Most Consumers Only Obtain One Mortgage Quote


Here’s a shocker. Only about 40 percent of borrowers obtain more than one mortgage quote, according to a survey conducted by Harris Interactive and mortgage comparison service LendingTree.

Despite this, more than nine in 10 borrowers understand that mortgage rates vary among mortgage lenders, which explains why only three in 10 felt “very confident” they received the best deal on their mortgage.

Borrowers Know Mortgage Rates Aren’t All the Same

  • The survey found that the majority of borrowers
  • Only took the time to get a single mortgage rate quote
  • Even though they know lender rates vary
  • Which explains why they didn’t feel confident they were getting the best deal

So we know most homeowners don’t bother obtaining more than one quote, and that they don’t feel great about it.

But why aren’t they shopping if they have a bad feeling about it all? There’s got to be a good reason, right? Well, of course there is.

Why Aren’t Homeowners Shopping Around?

  • They aren’t quite sure the lender they spoke to is “the one”
  • Yet they aren’t taking the time to see what else is out there
  • One reason is time, or lack thereof
  • Another big reason is the complicated nature of mortgages in general

Borrowers aren’t putting in the time to shop for a mortgage because of the time-sensitiveness associated, and also because of all the complicated terminology.

In other words, they’re often pressed for time either because they have a certain close of escrow date, or they need to refinance ASAP for one reason or another.

And if I had to guess, some of that urgency might come from the one mortgage lender they manage to speak to, who convinces them to “act fast” to avoid missing out on whatever it is they’re selling.

Most Put In the Equivalent of One Working Day

  • For such a major financial decision
  • Consumers sure aren’t putting in much time
  • With most dedicating the equivalent of just one work day
  • Shopping for their home loan

But for such a big decision, it’s rather startling that nearly three-quarters of borrowers only spend the equivalent of one working day or less shopping for their home loan.

LendingTree noted that one in 10 borrowers only spent the amount of time it takes to brush their teeth to research their mortgage options. That’s frightening, but at least they’re brushing their teeth.

Roughly a quarter of those surveyed said they recognized that they could save more than $100 on their monthly mortgage payment by reducing their mortgage rate by one percent, yet they don’t seem willing to put in the work.

Interestingly, women were twice as likely as men to say they were not involved with shopping their purchase mortgage or refinance loan.

Nearly All Americans Comparison Shop for Everything Else

  • 96% of Americans comparison shop
  • When it comes to a new TV, car, or even a pair of shoes
  • Yet the numbers drop off considerably when it comes to a mortgage
  • Consider that the savings associated with a cheaper home loan will stay with you a lot longer and probably be a lot more sizeable

The study noted that 96 percent of all Americans compare prices when shopping for just about anything – make sure that includes the mortgage for goodness sake!

Sure, it’s painful, time consuming, and no one wants to be badgered by pushy salespeople, especially if they aren’t comfortable with all the terminology, let alone numbers.

But even a little bit of work can pay off big. There are other studies that prove you can save thousands of dollars simply by gathering an additional mortgage quote or two. Might as well just dive in and do it right the first time.

After all, if you’re saving money month after month for year after year, you’ll probably feel pretty good for a long, long time too. You probably won’t get the same feeling clipping a coupon or getting a one-time discount.

In short, be sure to contact loan officers at neighborhood banks along with a couple of mortgage brokers so you’re aware of all your loan options.  Also consider local credit unions and online mortgage lenders, both of which may offer lower rates than the competition.

Read more: What mortgage rate can I expect?

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Can You Pay the Mortgage with Bitcoin?

Mortgage Q&A: “Can you pay the mortgage with bitcoin?”

First off, I apologize for writing an article about bitcoin. I know it’s all the rage right now and I’m just adding to the hype, but it’s newfound relevancy warrants this post, maybe.

U.S. Mortgage Lenders Accept U.S. Dollars

  • At the moment U.S. dollars are the only form of payment
  • Accepted by U.S. mortgage lenders
  • Any so-called bitcoin payment option
  • Will likely be through an intermediary service that converts bitcoin to USD

As far as I know, all U.S. mortgage servicers only accept U.S. dollars for mortgage payments. So the simple answer would be no, you can’t use your bitcoin to pay the mortgage.

But I have heard of third-party companies offering the service in the past, perhaps working as an intermediary between bitcoin holders and loan servicers.

At that point though, you have to question what the benefit of such a service would be. If anything, it might just cost you money in conversion fees and so on.

I’ve also heard of individuals buying real estate with bitcoin, but that’s a different story because it’s an agreement between buyer and seller, and it’s effectively a cash-alternative transaction.

In other words, they’re probably buying a property outright with bitcoin as opposed to cash. No financing is taking place, nor is there any mortgage to speak of.

Why Would Mortgage Lenders Accept Bitcoin?

  • You have to ask why they’d accept bitcoin
  • Which is known to be a very volatile “currency”
  • With high transaction costs
  • There has to be an incentive for the lender

Another way of looking at it is why would mortgage lenders accept any type of non-USD currency for payment?

First off, it would require a currency conversion into the currency related to the mortgage, which would be USD.

And after all is said and done, you wouldn’t really be paying with bitcoin anymore. You’d be converting your bitcoins to USD, then sending them onto the lender.

In that case, you could effectively pay your mortgage with bitcoin, but it would be a manual, indirect process.

There are bitcoin wallets that allow bitcoin holders to sell their holdings, in part or in whole, and then withdraw the funds to their bank accounts.

After doing so, the bitcoin holder would have U.S. dollars to use toward paying their mortgage.

The only way a lender would probably be willing to accept bitcoins directly is if they saw some overwhelming value in the currency (if it’s a currency).

And even then, it would be pretty doubtful given the infrastructure that would need to be in place, along with whatever compliance stuff would need to happen.

The Same Reason They Won’t Accept Gold or Tesla Stock

  • Mortgage lenders don’t accept gold or silver
  • Nor do they allow you to pay with stock
  • Ultimately they want USD, which the mortgage note is based on
  • How you pay might be an option as long as it’s converted to USD first

As for the valuation issue, what would it be worth when it was applied to the mortgage? The bitcoin market is 24/7, nonstop action.

It’s also pretty unpredictable, not to mention the many exchanges that value bitcoin differently at the exact same time. So it’d be really hard to nail down a value everyone agrees upon, at least at this juncture.

All that adds up to a lot of unnecessary cost and risk a lender just won’t want anything to do with.

This is the same reason why you can’t send your mortgage lender bars of gold to pay the mortgage, or shoot them over a few shares of Amazon or Tesla stock every month to meet your obligations.

