. If you fell ill and got behind, show lenders that you were able to pick up the pieces and get current again.

You may need to put your reasons and solutions in writing. Have as much evidence as you can to help lenders make a solid decision. They want to know that you’ve fully overcome the issue that caused the bankruptcy.

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Apply for a Government-Backed Loan

Your best bet, especially if it’s only been two years since your bankruptcy discharge is to get a government-backed loan. Most borrowers take out an FHA loan. You only need a 3.5% down payment, a 580 credit score and only have to wait two years after your BK discharge. The flexible underwriting guidelines make this loan a great option.

If you are a veteran of the military, you may be able to use your VA home loan benefits. If you didn’t use them before or you were able to keep your home through the BK, you may still have your VA benefit left. If you have enough of a VA benefit to cover the price of the home (up to $484,350), you won’t need a down payment on it. VA loans, like FHA loans, only require you to wait two years after your bankruptcy discharge to get a VA loan.

Shop Around

If you don’t qualify for an FHA loan, shop around with subprime lenders. Don’t let the name scare you. These lenders offer alternative loans that they keep on their own books. This gives them the flexibility of writing their own guidelines. You may find subprime lenders that have lower credit score guidelines or that will overlook your BK. They often make it easier to qualify for a mortgage after a BK.

Even if you qualify for an FHA or VA loan, shop around. Each lender sets its own guidelines and charges its own rates and fees. Because you have a BK in your recent history, lenders will probably charge more money for your loan. Shop around until you find the most affordable option to help you avoid any future financial issues.

Getting a mortgage after a Chapter 7 discharge isn’t as hard as it seems. You just need to put in the legwork and the try to fix as many credit/financial issues as possible before applying. The more positive factors you can show a lender, the more likely it is that you’ll get approved.

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What is a Single Family Home? And Why Should you Care?

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When you look for a home, you will come across many different types of properties. Knowing what is available and what you want will help narrow down your options. The most popular type of real estate is the single family home. What is it and how does it affect your ownership?

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Keep reading to find out more.

The Definition

A single family home is a home on its own lot or parcel of land, it does not share land with other properties. SFHs do not share walls or roofing with other homes. It is its own detached property. Single family homes also have private street access (no lobby or shared parking lot) and its own utilities.

Other characteristics of single family homes include:

  • Attached or detached garages
  • Small or large yards depending on the size of the lot
  • Single kitchen

The Reasons to Consider a Single Family Home

Single family homes have many benefits, most of which is privacy. Since you don’t share walls or property with others, you have more privacy than you would in an attached home. Typically, you have neighbors, sometimes rather close neighbors and sometimes neighbors with quite a distance, but they either way, the neighbors are much further away than those in an apartment, condominium, or duplex.

Other benefits of single family homes include:

  • Freedom to do what you want with the home
  • More room to store items rather than feeling crammed
  • The ability to work outdoors, which can be good if you love gardening and yard work

It is often easier to get mortgage financing on a single family property than it is any other type of property, including condominiums. Mortgage lenders prefer single family properties for the lower risk of default. When you share the property with other owners, such as is the case with a condominium, the lender is dependent on all owners making their payments in order to avoid foreclosure. If even a few owners lose their unit to foreclosure, it can bring the values of all units down, putting all lenders at risk of default.

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Reasons to Consider Something Other Than a Single Family Home

Single family home living isn’t for everyone. It does have its downsides including:

  • There may be a homeowner’s association that limits your ‘freedom’
  • You must shoulder all maintenance and repairs as well as the costs
  • You are solely responsible for the property taxes

If you aren’t ready to take on the hard work and financial responsibility of a single family home, condominium or townhome living may be a better option for now. When you own just a unit, but not the land, the homeowner’s association manages the maintenance and repairs on the property, taking the financial and physical burden off you.

A single family home is a great option when you are ready to take on the work and financial responsibility of it. You will likely get a mortgage much easier and have more freedom in what you can do with the property. If you aren’t ready, thought, there are several other options available to you.

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What are the Pros and Cons of a Mortgage Recast?

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Most people know about the mortgage refinance options they have, but are you aware of the possibility of a mortgage recast?

