Newly Self Employed Physician - Will I get a mortgage? (PMI, loan officer)
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A little background. We moved last year to Spring, TX and are renting. I was employed by a private practice with an option to become a partner in the practice after 2 years. But I quit after 8 months of employment. We had started looking at houses while I was employed and also put in an offer on 2 homes which did not work out. I had a strong and favorable pre-approval.
Credit Score 810, 20% (can do more upto 30%) down and looking for a $500K - $800K home. Was getting in the 3% interest range for a 30 year fixed.
I am doing locums now till I establish my private practice in the next 2-3 months. Spoke with my lender again after I quit and he now tells me that since I am currently 1099 and /or looking to start a private practice, I will have to show 2 years of taxes for 1099 or self-employed (private practice).
I spoke with another broker and he came back with a private lender who is ready to lend but he said that interest rates will be high in the 4% - 5% range.
Is there no other option? Do I have to wait for 2 years to qualify for a mortgage or pay an increase of 1% to 2% for the same mortgage now? I mean, if I have to wait for 2 years, I will be able to pay cash for my purchase. I am not able to wrap my brain around paying 1% to 2% more for a mortgage in just a month's time (being employed vs 1099 / own private practice).
Please advise. New to home buying and this mortgage process.
You can likely get by with one year of tax returns. Doctor-specific mortgage loans have quite a few moving parts depending on the employment type and where you are in your career. Elements such as removing Student loans from the monthly Liabilities, and projecting income based on time periods shorter than "normal" loans are a couple valuable parts of the programs.
However they really help if you are starting in a non-Self-Employed position. For S/E, we can reduce the 2-year look-back:
Minimum 2 year history of self-employment is required. However, a person who has a shorter history of self- employment—12– 24 months—may be considered, as long as the borrower’s most recent signed federal income tax returns reflect the receipt of such income as the same (or greater) level, in a field that provides the same products or services as the current business, or in an occupation in which he had similar responsibilities to those undertaken in connection with the current business.
It seems the offer you might have right now could be a Bank Statements-based loan? These are possible through non-Private lenders and tend to have rates that are a bit over the best stuff for W-2d employees.
So it's a deal where, if you can live through a year of 5-6%, you could refi down to better terms, if available, when you have sufficient documented history.
Might ask some of the physicians you are filling in for who a good local doctor friendly bank is and go talk to them. If you are going to set up your own practice having some banking contacts would be a good idea. I had a cash flow issue on building my house(hurricane hit before lot closing) so I did an interest only bridge loan to cover the lot until it was clear I didn't need my cash to fix damage on other property. A mortgage broker would not have thought of that.
Your issue might be that you are talking to mortgage brokers with a limited set of tools who try and alter every deal to fit those tools and make a sale. It would be helpful to you in the long run to develop some relationships locally that have the ability to think more creatively and give you more options. Bankers have budgets to take guys like you out to lunch and talk about your needs. Sometimes the best option is a low interest fixed rate loan but if you have special circumstances you need specialists(just like in medicine).
See the problem I am having is that - How can you lump all 1099 or "self-employed" in one? I mean, people who do 1099 like consultants, physicians etc have a drastic wage difference. You cannot compare and put all 1099 or self-employed people in one size fits all and say you need 2 years of 1099 income tax to show. I understand that someone makes 500K and writes off 410k and shows an income if only 90k (this was the reasoning given to me by my mortgage guy), but there has to be a way out of this one size fits all glove.
Also, I have no student debt at all, no other debts (cars) at all. My monthly obligations are only rent, utilities, everyday living expenses (food, kids activities, gas, eating out once a month, no high-end shopping).
There is something called as Physician loan, but that gives you an option to make a very minimal down payment (if you do not have the preferred 20%) with no PMI and also it does not count your student debt for underwriting. In my scenario this loan is of no use to me because I am ready to make 20% - 30% down payment (on a max $800k home) AND I do not have any student debt or any huge debt for that matter.
My mortgage guy has given me no other option but to wait for the 2 years period since I started 1099/self employed and the broker (very well known in our area) has given me the private lender option BUT with a higher interest rate.
As an MD, you can always borrow money, but not necessarily at the rate you would like.
As an employed MD, never any trouble getting a mortgage, even if all I had was a job offer, and hadn't even started there yet. But as a self-employed MD, it's a total pain in the butt. Even when I had enough money in the bank to just buy the house outright, it was STILL a nightmare getting a mortgage, once I was self-employed. And God forbid I had just changed tax ID's because I was loosely affiliated with one hospital group vs another hospital group.
It's too bad you didn't close before you left that group. The idea of continuing to rent for another couple of years might not be such a bad one, especially with the new tax law limiting state and local tax deductions.
As an MD, you can always borrow money, but not necessarily at the rate you would like.
As an employed MD, never any trouble getting a mortgage, even if all I had was a job offer, and hadn't even started there yet. But as a self-employed MD, it's a total pain in the butt. Even when I had enough money in the bank to just buy the house outright, it was STILL a nightmare getting a mortgage, once I was self-employed. And God forbid I had just changed tax ID's because I was loosely affiliated with one hospital group vs another hospital group.
It's too bad you didn't close before you left that group. The idea of continuing to rent for another couple of years might not be such a bad one, especially with the new tax law limiting state and local tax deductions.
Glad you understand where I am coming from. We are too kicking ourselves for not buying when I was with the group, but at the same time I did not want to rush into making an expensive decision. Also, we did not want to buy a house for the sake of getting out of a rental. Renting is a good idea but we have been renting for so long, because of moving after every 3 years - residency, fellowship, advance fellowship) that my kids are growing up and we all are missing out on calling a place our own.
If I have to wait another 2 years, then might as well pay cash on a small starter home in 200K - 300K range and then live there for a few years and turn it into an investment property and buy something decent. But then have to pack and move again.....decisions, decisions.
Go to a local bank or credit union. Get introduced by your doctor friends who have large accounts there. With 30% down you ought to be able to get a good deal.
Maybe buy a lower priced house and live in it for 2 years (avoid the capital gains tax) then buy up.
Go to a local bank or credit union. Get introduced by your doctor friends who have large accounts there. With 30% down you ought to be able to get a good deal.
Maybe buy a lower priced house and live in it for 2 years (avoid the capital gains tax) then buy up.
My mortgage guy is a big bank. I am going to talk to a few other lenders.
Can you tell me more about "avoid capital gain tax". If I am not mistaken, when people sell a home and if they make money on that sale and if they buy another home (within 90 days??) they can avoid a capital gain tax on the profit they made on that sale of their home correct?
In my scenario - buy lower priced home, live in it for a few years and turn it into a rental and buy up; how does the capital gain tax come in this picture?
Locum tenens is extraordinary pay - were you working with a recruiter? Is s/he willing to pull together some basic stats In letter form? Will you be on short-term or long-term assignments? Where are you planning to live and where will you be working? Are your assignments in a geographic area or are you flying the country? Does your contract cover all expense if travel is involved? Are you being paid through an agency or direct from your assignment? It's *possible* to get a loan sooner than 2 years and maybe not even a full year, but my opinion it won't be 30 year fixed and 20% will be required.
Tough question....was the job you just quit after 8 months your first spin at the full-fledged doctor career? If yes, special care is needed when crafting a letter explaining breaking the contract after 8 months. Are you paying damages? Or repaying expenses? You new job is considered more challenging than the one you left. The doctor programs out there tend to be for newly salaried physicians and have rigid guidelines.
It is all in the approach and packaging of your loan. Find a loan officer that understands your situation and is an open communicator. The rest will fall in place.
Good luck!
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