Paying the mortgage in bitcoin would also complicate matters if and when you needed to document your payment history for a subsequent mortgage or refinance. Anonymity isn’t favored here.

When it comes down to it, the lender is going to want to be paid in USD because there’s no second guessing its value. And there’s no currency conversion to worry about. However, that doesn’t mean you can’t pay the mortgage with a credit card.

There are services that allow that because the transactions involve USD and typically involve a two-step process whereby you charge the desired amount with the payment processor, then they cut a check to the lender on your behalf in USD.

Maybe there will come a time when this changes, but I doubt it’ll happen anytime soon. In the meantime, individuals are always free to sell investments and withdraw the cash proceeds and use them as they wish.

Soon You’ll Be Able to Pay Rent with Bitcoin


  • A new company called ManageGo
  • Will allow you to pay rent with bitcoin
  • But as mentioned it converts crypto currency to dollars first
  • So it’s really just a conversion process

A company by the name of ManageGo is launching bitcoin rental payments soon. In fact, they’re even going to allow tenants to pay rent in Ethereum and Litecoin.

But really, it’s just going to convert the rental payments to US dollars first, and then deposit them in landlords’ bank accounts.

Tenants will apparently get an “instant conversion rate” that displays the exact amount in USD that needs to be sent to their landlord to cover the rent.

And the landlord probably won’t care how they pay because by the time they get the money, it’ll be in USD.

To that end, it sounds more like it’s facilitating the conversion of bitcoin to USD, not landlords truly accepting bitcoin. Is that truly accepting bitcoin? I don’t know.

I think if and when mortgage lenders and landlords eventually accept actual bitcoin for payment, it could be a cost-saver and a quicker transaction, as opposed to sending a check or ACH.


When Will the Next Housing Market Crash Take Place?

I’ve noticed a trend lately. Everyone’s a real estate expert.

It seems the most recent crisis and recovery has turned just about every single person into a guru on all things to do with home buying and selling.

I suppose part of it has to do with the fact that the massive housing bubble that formed a decade ago swept the nation and was front page news.

It also directly affected millions of Americans, many who serially refinanced their mortgages, then found themselves underwater, then eventually short sold, were foreclosed upon, or held on for the ride back up to new heights.

It’s a common conversation piece these days to talk about your local housing market.

Thanks to greater access to information, folks are scouring Redfin and Zillow and coming up with theories about what that home should sell for, or what they should have listed it for.

Neighbors are getting upset when nearby listings are not to their liking for one reason or another. What were they thinking?!

A New Housing Bubble Mentality

  • Real estate is red-hot again thanks to limited supply and intense demand
  • It can feel like an ominous sign that we’re headed down a dark road again
  • But that alone isn’t reason enough for the housing market to crash again
  • There have to be clear catalysts and financial stress for another major downturn

All of this chatter portends some kind of new bubble mentality in my mind, though it seems everyone is just basing their hypotheses on the most recent housing bust, instead of perhaps considering a longer timeline.

One could look at the recent run-up in home prices as yet another bubble, less than a decade since home prices bottomed around 2012.

After all, many housing markets have now surged well beyond their previous lofty levels seen about 15 years ago when home prices peaked.

For example, Denver area home prices are about 86% higher than they were in 2006. And back then, everyone felt home prices were completely out of control.

In other words, home prices were haywire, and are now nearly double that.

Meanwhile, the typical U.S. home is currently valued around $273,000, per Zillow, which is about 27% higher than the peak of $215,000 seen in early 2007.

It’s also nearly 70% higher than the typical home price of $162,000 back in early 2012, when home prices more or less bottomed.

So if want to look at home prices alone, you could start to worry (though you also have to factor in inflation which will naturally raise prices over time).

But they say bubbles are financially driven, and we’ve yet to see a return to shoddy underwriting.

I will say that there’s been a recent return of near-zero down financing, with many lenders taking Fannie and Freddie’s 97% LTV program a step further by throwing a grant on top of it.

This means borrowers can buy homes today with just 1% down payment, and even that tiny contribution can be gifted from someone else.

So things might be getting a little murky, especially if you consider the increase in prices over the past four or five years.

One could also argue that affordability is being supported by artificially low mortgage rates, which history tells us won’t be around forever.

There’s also a general sense of greed in the air, along with a feeling amongst homeowners that they’re getting richer and richer by the day.

That type of attitude sometimes breeds complacency and unnecessary risk-taking.

But When Will Home Prices Crash Again?!

real estate cycle

  • If you believe in cycles, which seem to be pretty evident in real estate and elsewhere
  • We will see another housing crash at some point relatively soon
  • There appears to be an 18-year cycle that has been observed for the past 200 years
  • This means the next home price peak (and then bust) might begin in 2024

All of those recent home price gains might make one wonder when the next housing market crash will take place.

After all, home prices can only go up for so long before they drop again, right?

Well, the answer to that age-old question might not be as elusive as you think.

The real estate market apparently moves in cycles that some economists think can be predicted to a relatively high degree.

While not a perfect science, there seems to be “a steady 18-year rhythm” that has been observed since around the year 1800.

Yes, for over 200 years we’ve seen the real estate market follow a familiar boom and bust path, and there’s really no reason to think that will stop now.

It puts the next home price peak around the year 2024, followed by perhaps a recession in 2026 and a march down from there.

How much home prices will fall is an entirely different question, but given how much they’ve risen (and can rise still), it could be a long, long way down.

And we might not have super low mortgage rates at our disposal to save us this time, which is a scary thought.

You’ll Never Get Back Into the Housing Market…

  • There are four main phases in a real estate cycle
  • A recovery period and an expansion period
  • Followed by hypersupply and an eventual downturn
  • Don’t believe the hype that if you don’t buy today, you’ll never get the chance!

Another housing bust in inevitable, despite folks telling us we’ll never get back in again if we sell our home today, or don’t buy one tomorrow.

There are four phases to this predictable cycle, including a recovery phase, which we’ve clearly experienced, followed by an expansion phase, where new inventory is created to satisfy demand. This is happening now.

At the moment, home builders are ratcheting up supply to meet the intense demand in the market, with some 45 million expected to hit the average first-time home buyer age this decade.

The problem is like anything else in life, when demand is hot, producers have a tendency to overdo it, creating more supply than is necessary.

That brings us to the next phase, a hypersupply period where builders overshoot the mark and wind up with too much new construction, at which point prices plummet and a recession sets in.

The good news (for existing homeowners) is that according to this theory, we won’t see another home price peak until around 2024.

That means another three years of appreciation, give or take, or at least no major losses for the real estate market as a whole.

So even if you purchased a home recently and spent more than you would have liked, it could very well look cheap relative to prices a few years down the line.