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A mortgage recast re-amortizes your existing principal balance, potentially lowering the amount of interest you pay for the loan. Unlike the mortgage refinance, you keep the same loan and terms, the only difference is the principal balance.

In order to use a mortgage recast, you must significantly pay down your principal balance. You can do this with one lump sum payment or through the years with extra principal payments. The lender takes the new principal balance and ‘recasts’ it over the remaining term with the same interest rate you had.

Keep reading to learn the pros and cons of this process.

The Pros of a Mortgage Recast

You Won’t Pay Closing Costs

Recasting your mortgage doesn’t require the lender to underwrite your loan. The lender doesn’t even have to do any major work on it. Instead, the lender takes the current principal balance and recasts it over the remaining term. You use the same lender that you have currently. It’s worth asking if the lender charges fees for this service, but they won’t be anywhere near as high as the closing fees on a refinance.

You Won’t Have to Qualify

If you refinance your mortgage, you must go through the qualification process all over again. This includes checking your credit, debts, income, assets, and loan-to-value ratio. You may or may not qualify to refinance your loan.

If you recast your mortgage, you don’t have to go through any of this. You keep the loan with the same lender that qualified you for it in the first place. Recasting your mortgage gives you a lower mortgage payment, so there’s not much risk for the lender when recasting your mortgage. In fact, the lender comes out ahead if you paid a big chunk of the principal balance off already.

You Pay Less Interest

The largest benefit of the mortgage recast is the lower amount of interest you’ll pay. Recasting your mortgage lowers the principal balance that the lender figures the interest payments on. With the lower balance, you pay less interest each month as well as over the life of the loan. It’s different from just paying down your principal balance ahead of schedule. With a mortgage recast, the lender actually reduces your payments, minimizing how much interest you pay over the life of the loan.

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The Cons of Mortgage Recast

You Keep the Same Term

Recasting your mortgage doesn’t lower the loan’s term. It uses up the term you have left. In other words, you won’t pay your mortgage off any faster. If you pay the minimum required payments, you will still pay the mortgage over the entire initial term. Of course, you have the option to make extra payments and pay the loan off early, but your amortized payments will pay your loan off in the original term.

You Need a Large Sum of Money

In order to qualify for a mortgage recast, you must be able to significantly pay down the mortgage balance. Each lender has different requirements regarding how much you must pay down. Some lenders require a lump sum payment, such as $10,000 or $20,000 while others allow incremental payments throughout the years towards the loan’s principal.

You Give up Your Liquidity

Once you pay the large sum of money upfront to pay the balance down, you lose the money’s liquidity. Once tied up in your home, you can’t get access to the funds unless you refinance the home with a cash-out refinance. While a cash-out refinance may be available, it will cost you money and could extend your loans’ term, depending on what you can afford.

A mortgage recast can offer many benefits if you are trying to limit the amount of interest you pay. Before you recast your mortgage, though, look at all of your options. Do you have an emergency fund that can cover expenses should your income stop? If not, putting your money into your home to get a mortgage recast may not be the best option. On the other hand, if you are financially secure and just want to limit how much your mortgage costs in the end, talk to your lender about the possibility of a mortgage recast.

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The Best Mortgage for Self-Employed Borrowers

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Today’s economy requires many people to turn to self-employment to make a living. The unfortunate part of this, however, is that it becomes harder to obtain a mortgage when your income fluctuates so much. Self-employed borrowers typically have fluctuating income that makes it hard to pinpoint just how much they make. In addition, many self-employed borrowers write off a large number of expenses on their income taxes, making it look like they do not make nearly as much money as they really make. Because mortgage lenders are required to use the amount of money you make as reported on your tax returns, it becomes very difficult to qualify for a mortgage.

Applying for a Conventional Loan

If you have good credit and think your debt ratio is close enough to qualify for a conventional loan, you can apply for this type of loan. In order to qualify, however, you will have to provide full documentation which includes:

  • Last two years’ tax returns with all schedules
  • Business license
  • Bank statements
  • Current Profit & Loss statement

If the tax returns do not report income high enough to get your debt ratio down, you can do one of two things: apply for a different type of loan or wait a year or two and file your taxes with fewer write-offs in the future. Typically, potential borrowers choose to apply for a different type of loan.

