Speaker 1 (00:01.73)
Welcome to the Physician Family Financial Advisors podcast, where physician moms and dads turn today's worries about taxes, investing, and extra money into a comfortable feeling of financial security. I'm Ben Utley.
and I'm Nate Renneke. Today our topic is about your first physician mortgage. And we're asking the question, how does that work?
Yeah, how does it work, Nate? You're our in-house mortgage slash housing guru. It seems really simple, like you get a mortgage, you get a house, right? But evidently there's a lot more to it than that. In fact, there are several steps, right?
there are several steps and it seems like it all happens in one step because usually in the kind of whirlwind of buying a house, it all kind of melds together. But if you do it the right way and you can give yourself a little bit more of a chance to, say, get the house you really like. You don't want the mortgage to be the reason that the house fell through. That's really what this comes down to. then along the way, I see physicians sometimes take not the best deal on their mortgage.
Mainly just because they really want to get the house so they don't really shop around or anything. yeah, we have seven steps that can put you in the right direction as you're shopping for a house and getting a mortgage. That's really all you can do is these seven steps. That's the best chance you can get at a good mortgage and get in the house you want.
Speaker 1 (01:28.094)
So wait a minute, am I hearing you correctly, Nate, that you are saying that with a little bit of planning and preparation that you can actually get a better outcome? Stunned. Stunned.
Imagine that.
Speaker 1 (01:45.964)
Well, why don't we roll into the first step. What's the first step today?
So it seems pretty obvious, but the first step is to decide you're going to buy. And the reason this is even made the list and that it is a first step is that a lot of people sort of, you know, you just, you, you just made it kind of a joke about planning. Well, sometimes if you're too, too much of a planner, you try to do everything ahead of time before you even start looking. you'll want to know all about the mortgage process and what more you're going to get before you go out looking.
Maybe you're planning your budget. That's not really exactly how this works because mortgage rates, have a time limit. So you do kind of want to know who you're going to shop with, but you also want to be in the process of looking to buy if you are going to go get your mortgage. step one, you've decided how far you're going to live away from mom and dad, either closer or further sometimes. And you're actually in the process of looking for a house.
And how far from work, you know, by the same token, you're talking about people who overplan this and they, they, they go through the mortgage thing too early. I think it's pretty easy to sleepwalk into a decision to, to move or buy a house. It's like, you know, something's kind of itching you a little bit. You're not, your house is not quite a great fit or something. And you find yourself driving through neighborhoods and you pull a flyer and boom, next minute you're talking to a real estate agent, getting pre-qualified and.
you i mean sometimes you sleepwalk into it and that's when we see folks kind of have everybody gets an outcome everybody gets a house but it's not always the outcome that they want sometimes there's there's compromises that you make once you're locked into the process so that's the flip side of over planning and under planning there should be right amount of planning
Speaker 2 (03:36.63)
Yeah, so there's a balance between the planning and that's kind of gets into step number two. So you decide you want to buy, you decide roughly how much you want to spend, right? That's planning a lot of planning in and of itself. So that's in that step too. So you decide you want to buy, but you kind of have to live with the fact that you won't know exactly what your mortgage terms are.
Yeah. Now hold on, let's not gloss over the how much, how much does spend part. How do I know how much I can slash should spend on my house?
Okay, so like many things, there's sort of a spectrum of how right you want to be in this situation. Okay, so the quick answer is if you spend an average amount on a house as a physician, you'll probably be okay. An average is, you know, five, six hundred thousand, let's say. And the longer answer is if you want to spend the most that you can on your house, let's say, without
putting anything else, long-term goals, meaning when I say anything else, college, retirement, and even short-term goals. Like if you like going on expensive vacations, you might want to include that when you're thinking about buying a house. So we want to get the most, spend the most on your house while not putting anything else in jeopardy. You got to do a budget. you do. Yeah. Yeah, exactly. So that's like getting this perfect.
budget.
Speaker 2 (05:09.048)
But if you don't want to do that...
You predicated this by saying that if you want the most house you can get, need to do a budget. I, you know, I know that from working with physicians that sometimes they want to, they want to know how much is the most I can get so that they can shop well within that range. They just want to know like how, you know, how high is high, right? But we've also experienced that there is a little bit of budgeting work. It's not, you know, tons, but you don't ever want to get a house that's so big that you won't be able to save for college or for retirement.
you know, there is some planning that goes with that before you, before you figure out how much house you can truly afford at the high end. so, that takes a little while. So I think that, you know, again, it's figuring out when you're thinking about buying the house early, you know, maybe, maybe a year in advance, at least six months in advance, beginning to plan would be good because then you have an idea about, you got a chance to shoot the numbers on college, shoot the numbers on retirement, spend a little time with your budget and then truly figure out what you can comfortably afford.