The bad news is that the real estate market is destined to stall again in just three short years, meaning the upside is going to diminish quite a bit over the next few years.

This might be especially true in some markets that are already priced a little bit ahead of themselves, which may be running out of room to go much higher.

But perhaps more important is the fact that home prices tend to move higher and higher over time, even if they do experience temporary booms and busts.

So if you don’t attempt to time the market you can profit handsomely over the long term, assuming you can afford the underlying mortgage.

And remember, there’s more to homeownership than just the investment.


Are Mortgages Simple Interest and Compounded Monthly?

Last updated on June 13th, 2019

People seem to be fascinated with how mortgages are calculated and paid off, but when it comes down to it, there’s nothing too mind-blowing happening.

Each month, a portion of principal and interest are paid off as mortgage payments are made. Over time, the loan balance is reduced, as is the total amount of interest due.

Mortgages Are Simple Interest

  • Simple interest means it’s not compounded
  • So you don’t pay interest on top of interest
  • What you owe in interest is pre-determined on a home loan
  • And paid over the life of the loan

Here in the United States, mortgages use simple interest, meaning it is not compounded. So there is no interest paid on interest that is added onto the outstanding mortgage balance each month.

Conversely, think of an everyday saving account that offers you compounding interest. If you have a balance of $1,000 and an interest rate of 1%, you’d actually earn more than 1% in the first year because that earned interest is compounded either daily or monthly.

Put another way, you earn interest on your interest each day or month, which allows your money to grow more quickly.

Mortgages don’t do that because the total amount of interest due is already calculated beforehand and can be displayed via an mortgage amortization schedule.

For example, a $300,000 mortgage set at 4% on a 30-year fixed mortgage will have total interest due of $215,610 over the life of the loan. We know this beforehand because mortgages are amortized.

Each month, the combined principal and interest payment will be exactly the same, but the composition of the payment will change.

In month one, you’ll pay $432.25 in principal and $1,000 in interest for a total of $1,432.25.

In month 360, you’ll pay the same $1,432.25, but only about $5 of that amount will go toward interest because the outstanding loan balance will be so small at that time.

At no point would you pay interest on top of interest.

Extra Payments Compound Principal

  • If you make extra mortgage payments
  • Your principal payment can compound
  • In the sense that a lower outstanding balance
  • Will lower each subsequent interest payment

However, if you paid an extra $100 each month on top of your required mortgage payment, the principal portion would start compounding.

In month one, you’d pay $1,532.25, with $1,000 going toward interest and $532.25 going toward the principal balance.

This wouldn’t provide any extra benefit in the first month because you’d simply be paying $100 extra to get $100 more off your principal balance.

However, in month two the total interest due would be calculated based on an outstanding balance that is $100 lower. And because payments don’t change on a mortgage, even more money would go toward the principal balance.

The second payment would be $998.23 in interest and $534.02 in principal.

Meanwhile, those making the standard monthly payment with no extra amount paid would pay $998.56 in interest and $433.69 in principal.

That’s more than a $100 difference, $100.33 to be exact. And over time, this gap will widen. In month 60, the principal payment would be $121.70 higher on the loan where you’re paying an extra $100 per month.

So the benefit of paying extra increases more and more over the life of the loan and eventually allows the mortgage to be repaid early.

Are Mortgages Compounded Monthly?

  • Most mortgages don’t compound interest
  • But they are calculated monthly
  • Meaning the interest due for the month prior
  • Will be the same whether you pay early or late within the grace period

As noted, traditional mortgages don’t compound interest, so there is no compounding monthly or otherwise.

However, they are calculated monthly, meaning you can figure out the total amount of interest due by multiplying the outstanding loan amount by the interest rate and dividing by 12.

Using our example from above, $300,000 multiplied by 4% and divided by 12 months would be $1,000. That represents the interest portion of the payment only. The $432.15 in principal is the remaining portion, and it lowers the outstanding balance to $299,567.75.

In month two, the same equation is used, this time multiplying $299,567.75 by 4% and dividing by 12 months. That yields total interest of $998.56.

And because the monthly payment is fixed and does not change, that must mean the principal portion of the payment rises. Sure enough, it’s a slightly higher $433.69.

In other words, the interest due for the prior month is calculated on a monthly, not daily basis. This means it doesn’t matter when you pay your mortgage, as long as it is within the grace period.

Generally, mortgage lenders allow you to pay the prior month’s mortgage payment by the 15th of the month with no penalty, even if the payment is technically due on the first of the month.

Because interest isn’t accrued daily, but rather monthly, it doesn’t matter if you pay on the first or the 15th. As long as the payment is made on time, the same amount of interest will be due, and the same amount of principal will be paid off.

To complicate matters, because the mortgage industry does that really well, there are so-called “simple interest mortgages” that calculate interest on a daily basis. Instead of calculating the amount of interest due by dividing by 12 (months), you divide by days (365) instead.

These types of mortgages are not the norm, but if you happen to have one, the day you pay your mortgage will matter because interest is calculated every single day, even on leap years.

That could make paying even a day later more expensive. But as mentioned, most mortgages are calculated monthly so it shouldn’t be an issue for many people.

Tip: HELOCs are calculated daily as opposed to monthly because the outstanding balance can fluctuate as new draws are taken or paid back.

Neg Ams Are the Only Mortgages That Compound Interest

  • There is one exception to the rule
  • A negative amortization loan such as the option ARM
  • It can compound interest if you make the minimum payment option
  • Which is less than the total amount of interest due each month

To tie up some loose ends, there is one type of mortgage that compounds interest, and it too isn’t very common these days.

The once very popular option arm, or pick-a-pay mortgage, which features negative amortization, allows for compounding interest.

It does so because borrowers are allowed to pay less than the total amount of interest due for the month, which adds any shortfall to the outstanding loan balance.

This means the borrower pays interest on top of interest in subsequent months if they don’t pay the full amount of interest due. The banks are happy to let it ride, but the borrower is the one who pays for the convenience.

Again, these mortgages are pretty much a thing of the past, but it’s one good example of a mortgage with compounding interest.

In summary, for most individuals their mortgage will be simple interest that is calculated monthly. That means no new interest will be added to the loan balance and all calculations will be made on a monthly basis, so paying early or late in the month should have no effect, as long as payment is received by the due date (or within the grace period).

(photo: Jayel Aheram)


The Problem With Mortgage Rate Surveys

Every week, mortgage financier Freddie Mac comes out with a mortgage rate survey, which reveals the average interest rate (and points) charged by lenders for popular types of home loans.

About 125 lenders from across the nation, including thrifts, mortgage lenders, credit unions and commercial banks, take part in the survey that dates back to 1971.