A Great Alternative

Since most self-employed borrowers will not qualify for a conventional loan, there is a great alternative that makes it easy to qualify for a loan. This alternative is the Bank Statement Loan. This loan is as close to a subprime loan as a borrower can get today. As the name suggests, the lender uses your bank statements to verify your income rather than any paystubs or tax returns. The benefit to this method is that the lender can see the gross amount of money you put into your bank account every week or month, depending on how you get paid. In this case, your expenses are not taken into consideration as of yet – your total gross income is able to be used.

How the Income Gets Verified

Because bank statements have the potential of being forged, there are certain precautions lenders need to take with this type of loan. When you use tax returns to qualify for a loan, the lender can verify the amounts you provide them with the IRS through an activated IRS Form 4506 which allows the lender access to your tax transcripts directly from the IRS. Because bank statements do not have that type of verification, the lender must verify other things, such as:

  • Your self-employment and income from your CPA – The CPA can provide a letter of verification on his letterhead to verify your employment and income status
  • The presence of a business license to show that your business is legitimate
  • A bank’s stamp and date to verify that the account statements are real

Using the Right Account

You have to choose the right account to use to verify your income when you use a bank statement loan. You are unable to use both a business and personal account – you have to choose one or the other. If you do need to use both in order to qualify for the loan, it will be necessary to determine the difference between the two as the lender needs to make sure you are not “double dipping” or using business income in your business account and then again in your personal account.

How to Handle Cash Deposits When Applying for a Mortgage

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When you apply for a mortgage, your lender will look at your bank statements very carefully. They aren’t looking at where you spend your money, though, instead, they look at your deposits. They need a paper trail of every deposit so that they know its origination. If you have cash deposits, it could pose a problem with your mortgage application.

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Keep reading to learn how to get around this issue.

You Need Proof of the Funds’ Origination

If you have cash to deposit in your checking or savings account, you can do it, but you need proof of its origination. Let’s say for example that you have $1,000 in cash that you received from selling some antiques your grandmother gave you.

You could just go and deposit the money and think nothing of it. But if it is within two months of a mortgage application, the lender will question it. If you don’t have proof of where you got the funds, the lender will not be able to include the $1,000 in your available funds and they may even deny your loan.

On the other hand, if you had a Bill of Sale or receipt to show the lender that you sold the items, it could serve as your proof. The lender will compare the receipt to the deposit amount – make sure the amounts match perfectly in order for the lender to accept this form of proof.

The same method works for any type of cash accumulation, whether you sell stocks, sell a car, get a bonus from work, or get a gift from a family member. You need proof of the receipt of cash.

Gift Funds are a Little Different

If you do receive gift funds from a family member, you have a few more steps to take. The lender needs to know where the funds originated, but also that the donor does not expect you to repay the funds. In other words, the lender needs to know that you don’t have a loan somewhere down the line.

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You can prove gift funds with a few documents:

  • Gift letter – You need a gift letter from the donor stating that the funds are a gift, the amount of the gift, and the reason for it (purchasing a home). The letter should also state that the funds are a gift and there is no expectation of repayment.
  • Proof of the funds – The donor must provide his or her own bank statement showing ownership of the funds. Just like with you, the borrower, the bank statement shouldn’t show any recent large cash deposits. The lender needs to know that the funds the donor provides are his own funds.
  • Proof of transfer of the funds – The donor must write you a check, which you must keep a copy of to show the lender. You then deposit the check in your account, taking a deposit receipt as proof of the deposit, again, giving it to your lender.

Make Deposits Earlier Than 2 Months Before You Apply

One last method you can use if you need to make cash deposits in your account is to do so before you apply for the loan. Lenders typically only ask for bank statements from the last two months. If you do not have any large deposits within that time, you should be able to use the funds in there for your down payment and closing costs.

Lenders only look for recent large deposits. If you took out a loan more than two months ago, it would show up on your credit report and the lender would know about it already. It’s the loans that are new that don’t show up right away and could put the lender in a bind if they don’t catch it.