Mm-hmm. And don't be thrown off by the interest rate. You're just doing the best planning that you can six months ahead of time. So a lot of people are kind of just, it drives them crazy when they do this because they plan and then the interest rate might go up or something. And it's okay. I mean, it's close enough to do the planning six months ahead of time.
The reason I say that is that even if interest rates are roughly the same, it really depends on what house you're buying, where you're buying it, and what programs the company that's helping you get the loan actually has available to you.
Speaker 1 (06:52.248)
Right?
Right? So step three is to choose a lender. And that is difficult six to six months to a year ahead of time, because sometimes depending on the place you're buying or how much you're spending, you put a broker side by side with another broker and one might have a better rate in a different situation than the other and vice versa. So I have a little side story. When I bought my first house, I did not know how good of a broker I had.
he somehow without without me now I was in early 20s and I just I just didn't I didn't have any money and if for some reason I bought a house and he basically got me into the house and I but when it was all said and done I realized I didn't pay him anything I didn't give out any money and so he's he got grants for my closing costs he got me a zero down loan and I'm not a physician right so there wasn't a doctor loan and
I was in the house two months before I ever paid my first month's mortgage. And the other person that I may have used, a different broker, was asking for the traditional 5 to 20 % down with a similar rate.
Hmm.
Speaker 1 (08:05.646)
So you had a great experience, but you just fell backward into it and it was good for you.
completely and it showed it later on as I reflected about that experience. I realized that some brokers have great programs and they're really sharp brokers. They actually provide a ton of value.
Yeah. So now that you know, like you, know, that there is a difference between, you know, mortgage broker, a and mortgage broker B. Yeah. How, how would it, how would you advise a physician that's, that's looking for a broker to, to shop? Like, what do you look?
Yeah, well, this is one of those times that it's really really beneficial to Know some have some connections. I mean not connections, but know some people like know the top three brokers you want to shop with mm-hmm, okay, so and then Honestly, my piece of advice here is to not be loyal to any of them just to shop around Because they're trying to get you the best deal to earn your business and you want to shop between the
Speaker 1 (09:12.974)
I mean like you get these three people lined up you get them all salivating for your mortgage and then you're Not loyal to them. You jerk it away from one person you give it to another person I mean, that's just like I think that's kind of maybe outside the comfort zone for a lot of our our loyal listeners So, I mean can't you just go to the bank and get a loan? Right. I mean, I just go to whatever wherever I'm banking like big big bank and just say hey I need a loan cuz they're you know, they're propping me all the time for that too
email and in my online app and all that good stuff. They're always prompting me for mortgages. mean, can't you just pop in there and just grab one?
Yeah. So, you could, I really would advise against it in this, in this situation. And the reason for that is that the big banks, they're not doing these individual mortgages all day long. Some of them are, are okay at it. I've seen some credit unions be decent at giving, getting out mortgage mortgages, but, I have actually seen mortgages fall through because you know, bank hours, they're just there till five and
They don't push anything through, it's slow.
so like maybe you're, you know, maybe you're out there and you're competing for a house and there's a red hot bidding war and you really, really want it because it's close to work and it's close to grandma and grandpa. And you know, the, the buyer has one last mortgage related request and it happens to be Friday at five 30 and you're just screwed.
Speaker 2 (10:40.558)
Exactly. that I used to work at what we call the Big Evil Bank and I literally saw that happen.
Okay.
Speaker 1 (10:53.122)
Well, I mean, it's, it's, it's hard because a lot of this home buying stuff, I mean, you know, if I'm a physician, I'm working during the week and, maybe taking call and I might be working after hours. And, so if I'm going to shop, it's, it's probably going to be, you know, Friday night after work or Saturday or Sunday sometime, you know, it's, I hadn't thought of that. mean, non-traditional bank hours, right? It's really hard to find a broker at a big bank that would like return your call.
Yeah.
Speaker 2 (11:20.014)
Yeah, sometimes you can get like like they'll have a division that they they act like a like a traditional broker But most of the time you get a good broker that is not in the bank And they kind of eat sleep and breathe this stuff and they are almost acting on the same hours as your real estate agent which they tend to be All the time, yeah, so So is that you can't shop around?
all the time.
Speaker 1 (11:48.654)
Is that why some real estate agents insist on you using their broker?
Yes, exactly why. I actually that's a really good point and I want to touch on that for for a second. agents want you to use their broker for no other reason than they want you to get the house.
So they know, they think their broker can definitely get this job done.