The survey data is collected from Monday to Wednesday, and the results are posted on Freddie Mac’s website on Thursday of each week.

Come Thursday morning, the media goes nuts with the data in the report, known as the Primary Mortgage Market Survey (PMMS).

And just minutes after its release, you’ll see startling headlines like, “mortgage rates fall again,” or “mortgage rates climb higher.”

Mortgage Rate Surveys Use Old Data

  • The biggest flaw with the survey is that the rates are delayed
  • Because mortgage rates aren’t static
  • They are constantly in flux, both daily and intraday changes can take place
  • So you’re really just getting yesterday’s news at best

Unfortunately, whatever the message may be for a given week, it’s often old news by the time the media gets their grubby hands on it.

You see, mortgage rates can and will change daily, and sometimes swing dramatically, depending on what’s going on that week.

Lately, there have been plenty of swings thanks to all the uncertainty regarding the direction of the economy.

So a mortgage rate quote (yes, they’re just quotes in the survey) given to a handful of borrowers on Monday may be completely different by Thursday.

Sure, it could be exactly the same too, but chances are it won’t be. And the direction of rates often highlighted in news reports may be completely wrong as well.

Imagine opening up a newspaper on Thursday morning and viewing stock quotes from a few days earlier. That wouldn’t do you much good, would it? Especially if you had to act on it.

Assumptions Aplenty

  • Like all other rates you see advertised or surveyed
  • They make a series of assumptions
  • Such as a 20% down payment or a 740 credit score
  • Which may or may not actually apply to you

Okay, so the data isn’t as timely as the media might make it appear, even if it’s “weighted” and “averaged” and “algorithmically adjusted.”

Yes, I’m making up phrases here, but the point is the data is only as good as the day it is released, at least for the purposes of a prospective borrower shopping rates.

On top of that, the rates in the survey assume the world of you, the borrower.

The rates are based on first-lien (first mortgage) prime (great credit) conventional (non-government) conforming mortgages (small loan amounts) with a loan-to-value ratio of 80% (big down payment).

In other words, if you’re not putting down 20%, the rate in the survey isn’t for you. And if your credit score isn’t tip-top, you should also ignore the rates in the survey unless you want to be disappointed.

If you’ve got a jumbo loan, again, don’t bother reading the survey if you’re curious what rate you’ll actually receive.

Are the Mortgage Rate Surveys a Waste of Time?

  • Averages and old data don’t sound very useful
  • But the weekly mortgage rate surveys do have some value
  • In measuring interest rates over time for research and perspective
  • However for rate shopping they’re probably not all that helpful

I know I sound overly negative about the survey, but back in the day, I used to report on it just like every other major media outlet.

I stopped after I realized it wasn’t adding much value, not to mention the fact that 1000 other news outlets wrote about the very same stuff every Thursday morning.

The surveys aren’t inherently bad, they’re just not a very effective tool for borrowers shopping rates. If anything, they’re good to measure interest rates over time.

And a researcher may use the data to explain something that happened in the past, or to attempt to predict something that may happen in the future.

But for mortgage rate shopping, the Freddie survey (or any of the many, many other surveys out there) won’t do you much good. If anything, it could just frustrate you (and your loan officer) when the numbers don’t match up.

Zillow launched a weekly mortgage rate update a while back that is released every Tuesday.

They actually note that theirs isn’t a survey and the rates aren’t “marketing rates,” but rather are based on custom mortgage rate quotes submitted daily, reflecting the most recent market changes.

Again, take them with a grain of salt because there is no one-size-fits-all in mortgage lending.

So if you want the real skinny, get daily mortgage pricing from the bank or lender you’re working with.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Why You May Want to Apply for a Mortgage When Things Are Slow

Last updated on December 4th, 2019

A new working paper from the National Bureau of Economic Research reveals that it might be best to apply for a mortgage when no one else is.

The analysis, “The Time-Varying Price of Financial Intermediation in the Mortgage Market” (if you like light reading you should check it out), found that price changes on the secondary mortgage market aren’t fully passed on to consumers if volume is high.

Savings Aren’t Passed Along When Demand Is Strong

  • When demand for a certain product, such as a home loan, is particularly strong
  • There is less to no incentive for lenders to pass along associated savings
  • Similar to how retailers won’t lower prices if they’ve got plenty of buyers

The researchers refer to this cost as “intermediation,” which they define as the middleman between the borrower and the purchaser of the loan (the investor), essentially the lender.

This intermediary buys the mortgage from the borrower and then sells it to an investor. They provide the principal balance to the borrower and offer a rebate, otherwise known as a lender credit.

The rebate can cover closing costs associated with the loan so the borrower doesn’t have to pay them out of pocket.

Conversely, the borrower can take less or none of this rebate (or even a negative rebate) and instead go with a lower mortgage rate to save money over time.

In any case, there is a rebate associated with each mortgage rate on a mortgage ratesheet that spells out whether the loan will provide the borrower with funds to cover their costs, or instead cost them at closing.

What the researchers found out was that mortgage lenders were passing along less of this money to borrowers on days when mortgage applications were high.

For example, on the day before QE1 on March 24th, 2008, there were only 35,000 daily mortgage applications, which is historically quite low.

As such, there was plenty of capacity to take on new mortgages, and thus when mortgage rates moved lower most of the improved costs were sent along to borrowers.

In other words, because volume had been so low, mortgage lenders were more eager to lure in customers, so they passed along more of the rebate to prospective customers.

Your Mortgage Rate Might Be Higher If Demand Is Also High

  • Mortgage rates might be higher if demand is also elevated
  • Because lenders have limited capacity to deal with an influx of applications
  • And as noted, less incentive to lower interest rates if they’re already receiving a ton of business

When QE1 was later expanded on March 18, 2009, the number of daily applications went from 60,000 the previous day to 100,000 following the announcement. This time, the pass-through to borrowers was lower because lenders already had their hands full.

This also tells us that there are diminishing returns to monetary policy. If the Fed kept trying to stimulate the mortgage market, lenders would have to pump the brakes to ensure they had the capacity to underwrite the loans and do their job.

There also just isn’t much incentive to keep lowering prices (rates) if demand is super high. What’s the point if the phone is already ringing off the hook?

Lenders also don’t like to bring on more staff for short-lived events, especially if rates rise and demand cools off in a short period of time, which it did on several occasions over the past few years.

Mortgage rates are highly volatile, and can change from day to day and even daily.

Maybe There Could Have Been a 2% 30-Year Fixed

  • During the mortgage boom years between 2009 and 2014
  • Mortgage rates hit record lows
  • But is it possible they could have been even lower
  • Low enough that some lucky homeowners may have received 30-year fixed rates in the 2% range?