It’s wise to avoid any cash deposits when you want to apply for a mortgage in the near future, but sometimes it is just necessary. As long as you are upfront with your lender and tell them what the funds are from and you can document it, you should be in good shape. It is always wise to be honest with your lender as they can walk you through the program and take the steps necessary to get you approved.

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Watch Out for These Common Mortgage Pitfalls

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Hearing the words ‘you’re approved’ from a lender can be exciting and overwhelming at the same time. Just because you get approved for a mortgage doesn’t mean that you have to take it. All too often, borrowers make mistakes that cost them thousands of dollars and even their good credit history.

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Lear the top mortgage pitfalls many borrowers make to help you avoid these issues yourself.

Taking the Full Loan a Lender Offers

When you apply for a pre-approval from a lender, they qualify you for the maximum amount of loan you can afford on paper. Notice that we said on paper. The lender qualifies you based on your debt ratio, credit score, and income. This doesn’t mean you have to take the full loan amount, though.

Before you accept a loan amount, look at the numbers ‘in real life.’ Don’t just take a lender’s word for it. Take the mortgage payment and see how it fits into your budget. Can you comfortably afford your other monthly payments? Do you have discretionary income available still? Is the amount much higher than you anticipated? Just because a lender says you can have the higher loan amount doesn’t mean you have to take it.

The amount the lender offers is the maximum loan amount you can have. Accepting the maximum loan amount could make you ‘house poor.’ In other words, it may get difficult to make your mortgage payments, forcing you to regret your home purchase. Don’t let that happen to you.

Taking the First Offer you Receive

Again, hearing the words ‘you’re approved’ can make you jump for joy. Before you take the first loan you get approval for, though, take the time to shop around. How do you know that the terms and rates the first lender offers are the best available to you?

We recommend applying with at least three lenders. This way you can compare the loan offers. Look at the terms, first. Are they all offering a fixed rate loan or is a lender giving you an adjustable rate loan? What about the length of the term, are they all 30-year loan terms or are some lenders offering shorter terms?

Finally, look at the interest rate and closing costs. Compare them side-by-side. You may notice that the lender that offers the lower interest rate charges much higher closing costs and vice versa. You want to find the lender that offers the loan with the costs you can comfortably afford.

Looking at the big picture from all of the offers will help you choose the right loan. Choosing the first offer you get could force you to pay much more than necessary for closing costs or provide you with less than optimal terms. Take your time and find the loan that’s right for you.

Not Knowing Your Credit Score

You should be an informed borrower before applying for a mortgage. A big part of this means knowing your credit score. Lenders use your credit score as the basis for determining your approval. A low credit score can leave you with less than optimal terms and higher interest rates. A high credit score may offer you more opportunities for more affordable terms and lower rates, though.

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If you don’t know your credit score, you won’t know what to expect from lenders. Don’t assume lenders will be honest and give you the best terms available to you based on your qualifying factors. Know your credit score so that you can negotiate appropriately. If you know you have great credit, ask for the lower rate, or ask for fewer closing costs. If you know your credit needs some work but you need a mortgage now, negotiate accordingly, asking for help with closing costs or for a lower interest rate by paying a discount point.

If you know you have a low credit score and you have time to fix it, do it. Get caught up on your bills and pay your credit card balances down. Don’t apply for new credit and make sure you have a good mix of installment debt and revolving debt for the best impact on your credit score.

Not Knowing Your Cash to Close Requirements

Your down payment isn’t the only money you need to close on a home purchase. You have to pay the closing costs too and they could cost as much as 5% off your loan amount. This could add thousands of dollars to your cash to close.

Ask your lender upfront how much the closing costs will run you. By law, the lender has to provide you with a Loan Estimate within three business days of you applying for the loan, but you can also ask your loan officer about the closing costs for more clarification.

If you find that you don’t have the cash to close, as the lender about your options. Typically, they allow:

  • Receipt of gift funds from a relative or employer
  • A no-closing-cost loan in exchange for a higher interest rate
  • Seller concessions to help with the closing costs

The sooner that you know about the closing costs the more time you have to figure out a plan. Finding out at the last minute that you need a few thousand dollars can just add to the stress of getting a mortgage.