Yes. Maybe not necessarily. Not always the best rate. And so you'll ask them, you'll say, hey, why? It almost feels like a conflict of interest. They push it so hard on you. I want you to use, this is my person. They've been my person for 10 years. I really want you to use this bank. It almost feels like they're going to get a piece of the deal, but they don't. They don't. They literally just know, they have built trust with this person that they won't screw it up.
That's the best rate.
Speaker 2 (12:42.036)
And when you're buying a house, there's a million different steps along the way where this can just blow up in your face. Yeah. That your agent, your real estate agent is trying to eliminate any any chance that this blows up.
And they also know that if it blows up that they're not going to get their commission.
Exactly that that is the one conflict of interest there But yeah in a way it's it is in one way. It's in your favor They're trying to get you this house, right? In another way It isn't in your favor because they don't care as much about you saving a quarter of a percent on your mortgage Yeah, if they think it it's gonna jeopardize the deal
So sounds like the interests are aligned when it comes to actually getting the house deal done, but the interest alignment kind of falls apart with regard to like the rate and maybe even the cost, some of the negotiable closing costs of the loan.
Exactly. So this is what you can do with confidence. Okay. You can tell your agent, I hear you, I know you want to use a trusted lender. I have a trusted lender that has proven that they can get this deal done. And I'm going to use them because they have a really good rate.
Speaker 1 (13:56.568)
But you'd have to know somebody to, mean, you can compare rates, but you have to know somebody to be able to compare execution.
Exactly, exactly. And the other thing that you can do, and I've seen this before as well, you can certainly get a quote from your agent's preferred lender. They might have the best deal. You know, you don't, I don't know. I've seen it, it's probably 50-50.
So that's the difference between brokers and bankers, right? A banker is gonna be like if I'm at Bank of America or something like that, I'm using a Bank of America guy, I'm likely to get a Bank of America product, but if I'm at a broker, I might be able to get a B of A loan, but I might be able to get a loan from a dozen other lenders. Is that pretty much how it works? Cool. All right, what's next?
Yes.
So one more thing on that. I kind of heard a little bit.
Speaker 1 (14:42.946)
Hurry to get my house, Nate, I want it now.
One more piece on that was that you mentioned loyalty. And I see this all the time. A lot of physicians are very loyal to the people that they choose. And I really appreciate that. That's why I kind of put it so bluntly to say almost take your foot off the loyal gas for a second. But just remember, you'll probably end up refinancing your mortgage eventually. And you can do that at the bank. They can take their sweet time. You can refinance with them. And it won't really matter because it could take months for them to get it through.
That's true. If rates go down, can easily refinance.
They're still they're still in the running to get some of your business later on yeah, so Beyond that beyond finding a lender that can do the job and get you a competitive rate You kind of want to zero in on what product you want? mm-hmm and by that I mean that there are many different types of loans and Usually the question that I get asked is should I use the physician loan?
The answer to that question is nuanced and it's based on your personal situation. So I want to take just a moment to say what a physician loan is and say whether or not you should use it.
Speaker 1 (15:59.214)
Yeah, because this sounds scammy. It's like, it's just for physicians, you know.
It's it sounds totally like you're getting sold a product and it's just it sounds weird It is a product and it's and I would I would even describe it as a tool when you're Trying to decide which tool you should use to get this house a physician loan is just one of those tools so if you do not have a down payment and You want to get the best deal you can with that? Basically having not a lot of cash a physician loan is probably going to be a good deal for you
You don't pay private mortgage insurance on physician loans and the rate is usually more competitive than any other zero down loan that you might be able to find.
All right. So let me see if I this right. there's no private mortgage insurance. And for our listeners, is, that's not insurance for you. It's insurance for your lender that, that if you walk away from the loan, that it makes them whole. Right. So you're, paying for insurance that you're not really benefiting from. So there's no PMI with a, with a physician loan, right?
Yeah, and why has that been?
Speaker 1 (17:08.55)
well, I'm glad you asked Nate, because I've done a little research on this. physicians have the lowest default rate of any known profession. Like you look at attorneys and engineers and physicians and all those guys, the default rate for physicians is super duper low. Yeah. So, so no, no PMI. So that's a nice thing. Rates are competitive, but it sounds like the big, the big draw on this is, a very low down payment. Is that right? Like.
That exactly.
So this is ever zero?
It used to be, it kind of goes up and down, but these products change. So I would say I would clock it at zero to 5 % down.
Wow. And probably the cheaper the house, the more zero it gets, right? Yeah. Okay. That makes sense.
