Tuesday April 9, 2019
It was the phone call I received from a young incoming resident physician whom had just been declined by another bank for his home loan (the day before he was supposed to close) that motivated me to write the book Why Physician Home Loans Fail – How To Avoid The Landmines For a Flawless Home Purchase.
Unbeknownst to him, he had made all the hallmark mistakes that typically go with a last minute mortgage decline and it was about to cost him dearly. He and his family had no place to go. He was to start orientation at the University of Utah residency program the next week and begin working long hours in his residency program. It was a tough situation for him and his family, they had to find temporary housing and he nearly lost their home.
It ended well enough, we were able to negotiate a little more time with the seller, close his loan and get him into his home within a few weeks. But think of the stress, friction, and money spent in those two weeks as his family awaited to see if we could save the deal.
The reality is he could have avoided all that stress and inconvenience for his family, by taking the time to prepare correctly and research lenders before finding a Realtor and making an offer on a new home.
In this article, I will outline for you the three most common reasons why medical professionals are declined for home loans and what you can do to avoid it.
Overconfidence- Many of the doctors we serve are acutely aware of their financial wherewithal and know they will have no problem making the monthly mortgage payment. As such they assume qualifying for a doctor mortgage is a no brainer. Some also incorrectly believe since they have an MD, DDS, DVM, etc. that they will automatically qualify for a medical professional home loan without further qualifying criteria.
They are wrong in both assumptions. I cannot stress how critical it is that you understand the need to qualify not in your eyes, but in the eyes of the mortgage underwriter who has specific guidelines, which must be followed regardless of your professional status, income potential and great credit history.
Quite frequently we see credit, down payment and employment contracts issues that can derail your ability to qualify for a mortgage loan. These type of issues are real and can cause mortgage underwriters to decline your loan application regardless of how much money you will be earning and your ability to make the payment.
The key here is to understand that there are underwriting guidelines that are likely beyond your scope of knowledge and making sure you present all the data to your lender before you start working with a Realtor and searching for a home (definitely before you make an offer).
Putting too much emphasis on interest rate and not enough on experience and reputation- Mortgage marketers do what marketers do, they make their products online and otherwise look as attractive as possible. Often times that means baiting people to inquire by flashing ridiculously low interest rates.
The problem with searching for a home loan in this way is that clients often ignore the banks customer reviews, their history serving medical professionals, and if their situation will qualify for that loan program.
One of the things we recommend is that you Google the bank name followed by mortgage customer reviews. You can also go to www.consumeraffairs.com and search for the bank you are researching.
Lastly, you can ask the loan officer you are dealing with to provide you with a list of 5 to 10 physicians they have worked with in the last year for reference.
This extra due diligence step is significantly less work and stress than getting declined after you have written an offer on a home, and having to find temporary housing for your family.
Rushing your pre-approval* & not completing a full credit and income review-
Just last night, I received a referral for a client that had been “pre-approved” with another bank, assumed she was good to go, but when her loan finally made its way to the underwriter, she was declined due to not enough credit trade lines. A credit trade line is mortgage jargon for an account that is open and reporting to credit for a specified minimum amount of time.
She learned there are underwriting guidelines that impact your approval or denial for a home loan, that are far beyond what you might anticipate or guess.
Unfortunately, this lesson was learned after she had written an offer, placed $1,000 in earnest money, paid for a home inspection, an appraisal, and flown out to visit the property. All told, she’s likely invested over $3,000 into this property and finding you don’t qualify for a physician home loan is less than ideal.
Luckily, we do not have that same underwriting guideline with our programs and we should be able to close her loan within a couple of weeks, it looks like all will end well. But imagine the tremendous stress and anxiety that could have been avoided had she followed this advice.
The ONLY way to know if you are really going to qualify, is to insist on a full credit and income approval, before you write an offer.
A pre-approval is quick, easy, and enticing to settle for. The reality is that loan officers are rewarded to say yes, they are paid to bring loans in the door. There is nothing sinister or wrong with that, but it’s important for you to understand their job is to obtain business and in their speed to pre-approve clients (that are often in a hurry to make an offer), they can overlook details than can later lead to loan declines.
The mortgage underwriter has the final say in a loan transaction, they are the gatekeeper whose job is literally quality control and to ensure that your loan file meets the exact specifications of the underwriting guidelines.
It’s unfortunate that most banks don’t introduce you or your file to the underwriter until you have already written an offer on a home, paid your earnest money deposit, appraisal, inspections, and any other incidentals you might have occurred in the due diligence process.
This is not the time to learn you have a problem. That is why we advise every client to go through our full credit and income approval process. We literally have the ability to submit all employment contracts, income, assets, credit, everything associated with you as a borrower directly to our in-house underwriter, prior to you writing an offer on a new home. We’ve literally re-engineered the underwriting process so that you can confidently make an offer. Once we have gathered your documents and completed our credit and income approval, we can close most transactions in seventeen days or less.
If you are interested in learning more about the mortgage and home buying process, I would invite you to download and read my book Why Physician Home Loans Fail – How To Avoid The Landmines For a Flawless Home Purchase.
*Pre-approval is based on a preliminary review of credit information provided to NEO Home Loans which has not been reviewed by Underwriting. Final loan approval is subject to a full Underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.