Not Having Seasoned Funds

When you put money down on a home or pay the closing costs yourself, you need seasoned funds. This means funds that sat in your account for at least two months. Lenders consider this enough time for any potential loans that you have to provide you with the funds to show up on your credit report.

This means that you can’t make a large deposit within two months of applying for the loan and expect the lender to accept them. You will have to provide proof of where the funds came from and how you got them. Lenders need to know that there isn’t another loan out there that will affect your debt ratio. If they can’t prove the origination of your large deposits, they may not allow you to use the funds for closing and/or the down payment.

Don’t make these common mortgage pitfalls. Take your time and shop around for the right loan for yourself. Talk with lenders and find out what requirements they have to help you get through the mortgage process with as little stress as possible.

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The Guide to Mortgage Loans for Physicians

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Buying a home may seem impossible when you have piles of student loans staring you in the face. Even with a doctor’s salary, covering the cost of the student loans plus a mortgage is a lot. Luckily, lenders have mortgage loans for physicians to help you address this situation.

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Keep reading to learn more about mortgage loans for physicians.

What are Physician Mortgage Loans?

Physician mortgage loans, or loans specifically for doctors, have special terms that only apply to doctors. In other words, anyone in a different profession cannot secure this type of loan. Doctor mortgage loans come from alternative lenders or portfolio lenders. You won’t find them at your big name banks that offer only Fannie Mae, Freddie Mac, FHA, VA, and USDA loans. Instead, you’ll find them at smaller lenders that keep the loans they write on their own books.

Physician mortgage loans can have many different faces. It depends on the lender and your needs. Some lenders can tailor a loan to meet your needs. For example, some lenders require a small down payment of 5% to 10%, while other lenders allow 100% loan-to-value loans (no down payment).

Figure out what you need and then tell that to lenders when you shop around. If you know you don’t have the reserves to put down on a home just yet, be upfront with lenders. Let them know that you need a 100% LTV loan. This will help them figure out the right terms for the loan. Don’t assume a lender will say ‘no;’ you have to ask.

Qualifying for Mortgage Loans for Physicians

Because mortgage loans for physicians come from many different lenders, we don’t have a definitive guide of how to qualify. Instead, we know what lenders look for in general, but make sure to ask your lender about the specific details it requires.

The general guidelines include:

  • Good credit score – A credit score over 700 is best, but some lenders may allow a credit score as low as 680 if you look around.
  • Good debt ratio – Your debt-to-income ratio (not including student loans) should be less than 45%. This means your current debts should take up less than 45% of your gross monthly income.
  • Proof of deferred student loans – If you pay your student loans currently, the payments become a part of your debt ratio. The physician mortgage loan program doesn’t include deferred student loan payments in the DTI, though, which can help you get approved.
  • Have a medical degree – You must have graduated medical school and have a degree in order to qualify for most doctor loan programs.
  • Proof of a job – You must provide proof that you have a job. If you aren’t working as a doctor yet, you’ll need proof that you will start working within the next 60-90 days.

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Why Lenders Offer Physician Loans

It may seem odd that lenders would go out their way to help doctors that already have more loans than they can handle, but they have good reason. Most doctors make a great living eventually. When they first start out in their career, the income may be less than optimal and when you combine that with a lot of student loans, it can seem unbearable. But fast forward a year or two and most doctors can successfully pay their loans down, stay on top of their mortgage payments, and have plenty of disposable income, which is why lenders give doctors this special treatment.

In generals, doctors don’t pose a high risk of default. Thanks to a high-paying career, doctors can keep up with their payments and even pay their loans off early in some cases. Lenders worry much more about borrowers in other professions that don’t have high job security or the ability to advance as doctors do.

Should you Consider a Physician Loan?

Not every doctor should get a physician loan, as crazy as that sounds. You should think of your future and where you see yourself first, especially if you opt for a 100% loan. Here’s why.