Speaker 1 (17:55.118)
Well, you know, when, you and I do the math and we're helping clients decide like how much house can they afford? A lot of times we compare that to rent payments, like how much is your rent right now? And sometimes that rent is a lot of money. And then we translate that into a mortgage payment and we basically ask question like, if I was using this rent to make a mortgage payment, how much mortgage could I afford? what we find a lot of times is that the, amount of mortgage is enough to buy like a whole house, even without a down payment.
And then you begin to realize that the thing that keeps most physicians from buying is lack of a down payment and before that lack of an emergency fund. So it sounds like the, the physician loans are a legit product that honor the fact that physicians are credit worthy and makes it a lot easier to get into a house. So is there, is there like a catch in this or is that kind of it?
That's kind of, mean, there's one small catch, which is that if you don't have that need, you have a little bit of cash. Physician loan may not be the best option for you. It's not always going to be the best. The rate is usually just a little bit higher.
Like a percentage point higher?
no, it's hard to say, it changes all the time, but I usually see it quarter of a percent to half a percent higher. But it's partly because there's no PMI, no mortgage insurance. And then the other is you just think about the risk of a zero down loan. Generally those rates are higher.
Speaker 1 (19:20.366)
Yeah, I guess that makes it easy to walk away. And I guess from a tax standpoint, since we're turning worries about taxes, investing in extra money, blah, blah, is that you can't deduct the premiums that you pay for, for PMI for principal mortgage insurance, but you can deduct the interest on the mortgage. So if all it does is translate the PMI payments into interest, then you're better off because you can deduct that interest.
That's right. So the choice is a product like that or let's say a conventional 15 or 30 year loan.
and what you want to talk like twenty percent down right to put the p i
And sometimes it's 10, you know, the closer you, the PMI is a calculation essentially based on how, how far away from that 20 % down you are. So if you get closer to that 20 % down on the house, your PMI shrinks. But the, the reality is that even if you have a little bit of PMI, sometimes you can still get a pretty good deal on your rate. And what you, this is really what you want to do. You want to go to a broker.
If you're buying, would recommend a broker because they can sit there and actually take care of you a little bit rather than let's say going to an online bank or somewhere where it's a big call center and it's hard to pin someone down, actually talk to them about your options. So you go to a broker, you say, have X amount of cash. By the way, they don't really care how much you put down. They just want to give you a deal that makes you use them. Most brokers earn
Speaker 2 (20:57.234)
fixed dollar amount you know based on how much you're if you use them or not
better brokers it will charge you a flat fee regardless of the size of the loan some of the more expensive ones will charge a percentage of the loan amount
So you find a decent broker who charges a flat fee and you just say, this is how much cash I have. I'm looking to kind of balance the scales of what's the best deal I can get. And that broker a lot of time will give you a 10 % down option, a 20 % down option, and maybe even a physician loan option. And you just look at them and you see.
Should I let the broker tell me whether or I should get like an arm or a 15 year or 30 year mortgage? Like how do I make that decision?
That decision is more complicated. It's based on your long-term goals really. I would say that a broker generally isn't out to get you when it comes to making one of those choices. Arm or 30-year mortgage. They just don't, they're not really financial people. They seem like they are.
Speaker 1 (22:05.486)
They're not planners. they wouldn't know enough about my circumstances to know whether or not a 15 or a 30 year is better or whether I should have an arm or something like that. It's just, guess the way I should think of them is like they're the product guys. And you know, if I, if I want the best deal, then I go to the best product guy, but, uh, I shouldn't necessarily rely on them for, uh, advice about like how to do things over the next five, 10.
Exactly. mean imagine you went to go buy a car Not that I'm comparing brokers to car salesmen, but and you just said hey, how much should I spend? Well, they don't really know they just want you to buy a car
Right. And then you could ask them, how much, you know, what kind of car should I buy? And then they would be like, well, you know, what, what do you like?
Yeah, exactly. And the broker can do that for sure. I think kind of knowing, knowing your, your payments, knowing your long-term goals that can give the broker all the power to get you into the perfect product and them interviewing you to try to find the perfect product. That's just probably not going to happen. So you kind of have to have that information ready.
Yeah, mean, if you're going to expect somebody to be available on Saturdays and Sundays, you can expect them to be busy, right? It's not like they're going to sit down and pour over your numbers and yeah.
Speaker 2 (23:18.454)
Right. Yep. they do a lot of volume. They're not in the... They don't make a ton of money on each deal. know, so that's why they're working Saturdays and Sundays. Okay, so you choose a product. That's step four. Step five is to... Once you've chosen one and you know you're about to put it in an offer on a house, you would get, like within the next 30 days, you would get pre-approved.