The researchers also found that the price of intermediation rose steadily from 2009 to 2014, a price increase that amounted to 30 basis points per year.

They pinned the rise on a decrease in the valuation of mortgage servicing rights, thanks to higher legal and regulatory costs, and revised capital requirements.

This, along with the sensitivity to loan volume, resulted in a total cost of roughly $135 billion to borrowers over that time period.

Put another way, when mortgage rates hit record lows, it’s possible they could have been even lower had lenders actually passed on more of the price improvements from the secondary market, which they typically do.

Instead, they kept more for themselves, either for profit and/or to address the lower value of mortgage servicing rights.

That meant borrowers could have potentially received a 30-year fixed in the high 2% range when rates bottomed, instead of say 3.25%.

So maybe, just maybe, you’re better off applying for a mortgage when no one else. Aside from perhaps getting a better deal, you might also receive more attention and close a lot quicker.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


A Long Mortgage Process Can Be Your Friend or Your Worst Enemy

Posted on August 17th, 2012

Let’s face it, these days it takes a while to get a mortgage. And by a while, I mean months in some cases.

Why? Because everyone and their mother is well aware of the record low mortgage rates, and they all want a bite.

As a result, both purchase and refinance transactions are averaging 48 days to close as banks and lenders merely try to keep up with demand.

This means once you submit your loan application, it will take an entire month and a half to actually close the deal, if you’re lucky.

Obviously this is more important for purchase transactions, as they are more time-sensitive, but timing is very important when it comes to refinancing as well.

Mortgage Rates Subject to Change

When you see a certain mortgage rate advertised online or on TV, you must take it with a large grain of salt.

First off, it’s a perfect-scenario rate for someone that meets certain requirements, such as having a great credit score, a large down payment (or low LTV ratio), and a loan amount below the conforming limit.

Assuming you meet all those requirements (and more), that rate may still be out of reach for one reason or another, one being time. In short, a rate you see today may not be available tomorrow.

That brings us back to that 48 days to close situation. Per the latest Origination Insight Report from Ellie Mae, refis averaged 48 days to close in July, while purchases averaged 47 days.

These numbers have been inflated for the entire year now, and loan originators are swamped trying to get all those applications funded. While they’re working to fund your loan, don’t expect mortgage rates to stand still. Instead, expect a roller coaster ride at best.

Who’s Hurting?

Well, in the past couple weeks mortgage rates have been trending up after touching all-time lows.

As a result, those who submitted loan applications a month or so ago may be in for a rude awakening.

For example, they may have submitted their loan when the 30-year fixed was averaging close to 3.5%, only to find rates have climbed to 3.75% today.

If it’s almost time to close, they’ll have no choice but to take the higher rate (or buy down their rate). A higher rate could also jeopardize their approval if it swings their DTI ratio too high.

Clearly this isn’t ideal, but this is why savvy borrowers lock their rate instead of floating it when rates are attractive.

So those who got greedy or simply didn’t think to lock might be bummed out.

Is Now the Time to Wait?

Because mortgage rates have been climbing steadily on what appears to be no news, we’re probably due for a correction sometime soon.

After all, the economy hasn’t exactly proven itself, and Europe isn’t out of the woods. It seems their latest move is to just keep quiet and hope no one notices what’s really going on.

It certainly seems to be cyclical, with bad news and good (or no news) coming in and out, pushing mortgage rates up and down.

At the moment, we’re in an uptrend, so those who just submitted loans may want to wait it out until things improve again. Heck, you’ve got more than a month to decide.

Sure, you run the risk of mortgage rates climbing even higher by the time you close your loan, but with no great news out there, there’s a good chance rates could trend back down to where they were a month ago.

All that said, make sure you consider timing when submitting your loan. Ask your bank or broker how long it will take to close, and plan accordingly to ensure you get the rate you want.

For the record, the closing rate has been pretty dismal of late. Only 37.9% of refis and 58.7% of purchases actually closed(within 90 days), meaning plenty of loans are getting denied for one reason or another.

Read more: Reasons why your refinance was denied.

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for 15 years.


Will 2018 Be the Last Great Year for This Real Estate Boom?

Last updated on June 7th, 2018

A new survey of housing experts and economists led by Zillow sees home prices rising 4.1% in 2018 before annual gains normalize at around three percent per year.

So far this year, home prices have risen about 6.5% (through October), though this same group of panelists estimated a 5.6% annual gain on average.

A year ago, the group expected home prices to rise just 3.61% in 2017 and 2.97% in 2018.

In other words, they’ve been surprised by the exponential growth just like everyone else, and have constantly revised their estimates skywards.

We’ve Been Hearing This Tune for a While

housing expectations

  • It seems every year the real estate market does well
  • We hear that it could be the last good year
  • Until another year comes along
  • And home prices rise yet again

It reminds me of the mortgage rate predictions, which each year point to higher rates, and in recent years, have been wrong year after year.

But as I warned with rates, they’ll eventually be right, and when that time comes, it could catch some folks out if they opt for an ARM over a fixed mortgage.

Back in 2014, we were told that home prices would peak in 2016, yet another prediction we all know fell flat.

That same forecast had home prices doing nothing for six years once they settled in during 2016. Oops. Wrong again.

I don’t blame them – I think just about everyone felt home price gains were unsustainable back then, especially with the mortgage crisis only years removed.

My sentiment was pretty similar, so throw me into that group as well.

In the image above, you can see what surprised the pundits this year and what they expect next year. As you can see, they seem most confident about higher mortgage rates, but unsure about home price growth slowing. And low inventory seems to be even worse.

It’s Been a Decade Since the Last Crisis

  • One thing of note is that it has been a decade
  • Since the mortgage crisis was in full swing
  • So a considerable amount of time has elapsed
  • But that doesn’t mean the bottom just falls out

Before you know it though, 10 years go by and you think, wait a minute, where did all the time go? The fast and loose days are long gone. Underwriting is sound and today’s mortgage products are timid at best.

But now what? How much life does this housing rally have left in it? What inning are we in? The top of 5th or the bottom of the 9th? Can we continue to defy gravity year in and year out?

The answer might be yes, and it might not be as crazy as it seems when you factor in inflation. Remember, it has been 10 years. The dollar doesn’t stand still either, so the price you pay today is going to be higher than it was in 2006.

Just like the things that used to be 25 cents now cost a dollar. Tried to play a video game lately? Hope you have four quarters handy.

Same deal with home prices. As I wrote back in March, despite new all-time nominal highs, real home prices (factoring in inflation) were still some 33% below the 2006 peak.

Back to that baseball analogy regarding how much more upside is left in this seller’s market, which many think will turn into a buyer’s market soon.

