Here is a real-life scenario based on a post I read in a physician chat room: A newly attending physician and his young wife are in the process of buying a new home and relocating across the county. Excited about the adventure and future ahead of them, they pack their belongings in the largest U-Haul trailer they could rent and drive to their new home state.
The day before their closing deadline, they arrive and find their loan is not cleared to close. The bank wants to do an internal audit that will cause further delay. They are forced to wait for days without getting any clear response or timeline from the big national bank they were working with. They try everything, calling the loan officer, the processor. They drive to a local officer and ask for a manager, all to no avail.
The days turn into a full week of missed work, living in a hotel, and still no communication as to what is going on or if the loan will eventually be approved or declined. Their week off , the big move week, is spent frantically trying to keep the real estate transaction together and pleading for updates from the loan officer as to when they might close.
Unfortunately, the young physician’s wife is due back at the law firm she works for and she’s forced to leave, U-Haul van full of furniture and home still in limbo. The young couple cannot understand or get a straight answer as to why the bank is having difficulty processing and closing their loan.
Needless to say, they are extremely angry, which they have made very clear to the “pencil pushers” (the physician’s exact words) processing their loan. The physician ends his post with, “And we wonder why there is/was a mortgage crisis.”
This nightmare scenario is not unique. Unfortunately, we regularly receive calls from clients with similar stories, the cause of which is, typically, one or both of the following common mistakes made early in the loan process:
- The loan officer they are dealing with has no experience with physicians. Most loan officers do not understand complicated physician employment contracts, closing on future income (before employment even begins), 1099 independent contractor positions, self-employed physician practices, student loans with IBR (income-based repayment), deferments, forbearances, or the complexity these factors bring to the underwriting process, and the effect they have on the final underwriting approval or decline.
Virtually all physicians deal with these issues at some point in their career; the average loan officer sees these issues only once in a blue moon and, consequently, misunderstands and mismanages them frequently.
- The physician client did not do sufficient research early enough in the process. This is hard for clients to accept, but the reality is that many of the physicians we advise have a very complex loan to underwrite. There are often multiple moving pieces: new positions, complicated employment contracts, independent contractor employment, relocation across the country, student loans coming out of or into deferment, and limited down payments, which are often gifted or coming from relocation or sign-on bonuses. All of which can be a reason for decline by an underwriter using conventional underwriting guidelines. Understand that from your logical perspective, you are the most intelligent, high-income, high-credit, dependable person you know.
To the average loan officer and mortgage underwriter, your situation is confusing and doesn’t fit the guidelines. Simply put, many physicians don’t fit cleanly into the conventional underwriting “box.”
HUGE CONFLICT IN MORTGAGE LENDING.
There is a huge conflict in mortgage lending, which leads to most if not all of the ugly, last-minute, declined-loans. Here’s the truth: loan officers have a tendency to say YES. No loan officer anywhere was ever paid on a loan they said no to, so it behooves them to say, “Yes, I can get your loan done.”
Regrettably, some loan officers get too comfortable with this response, resulting in perilous consequences for unknowing homebuyers. It’s not that most loan officers are bad or are lying. Unfortunately, they just don’t know better. Most are not experienced enough with the complexities that are commonplace with physicians.
Conversely, mortgage underwriters are paid to say no. They are the gatekeepers and their job is to ensure that your loan meets the underwriting guidelines to the letter. If they say yes and approve your loan without your exactly fitting the underwriting guideline “box,” the underwriter could be disciplined or even terminated. So, it has little to do with common sense or even your ability to service the debt and make on-time payments. It has everything to do with whether your loan fits the written underwriting guidelines the underwriters are given.
Because of this conflict between loan officers (yes) and underwriters (no), many physicians face problems during the underwriting process. This is why you, as a physician, should be better educated.
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