And that is as simple as doing the boring, annoying paperwork involved with getting approved for a mortgage.
So you're like applying for a loan. They're looking at your numbers and saying, yeah, this, this physician can make their loan payments.
Yes, that reminds me. You do not need to get pre-approved to get a quote.
Cool. This happens all the time. Lenders want to kind of bring you in, get you tangled up with them so that you use them once again. You can say, I just want a quote to decide where I'm going before you actually get pre-approved.
Speaker 1 (24:22.018)
so I don't have to fill out the paperwork with three different brokers and bankers to be able to get an idea about what their rates are. can just ask for their rates. Is it okay to just ask for closing costs too? Can I ask them that? Like, what do you, you what does it cost to work with you?
Right. And-
Speaker 2 (24:36.138)
Exactly. You can ask for fees. can ask. You can ask for all that. Now, they may be resistant to giving that. But if you present them with here's my price range, here's my down payment, here's my rough credit score. And you're and you say, I know the rate won't be exactly what you tell me today because I haven't given you 100 percent of the information. But what am I looking at here about? What is the the rate for a loan like this?
And they should be real upfront about the, lender fees, like their origination fees, right? Like what they're, what they're going to get. Okay, cool.
Exactly. So once you have decided based on those preliminary sort of numbers, which broker you're going to use, which lender you're going to use, then you would get pre-approved. OK. And with that pre-approval gives you a ticket to with your it's like an entry ticket to talk to your real estate agent about actually making an offer on a house.
Mm-hmm.
Speaker 1 (25:34.126)
Cause now, now the agent knows that you're good to go and they're not going to go out and make an offer on a house and just have it fall through just because you're not, you're not ready maybe.
That that in some in some housing markets, let's say if it's really slow agents might entertain you if it's a happening housing market, they don't even want to talk to you until you're pre approved.
makes sense. So really you don't start with the agent, you really start with planning to get a product. then you, so it sounds like the process really starts with the broker or the banker, not with agent, which is kind what happens when you just go cruising through neighborhoods and you pull a flyer and you talk to an agent and boom, you know, you're already buying a house.
Yep. And if you go the agent first route, you can kind of expect for them to put their foot down about using their broker because you're not prepared. Yeah. If they want to spend their time with you, then they want you this thing to go, you know, this loan to go through.
Makes sense. Nice. What's next? When do I get the keys?
Speaker 2 (26:40.246)
Yeah, so after that you are shopping and you, you know, find a house you love, perfect distance from, from grandparents and you make an offer on the house and hopefully you get it. and then once that's all said and done, you're, you're kind of in the throes of buying a home, which is a really long, you know, stressful process. A lot of things could go wrong, including this loan. So you, I just,
It's one of those times where you just have to be very available to your agent and to your lender. And they are working in the background for you quite a bit to make this all this happen, which is why, once again, it's not just getting pre-approved with the bank or the broker. It is actually carrying this loan forward with the people that are going to get the money. So the sellers of the home.
they can drop out at any point and if your lender is just not working well with them and you have a seller who is not willing to deal with them, can just...
Drop the deal. Yeah, you'll lose the house. Many opportunities to lose the house in relation to your loan.
You're gonna lose the house.
Speaker 1 (27:58.926)
Which, you know, you can always shop for another one, but if you've got a timeline, like, you know, if you're, if you're trying to move to a certain place to start a job or something, that can be like devastating.
Yeah, exactly.
Yeah, it could be the difference between moving once and moving twice, right? Yep. Wow. So is that, is that it?
That's it. You close the deal and hopefully you don't really, hopefully you have an experience like me and the first time around where I didn't really know all the work that they were doing. Illegit of us.
You got lucky, you can do this with planning is what you're telling me.
Speaker 2 (28:31.682)
Yes, yeah, you should, because you might not be so lucky to find a good broker like me by accident.
Fantastic. So shall I take us out? Okay. Well, if you have questions about buying a home, financing a home,
Yes.
Speaker 1 (28:45.646)
If you have questions about taxes, investing, extra money, if you have questions about raising kiddos with money, if you have questions about retirement, send them to us. You can send those to podcast at physicianfamily.com. You can visit us on the web at physicianfamily.com slash podcast to see all of our episodes, or you can call us and leave a question at the answer line, which is 503-308-8733.
Thank you for listening to the Physician Family Financial Advisors Podcast. Is there a question you would like answered on our next show? Go to PhysicianFamily.com to record your question. While you're there, sign up for our newsletter and gain access to tools you can use to turn worries about taxes, investing, and extra money into a lifelong feeling of financial security. That's PhysicianFamily.com.