Apparently, the housing market follows an identifiable boom and bust cycle that tells us the next housing market peak will be around 2024.

Then shortly thereafter we might see another downturn, similar to how home prices peaked around 2006-2007, and then both real estate and the economy tanked a couple years later in 2008 and 2009.

Ideally, the next housing market crash won’t be nearly as bad, but depending on what transpires between now and then, it’s possible we could repeat history.

A Buyer’s Market in 2019?

buyers market

  • Everyone is wrong until they’re right
  • And I suppose with each year that goes by
  • Their prediction of an end to all this home price appreciation
  • Will become a better bet, though it’s unclear when that happens

The image above is from last year. We know 2017 wasn’t a buyer’s market, and 2018 doesn’t appear to be either, despite the overwhelming support for that answer a year ago. So we push it forward a year to 2019.

Zillow’s most recent survey of experts sees the housing market favoring buyers in 2019, though with inventory still abysmal, new home building largely absent, mortgage rates low, and forecast to remain low, the economy on what appears to be an upward trajectory, you have to wonder why.

Some of the experts still predict close to 5% annual appreciation through the five-year period ending in 2022, which I doubt would surprise anyone.

And those same experts expect mortgage rates to remain favorable, with the 30-year fixed climbing from around 4% to 4.5% next year, with the low-end prediction 4.28% and the high-end 4.70%.

Even though you might be seeing a seasonal slowdown right down, with price cuts and stagnant listings, don’t expect home prices to be on sale in 2018.

It’s typical for things to quiet down around this time of year, only to come back with a vengeance in spring and summer.

This is great news for existing homeowners, who continue to gain home equity, but continued bad news for those still looking to get into the market, especially if rates also rise.

The saving grace might be an expanded credit box, with lenders adjusting their risk appetite to help more would-be buyers get keys to a new home. Unfortunately, that same shift is often what leads to trouble down the road…


FHA 203k Loan Program: The All-in-One Renovation Mortgage

Last updated on July 27th, 2020

In a nutshell, the FHA 203k loan program allows prospective home buyers to finance the cost of a property and improvements in one convenient mortgage.

Instead of buying a fixer-upper, taking out a mortgage, and then later taking out a home equity line or executing a cash out refinance to fund necessary improvements, home buyers can apply for a single FHA 203k loan at the time of purchase and get all the money they need in one shot.

This means they can finance the property and get funds to repair or improve/upgrade their home in a single mortgage loan. This is both convenient and at other times necessary to qualify for FHA financing.

An FHA 203k loan can also benefit existing homeowners looking to improve upon their homes – they can get funds for improvements based on the after-improvement value of the property, helpful if they’ve got limited equity.

The value of the property is determined by using the lower of the value of the property before renovations plus the cost of those fixes, or 110% of the appraised value of the property after it has been rehabbed.

Like a traditional FHA loan, it is a government-backed loan that must be originated by an FHA-approved lender, making it easier to qualify for in some instances and also attractively priced.

They are also advantageous to the originating lender because they can get insurance for the loans before the improvements to the underlying collateral are actually made.

FHA 203k Loan Requirements

FHA 203k

  • Property must be at least a year old
  • And must have been occupied at some point
  • Some portion of existing foundation must remain
  • Borrower must occupy the property as their primary residence

The typical FHA loan you hear about most is technically known as the “FHA 203(b)” loan program. It’s just that very few people refer to it as such because it’s the default option. So there’s no need to add those numbers and that letter to the end of it.

It allows borrowers to purchase or refinance a home using FHA financing that is more or less move-in ready. You come up with your down payment and the remaining balance is the loan amount you pay back, simple as that.

Then there’s the FHA 203k loan program, which is referred to as such because it’s not the flagship product offered by the FHA. It’s more specialized, though also fairly common.

As noted, it’s a rehabilitation FHA loan, but like the FHA 203b, you must meet the same credit and down payment qualifications.

This is generally good news as you might be able to qualify with a credit score as low as 550, or if you have a score of 580 and above, a down payment of just 3.5%.

Additionally, just like a standard FHA loan, the 203k mortgage requires you to pay both upfront and annual mortgage insurance premiums.

You are able to take out a 203k loan on a one-to-four unit owner-occupied property (primary residence), including condominiums and townhomes. Also, manufactured homes built after 1976 are eligible, as are mixed-use properties.

However, the property must be at least a year old (for renovations to make sense), and existing homes must have been occupied (no new construction).

Remember, it’s a renovation loan, not a build a new home loan…

And while a complete teardown is possible, at least some portion of the existing foundation must remain in place. Think of it as a loophole.

If it’s a condo, any rehab is limited to the interior of the unit and the max loan amount cannot exceed 100% of the after-improved value.

Second homes and investment properties are not eligible, and luxury items and/or improvements aren’t permitted.

This includes swimming pools, spas, saunas, tennis courts, built-in BBQs, outdoor fireplaces, satellite dishes, and other similar items that aren’t exactly necessities.

How the FHA 203k Loan Program Works

  • It’s a renovation loan and standard mortgage in one
  • That requires FHA loan approval
  • And lender review of any proposed construction
  • Everything is financed in a single loan

It starts off similar to any mortgage application, in that you must qualify for a home loan based on certain income and credit requirements, as discussed above.

An added step requires the borrower to get bids for the work they’d like to complete, or need to complete to get the property up to necessary standards.

In the case of a full 203k loan, a consultant is selected (by the lender) and works with the borrower to determine necessary/wanted repairs, which are then presented to the lender.

They start with a home inspection to address health/safety needs, then move on to borrower’s wants.

If it’s a limited 203k loan, the borrower must still gather contractor bids and send them to the lender for review.

This is a good time to estimate the market value of the property once the proposed changes have been completed.

Assuming everything looks good, the loan is underwritten per usual, the home is appraised with an as-is value and an after-improved value, and eventually funded (hopefully).

The additional loan proceeds (beyond the base loan amount) earmarked for the improvements are placed in a rehabilitation escrow account.

Once the project begins, draws can be taken from this escrow account at different intervals to pay the contractor(s).

Once all the work is completed, it is verified by the consultant (if applicable) and/or an inspector and remaining funds are released.

The project should start within 30 days of loan closing and be completed within six months.

