TRANSCRIPT
00:00:00 In this section of Wealth Wednesday Ep. 9, the topic is physician home loans and their benefits. Nate Crannell, the host, is joined by Mike Neubauer, CEO of Grand Vision Companies, to discuss the pros and cons of these loans. Nate, playing the role of a physician, asks why a low or zero down payment is important for a physician home loan. Mike explains that having flexibility to put down less money upfront allows physicians to keep cash on hand for emergencies, investing opportunities, or relocations. Traditional financing options, such as FHA or VA loans, typically require a down payment ranging from 5% to 0%. However, physician loans offer more individualized deals, allowing banks to bend the rules and tailor the loan to the borrower's specific situation. Building a good relationship with the bank offering the physician loan is crucial, as each bank may have slight variations in their loan offerings.
00:05:00 The speaker discusses the individualized approach of banks offering physician loans. Unlike Fannie Mae, Freddie Mac, and other secondary market lenders, these banks retain the loans and provide a more personalized process. The benefits and requirements vary between banks, so it's essential to speak with multiple lenders to find the best fit for your situation. One significant advantage of physician loans is the faster closing rate, allowing you to make a stronger offer to sellers and secure a better deal on the property. Additionally, student loan debt is not always counted in the underwriting process, giving borrowers more flexibility. The banks can consider each applicant's unique financial situation and make individual decisions, providing more flexibility than FHA or conventional loans.
00:10:00 They discuss the benefits of physician loans for banks and borrowers. Physicians are considered low-risk borrowers with a high likelihood of making significant income in the future. Banks view this as an opportunity to build a long-term relationship and potentially offer additional financing options. Physicians, in turn, benefit from favorable loan terms, flexibility, and individualized decision-making. The speakers also touch upon the absence of Private Mortgage Insurance (PMI) in physician loans, which can lead to lower monthly payments over the life of the loan. By not requiring a 20% down payment, physician loans reduce the upfront cost for borrowers and offer a win-win situation for both parties. However, it's important to note that other loan options, such as Fannie Mae, Freddie Mac, or VA loans, may be more suitable for certain situations.
00:15:00 Mike explains the reasons behind physician loan companies offering no private mortgage insurance to doctors. The banks understand that doctors are less likely to miss payments due to their income and strong financial standing. However, the mortgage insurance is necessary for the banks to sell the loans in packages to pension funds and other buyers, ensuring that every loan meets the same requirements and standards. The speaker also mentions alternative loan programs like VA and FHA loans, which offer advantages such as 0% down payment and good rates for veterans (VA loans) and those buying in rural areas (USDA loans). These programs have government guarantees that encourage lenders to offer competitive rates.
00:20:00 The discussion revolves around different loan programs for veterans, USDA, VA, physician loans, and FHA, and their unique features and eligibility criteria. The VA and USDA loans are more individualized with specific subsets of veterans and rural area residents, respectively. These loans may have better rates but come with limitations. Physician loans offer a more individualized approach, but they may not be the most competitive in terms of rates. FHA is considered a backup option with lower down payments and different mortgage insurance premiums, but it is less flexible and may not be the first choice for those who qualify for other loan programs. When it comes to banking relationships, big institutions like Chase and Wells Fargo are less likely to offer individualized loans and may not be the most flexible or competitive options. Credit unions may have some of these options but have to maintain fairness for all members, limiting their flexibility. Local banks are the best option for flexibility but require the borrower to navigate the conversation carefully to ensure a win-win situation.
00:25:00 The speakers discuss the flexibility and nuances of physician home loans. They explain how a physician can negotiate with a bank to secure better loan terms by offering something in return, such as a larger deposit or future income. The speakers emphasize the importance of building a relationship with the bank and having a solid understanding of their needs to effectively negotiate. They also mention the Doctors and Dollars 5-day Financial Challenge, which aims to provide viewers with the knowledge and tools to build a strong financial foundation. The speakers suggest researching various loan topics and learning from experts to gain practical knowledge. They also highlight the importance of staying informed about changing bank needs and maintaining an active relationship with the bank.
00:30:00 Mike advises individuals on how to improve their loan scenario by having conversations with multiple lenders. They suggest setting up appointments with five different lenders that offer physician loans and taking notes on commonalities and differences. While monthly payments and interest rates are important, the speaker emphasizes that a lower interest rate over the life of the loan can significantly impact the overall cost. However, most people focus solely on the rate and overlook the bigger picture. The speaker encourages individuals to consider the first 10 years of the loan and negotiating a lower down payment if possible, even if it means a slightly higher rate, to start their investing journey sooner.
00:35:00 In this section, the speaker emphasizes the importance of considering individual circumstances when deciding on a mortgage rate. While a lower rate may seem attractive, it could limit cash flow for potential investment opportunities. The speaker encourages evaluating future plans and considering the potential cost of missing out on investment opportunities by focusing too much on a lower mortgage rate. The speaker also mentions the example of a physician who misses out on a business opportunity due to having all their cash tied up in a mortgage down payment. The cost of having cash available for investments is approximately 2%, according to the speaker.
00:40:00 They then discuss the importance of having cash on hand for investment opportunities and the potential downsides of putting a large sum of money as a down payment on a house. The speakers argue that having cash available allows individuals to seize investment opportunities that could potentially yield high returns, while being stuck with a large mortgage and limited cash can hinder one's ability to invest. They also caution against the use of home equity lines of credit as a source of investment capital, as it comes with interest payments and can limit one's cash reserves. The speakers emphasize the importance of having a cash reserve for potential opportunities and the role of emotions in financial decision-making.
00:45:00 The speaker emphasizes the importance of having a "wealthy mindset" when it comes to investing. He explains that individuals who earmark money for investments are more likely to find valuable opportunities than those who are distracted by market fluctuations. The speaker also advises physicians to have hypothetical conversations with banks about their loan options based on their credit score before a hard pull is conducted. He suggests speaking with two mortgage brokers to explore various wholesale lender options and learn the lingo of the industry. Additionally, having a local lender can be beneficial for future investing endeavors.
00:50:00 Mike explains the importance of building long-term relationships with lenders over focusing solely on getting the best rate at that moment. He explains that having a strong connection with a lender can lead to valuable opportunities in the future, such as being informed about potential deals or helping to facilitate transactions. The speaker contrasts this "wealth mindset" with the "rich mindset," which prioritizes winning today over winning for the long term. He advises against making loan decisions solely based on a small difference in percentage rates, as the long-term benefits of a strong lender relationship can outweigh the initial savings.