Did you ever think about what your life would be like if you could live it backwards? And how often have you said, “If I only knew then what I know now”? Often people lament about “If Only” and the “Shoulda, Coulda, Woulda” of situations. That is exactly what this is! If I only knew about this hack when my wife and I were trying to pay off our mortgage and all our debts, things would have been paid off quicker, and we would have saved a lot of money – six figures to be exact.
Well… it is too late for me, but it is NOT too late for you. Learn from my mistakes, so you don’t make the same ones. This hack would have saved me $120,000.00, and it may save you even more.
So, how?
Let’s talk about a Professional Mortgage Loan. These loans allow those with high earning incomes to secure financing for homes with fewer restrictions than those imposed by conventional loans. They are designed for high wage earners such as doctors, certified public accountants, lawyers, pharmacists, and other high-income-potential professionals.
Professional Mortgage Features: Some of the features, pros and cons, of these loans compared to traditional mortgage loans include the following:
- No Private Mortgage Insurance (PMI)
- Better Financing Options
- Ability to Qualify with FUTURE Incomes
- Ability to Qualify with Deferred or Income-driven Student Loan Payments
Let’s delve into each of these, so you have a better idea of these features and how they could save you money.
No Private Mortgage Insurance (PMI): Private Mortgage Insurance referred to as PMI is insurance that protects the lending company in the event that the borrower fails to make payments. It is a safeguard for the bank or lending institution, but it is costly for the borrower. PMI normally ranges from 1% to 3% of the amount financed along with the borrower’s credit score. FHA loans are government-backed mortgage loans that are insured by the Federal Housing Administration (FHA) and always carry with them PMI. With conventional mortgage loans, the PMI is removed when the borrower has 20% equity in the home. Let’s crunch some numbers, so you can better understand the potential savings.
My situation: My wife and I put 3.5 % down on our home, had an FHA loan, and, therefore, had to pay PMI of about $150.00 per month. We paid PMI for five years totaling $9,000.00. Because I was a CPA at the time, instead of an FHA loan, I could have opted for a Professional Mortgage Loan instead, thus investing the $150.00 a month. Over the course of thirty-five years, that $150.00 monthly investment could have grown to about $120,000.00.
Better Financing Options: Professional Loans allow borrowers to qualify for higher loan amounts with less money down. This is due to the fact that the lending institutions want to build a relationship with high-earning customers and realize that the income for the professionals will continue to rise beyond their beginning salaries. For example, a doctor in residency does not earn what he or she will as an attending physician or specialist. Knowing that, Professional Loans allow qualified borrowers to exceed the normal 2% to 2.5% of gross income. In addition, Professional Loans allow lower down payments than conventional or FHA loans and some don’t require any down payment at all. Some Professional Loans allow borrowers as much as a $2.5 million loan amount with as little as 5% down. My take is that this is where borrowers can really get in trouble as it is easy in this situation to overextend. I am not in favor of being over extended even when there is the potential and likelihood for increased wages.
Ability to Qualify with FUTURE Incomes: Most conventional loans require paystubs, establishing a work history along with a myriad of other documents and credit history. Professional Loans do not require the same type of paperwork. In fact, some only require a copy of an employment contract and letter from the employer in order to qualify. This means that a borrower can qualify for a loan almost immediately rather than having to wait to establish a work history. In addition, the loan amount is not contingent on the current amount of income but can take into account the income potential. Again, as noted above, this is a potential for becoming financially overextended.
Ability to Qualify with Deferred or Income-driven Student Loan Payments: Professional Loans often qualify those with high earning incomes based on their income-based payments and exclude student loans that are in deferment. This changes the debt-to-income ratio, thus allowing these borrowers to qualify for these loans.
Conclusion: So instead of saying you wish you knew something or wishing you could go back and do things differently, if you are in a high earning profession, you may want to look into Professional Loans before considering a conventional or FHA loan. Do your research. There are a variety of these Professional Loans at different banks and lending institutions, so you will want to hone in on your own profession for specifics. For more help, contact me at Budgetdog. I would be happy to help walk you through this process and compare this to other conventional loans to uncover the best options for you and to see how much money you could save. I don’t want you to say, “If only.”