Advantages of the 203k Loan Program

  • You only need one loan for two purposes (purchase and repairs)
  • Rehabs funds are financed into the original loan amount
  • You can use the “after improved” value of the property
  • The property doesn’t have to meet minimum property standards at closing
  • Necessary improvements/repairs can be made after closing
  • These improvements can increase property value and build home equity
  • May alleviate inspection and appraisal concerns (e.g. coming in low)
  • One set of closing costs and a single close
  • Non-occupant co-borrowers are permitted
  • Not limited to first-time home buyers
  • Gifts acceptable source of funds
  • You can have the house you want now, even if you don’t have the money for repairs
  • May increase your home buying options with limited housing inventory (can consider fixers)

Disadvantages to the 203k Loan Program

  • More fees not found on a traditional mortgage
  • Potentially a higher mortgage rate
  • Restrictive in nature because you don’t just get cash in hand
  • Money must be kept in an escrow account
  • Unused cash must be used for additional renovations or to pay down principal balance
  • Must get contractor bids and manage mortgage process at same time (stressful?)
  • Can’t be used on second homes or investment properties
  • More paperwork, potentially a longer loan process
  • Generally need to work with a contractor who understands 203k loans to avoid headaches

FHA 203k Loan Types

  • There are a variety of home loan options available
  • Including both fixed-rate mortgages
  • And adjustable-rate mortgages

The FHA 203k loan also offers flexibility in terms of home loan type. You aren’t just restricted to the 30-year fixed.

Assuming the lender you’re working with offers it, you might be able to get a 15-year, 20-year, or even a 25-year fixed as well.

And adjustable-rate mortgage options are also permitted, such as a one-year ARM, 3/1 ARM, 5/1 ARM, and 7/1 ARM.

The ARMs might come in handy if you expect the property value to increase significantly as a result of the changes, thereby allowing a profitable sale in the near future or a more cost-efficient refinance to a conventional loan.

While the 203k can be an all-in-one solution, it can also be a short-term loan, so it’s wise to look at all financing options.

Standard 203k Loan (Full)

  • Allows for bigger renovation jobs
  • No cap in terms of what you can borrow
  • But minimum cost of improvements is $5,000
  • A HUD-approved 203k consultant is required

There are two main types of 203k loans, including the standard, or “full 203k loan,” and the streamline 203k loan.

Let’s take a look at the full 203k loan first to get a better idea of how it works.

While both programs serve the same main purpose, to finance renovations into a single home loan ahead of time, the standard 203k allows for bigger jobs.

So if you need to tear down the house and rebuild, or add a bedroom or bathroom, you’d likely be using the full 203k loan program because it allows for structural improvements.

Additionally, you aren’t capped in terms of what you can borrow, up to the FHA max loan amount that is. But the minimum cost of improvements must be $5,000.

But because it’s a major renovation, a HUD-approved 203k consultant (selected by your lender) is required to supervise the project.

This individual basically oversees the construction project from start to finish, and acts as a liaison between the borrower, lender, and contractor(s).

They assess the property, review proposals, and inspect the work in order to release funds to contractors.

There is also a fee for the consultant, which cannot be financed into the loan.

Their fee might range from $400 to $1,000, and is based on the cost of the work to be completed.

The full 203k loan also requires a contingency reserve, which is money that must be set aside for the unexpected.

Because the jobs are typically pretty significant, it’s possible something might be discovered along the way that requires additional funds to get the property in acceptable condition.

You won’t want to run out of money on the job, so a certain percentage of the total cost of repairs is required.

Any leftover funds can be used to do additional work or to pay down the principal balance of the mortgage. Just note that the latter option won’t lower the monthly mortgage payment. It will only result in interest savings.

The standard 203k loan also allows for up to six monthly mortgage payments to be included in the loan. This is handy if the homeowner won’t be able to occupy the property due to the renovations taking place.

Examples of typical improvements or renovations for a full 203k loan:

– Room additions
– Structural work
– New flooring
– New HVAC
– Plumbing
– Electric
– Roofing
– Septic

Streamline 203k Loan (Limited)

  • Ideal for smaller renovation jobs
  • Capped at $35,000 in property improvements
  • No major renovations (like foundation work) allowed
  • 203k consultant isn’t required

We’ve already discussed the full 203k loan, now let’s take a look at the newer “streamline 203k loan,” which as the name suggests is more simple and straightforward.

First and foremost, with a streamline 203k loan you may only borrow up to $35,000 to finance property improvements. Anything above this amount will push you into a standard FHA 203k loan. But there is no minimum cost of repairs as there is with the standard 203k.

Additionally, the scope of the work you may do is more limited. For example, you can’t use a streamline 203k to do foundation work, as that would be considered a major renovation.

However, you can use a limited 203k to renovate a bathroom or a kitchen, or to do other more minor upgrades to the property. In that respect, the streamline might be looked at as a more cosmetic loan, though relatively large jobs are still possible.

The upside to the streamline is that it’s an easier process than the full 203k loan, which keeps it an attractive option for a borrower not looking to get entangled in red tape.

The smaller job also means a consistency reserve isn’t explicitly required (but could be a specific lender requirement), nor are 203k consultants, though one will still be strongly encouraged.

The streamline version also requires the borrower to occupy the property within 30 days of closing.

Like the full version, you have the option to do a streamline 203k refinance if you already own the home you want to renovate. This home refinance option could allow you to make improvements even if you have limited home equity.

Examples of typical improvements or renovations for a limited 203k loan:

– Minor remodeling (non-structural)
– Painting (interior or exterior)
– Weatherization
– New flooring
– New windows
– New kitchen cabinets
– Upgrade appliances
– Repair existing HVAC system
– Repair roof, gutters, downspouts
– Repair deck, patio, porch, etc.

Are FHA 203k Loans a Good Deal?

  • It depends on the contractors you use
  • And what the alternatives are
  • But if you only qualify for FHA financing
  • It might be your only option if the repairs are a necessity

Like everything in life, it depends. If you can only obtain FHA financing and the home won’t qualify without the repairs, there’s not much of an alternative. This might be the case if you have a low credit score and illustrates why maintaining excellent credit is so important (it gives you the full slate of options).

You also have to consider all the fees involved, which will outweigh those on a traditional mortgage and/or result in a higher mortgage rate.

As noted, you might have to pay a consultant fee, along with inspection fees, permit fees, title update fees, a plan review fee, a supplemental origination fee, and so on.

Those can all add up, and should be considered if you have other options, such as a traditional cash out refinance or a second mortgage. I’ve even noted that some smaller home improvements could be covered with a credit card if it offers 0% APR and a high enough credit limit.

Also note that there is a renovation product available via a VA mortgage if you happen to be active duty or a veteran.

One potential winning aspect to the 203k is that it’s highly regulated, so it could be safer for someone working with contractors who isn’t knowledgeable about construction costs and what such projects entail.

In that case, it could help someone avoid getting taken for a ride.

While on the topic, you may want to select a contractor who has 203k experience so they know how to navigate the lending process.