Borrowing 100% of the purchase price of a home means that you have no equity in the home. If you move in the next two to three years, you still won’t have much equity as it takes several years to pay your principal down to a point that you actually have decent equity. If you move within the next couple of years, you won’t have money to put down on the next home, at least from the equity of your current home. Unless you have money saved up from your increased income, you may find yourself in the same boat in your next home.

If you plan to stay put in the home, though, the physician loan may help. Sure, it takes a while to build up equity, but if you are in the home for the next 20 to 30 years, it won’t matter to you. Of course, you have other options aside from just a 0% down payment loan – you just have to ask lenders what options they can provide you.

Choosing a physician loan is a personal decision. It’s definitely an attractive option for doctors who have a large amount of student loans that don’t see themselves becoming a homeowner within the next few years. As is the case with any loan, make sure you understand the loan’s terms well. Ask the lender about the rates, fees, and terms. Think of your future as well, so that you know what to expect when you sell and need the equity for a down payment.

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Should You Build a New Home?

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If you are in the market to buy a home, chances are that you thought about whether you should buy an existing home or build a new one. You aren’t alone. Most buyers go back and forth on this decision. While building a new home seems like the ‘best’ way to do it, there are pros and cons you should consider before making your decision.

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The Pros of Building a Home

There’s nothing like building a new home. Walking in and knowing that everything is brand new and built just for you is a feeling you can’t replicate. But, there are other benefits too:

  • Customization – Unless you buy a spec home, you can typically choose all of the features of the new home. You’ll choose things like the type of flooring, cabinetry, and trim. You’ll even choose the colors of the countertops, carpentry, and door handles. You’ll make so many decisions that you’ll probably want to avoid decision making for a while afterward.
  • Energy efficiency – Building a new home means using today’s latest technology. This often means more efficient insulation, HVAC systems, windows, and doors. According to the EIA, new homes are 30% larger than old homes, yet only use 2% more energy.
  • Less maintenance – New homes often come with a warranty for up to 10 years. If there’s a defect or something breaks down within that time, you may get it fixed for nothing. This will vary by warranty, though. Even without the warranty, everything in the home is new and should last without needing repairs or maintenance for at least a few years.

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The Cons of Building a New Home

The new home smell only lasts for so long and then reality occurs. Knowing the downsides of building a home can help you make the right decision. The downsides include:

  • Longer time to move in – According to the Census Bureau, it takes 7.5 months to build a home. If you were to buy an existing home, you may be able to move in as little as 30 days. If you have a home to sell or your lease is up on your rental, you may have to find somewhere to live in the meantime.
  • Little room for negotiation – Home builders typically don’t negotiate the sales price of the home. You may have some wiggle room on negotiating upgrades or other incentives, but the actual price of the home will likely remain the same.
  • Everything costs money – That beautiful model you walked into and fell in love with isn’t what you’ll get with the base price of the house. Ask the representative what’s included in the base price and you may be unpleasantly surprised. Each upgrade adds to the price of the home, which can make it harder to get a mortgage.

Keep in mind too, that just because a home is new doesn’t mean it’s perfect. Humans build it and they can make errors. Things can go wrong or they could just get lazy. We highly recommend that you still pay for a home inspection if you decide to build a new home. The inspector can make sure that everything is built to last and identify any problems up front.

What Can You Afford?

Putting the pros and cons aside, it really comes down to what you can afford. Know how much mortgage you qualify to receive. Then compare that to the prices of the homes in the area. Again, because all upgrades are extra on a new home, you need to know what you can afford. You may find out that after putting all of the options on the new home that you want that it’s out of your price range.

Comparing the cost of new homes to existing homes in the area will give you a ballpark idea of where you stand. If the new homes are completely outside of what you pre-qualify for on a mortgage, you may want to stick to the pre-existing homes. If the prices are about the same or the new home prices are less than what you qualify for, then it’s up to your personal preference.

Choosing a new home or an existing home is a big decision. Look at the big picture and remember that this is one of the largest investments you’ll make in your lifetime. Think of your goals for the home and how long you plan to live there. Combine that with the amount of mortgage you can afford and you should be able to make a solid decision.

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