It may also be advisable to seek out 203k lenders specifically, those that specialize in these types of mortgage loans above all else. Otherwise it might prove to be a really aggravating month or three.

Make sure the loan officer you choose to work with is well-versed in the loan program to avoid any hiccups or delays. If they mainly originate conventional loans, they might be in over their head.

At the end of the day, the restrictive nature of 203k rehab loans can be limiting, with certain items not allowed (like swimming pools), and the stringent guidelines and deadlines might be frustrating to some.

A homeowner might just want cash in hand to do with as they please, despite it potentially requiring two loan approvals instead of one.

Also consider the fact that FHA 203k loans require borrowers to pay mortgage insurance premiums, another cost you may want might want to avoid.

Of course, there’s always the possibility of refinancing away from the FHA down the road. Or selling the home once the renovations are complete.

If you want to avoid an FHA loan, you can also consider the newer Freddie Mac CHOICERenovation Mortgage that serves a similar purpose.

Read more: The best ways to pay for home renovations.


Mortgages for Doctors: Expanded LTVs and Large Loan Amounts

Last updated on July 27th, 2020

If you’re a doctor, or even a resident, or even a veterinarian, getting a mortgage can be a little bit easier thanks to so-called physician mortgages offered by most major lenders.

Just about every bank offers a special mortgage program for doctors, including large commercial banks like Bank of America and small local credit unions.

The names of these programs, along with the guidelines and perks, will vary from bank to bank. They’re also not heavily advertised, so you may have to do some digging to find all the details.

But they all seem to have two things in common; large maximum loan amounts and high loan-to-value ratios (LTVs).

My assumption is lenders are keen to offer these loans to future doctors because they’ll be good clients with lots of assets, ideally kept with the bank. In fact, you may need a prior banking relationship to get approved.

What Is a Physician Mortgage?

doctor mortgage

  • A mortgage designed specifically for doctors
  • As well as dentists, orthodontists, and veterinarians
  • Allows for flexible home loan financing
  • Regardless of medical school debt and limited employment history

In a nutshell, it’s a home loan designed specifically for doctors that has unique features traditional mortgage loans may not offer.

But we’re not just talking medical doctors (MDs). These loan programs are often available to a wide range of disciplines, including dentists, orthodontists, veterinarians, ophthalmologists, and even pharmacists and lawyers.

If you have any of the following licenses, you might be able to take advantage of one of these specialty programs:

– MD
– DO
– OD
– PharmD

Additionally, you can often be a resident, fellow, or practicing physician to qualify. So they’re pretty flexible in terms of where you’re at in your career.

This is especially true if you’ve yet to start a new job, but have an employment contract in hand.

Banks and lenders know you’ve got a lot of earnings potential if you’re going to be a doctor, even if you don’t have the down payment funds necessary to buy your first home. Or even the pay stubs to document your income.

It’s a common problem, thanks to the high cost of medical school, and the fact that doctors, like anyone else in school, don’t get paid the big bucks until they’ve completed their training.

Instead of saving for a down payment, they might be busy paying off costly student loans.

Compounding this is the fact that someone who will be highly compensated in the near future might be looking at an expensive home purchase.

That’s why physician mortgage programs tend to allow for higher loan amounts than typical loan programs, along with higher LTVs. Those are certainly the two main distinctions.

Doctors Can Often Get a Mortgage with No Money Down

  • Physician mortgages come with flexible terms
  • Including low and no-down payment options
  • And very large loan amounts
  • To suit home buyers at all levels

In fact, many of these programs will allow doctors to get a mortgage with no money down, something most individuals can’t readily take advantage of.

You might see something like 100% financing up to $750,000 or $850,000 loan amounts, and just 5% down for $1 million-dollar loan amounts, assuming you have a decent credit score.

That’s a non-conforming loan amount (jumbo) with zero down payment requirement. Good luck finding that elsewhere.

Additionally, doctors might be able to get that level of financing without private mortgage insurance (PMI), which is typically required for a loan amount above 80% LTV.

The hitch is that even if PMI isn’t explicitly required on high-LTV mortgages, it’s generally just built into the rate. So instead of say a mortgage rate of 3.75%, you might pay 4% instead. You’re just charged a different way.

They Understand Your Employment Situation Better

  • Banks and lenders that specialize in physician mortgages
  • Will be better equipped to navigate your unique financial
  • And employment situation
  • Unlike some conventional lenders

Another perk is that the bank or lender (or credit union) offering this type of loan should have a better understanding of your situation.

Instead of wondering what documentation they’ll need to get your loan approved, they’ll likely be familiar with paperwork requirements and the handling of student loan debt when it comes to your DTI.

Ideally, this means you’ll stand a better chance of getting approved for a mortgage with fewer snags or gotchas.

This can be really important if you’re relocating to a new city and trying to nail down living arrangements.

As far as loan options go, just like normal mortgages you can generally get a fixed-rate loan or an ARM. Some doctors may favor ARMs because of the lower monthly payment, and the fact that they may sell or refinance before the initial fixed period ends.

Speaking of, because the terms of a physician mortgage may not be as attractive as a typical mortgage, it might make sense to go with an ARM.

After all, you might move up to an even larger home once you’re more established, you could relocate to a different city for a new position, or perhaps you’ll just be able to pay down a large chunk of your mortgage balance early, making the type of loan less significant.

Consider Traditional Mortgage Options Too

  • You don’t need a physician mortgage if you’re a doctor
  • So be sure to explore all home loan options
  • To ensure you don’t miss out on a better deal
  • Or a lower mortgage rate

It should also be noted that the more flexible guidelines associated with a doctor mortgage don’t come free of charge. While the lender is probably happy to offer financing to a well-qualified borrower, they will often charge a higher interest rate in exchange.

Once you are able to pay down your mortgage, it could make sense to look into refinancing to a traditional mortgage, especially if your LTV is low enough to avoid mortgage insurance and most pricing adjustments. These loans typically do not have a prepayment penalty.

If you’re paying down a mortgage at 95% or 100% LTV, chances are you’re paying a lot more in interest than you otherwise would with a lower LTV mortgage, such as one at 80% or less.

Also be sure to shop both traditional and physician mortgages to determine which is the better option. You might not need to get a mortgage via one of these special programs if you have down payment funds available, or even a gift for down payment from a relative.

Doctor Mortgage Loans in Review

  • Allow for large loan amounts (up to $1 million+)
  • Often don’t need a down payment
  • Typically do not charge PMI
  • Flexible qualifying guidelines with regard to student loans
  • Generally need good credit (720+) to qualify
  • Mortgage rates may be higher than traditional loans
  • Both fixed and adjustable-rate options available
  • Can be a resident, fellow, or practicing physician
  • Ability to obtain financing before your job starts