Without a doubt, new CRNAs entering practice struggle with mortgage financing. CRNAs get declined for a mortgage at a much higher rate than other clients. Most underwriting guidelines – even medical professional loan programs – don’t fully acknowledge and address the unique set of challenges most newly practicing CRNAs face.
Why do they struggle?
Let’s start with the incoming CRNA, who is completing their nurse anesthesia program with a masters or doctoral degree and transitioning to practice. Most incoming CRNAs have student loans, the majority of which are in deferral and appear on their credit report with a big balance and a zero payment. Sound familiar? This is problematic due to mistakes from inexperienced loan officers. It’s alarming how many CRNAs are declined at the very last minute because the loan officer pre-qualifies them using a zero payment for student loans, only later to have underwriting decline the loan when they calculate a payment for those deferred loans. To ensure this doesn’t happen to you, make sure you are working with a loan officer who specializes in CRNA home loans and has testimonials from past medical professional clients they can share with you.
I call the six month grace period between completion of your training program and the end of student loan deferral “No Man’s Land” because the student loan servicers typically will not give you anything confirming your future income driven repayment amount during that time. Without that documentation from the student loan servicer, most underwriting guidelines (including most CRNA and physician home loan guidelines) require you to qualify at a payment amount based on 1 to 2 percent of the outstanding balance. That means if you have $250k in student loans, underwriting is counting a payment against you between $2.5k and $5k per month. This is typically too high a debt to income ratio to qualify for any mortgage.
Even practicing CRNAs with a credit report showing an income driven repayment for student loans can struggle, since many banks and their underwriters have become ultra conservative since the Dodd Frank Act was put into effect in 2015. Within the Dodd Frank Act is a provision called the “Ability To Repay Rule”, which essentially requires the mortgage company to prove a borrower’s ability to repay a mortgage loan. If the mortgage bank is found to have made an error in determining the borrower’s ability to repay, they are required to refund up to 10 years of payments to the borrower. This kind of punitive legislation has made mortgage underwriters less likely to lend to borrowers with high student loan balances.
Student loans are where the challenges for new CRNAs begin, but not where they end. We also work with many relocating clients who want to close on the purchase of their new home prior to their first day on the job. This can be particularly challenging if the program you will be working for does not provide you with a final fully signed employment contract until you show up for orientation. Most clients want to be in their home and settled by then. Very few mortgage programs – even most of the CRNA and physician mortgage programs in existence – will allow you to close without a final signed employment contract or your first paystub in hand.
Having a down payment is another hurdle. Most likely while getting your masters or doctorate of nursing you have had limited income and major expenses to deal with. Saving for a down payment is not always an option. Most mortgage underwriters require that your down payment be seasoned in your account for a full 60 days before you write an offer on your home. This is how the underwriter documents that money is actually your money and it is not associated with a new loan that has not reported to credit yet.
What are the solutions?
We’ve come up with the most liberal student loan underwriting guidelines possible for CRNAs.
Our guidelines for student loan payments will allow us to use whatever payment amount is reporting on your credit, including any income driven repayment and any zero payment due to deferral or forbearance. For example, if you have $500k in student loans in deferral, we count it as a zero payment against your debt to income ratio. Many underwriters require you to document that the student loans are in deferral status for at least 12 months in order to exclude those payments, our guidelines do not. We take exactly the current payment, and we do this because we understand the income driven repayment rules and know your payment cannot go up until your income increases. By time the payments go up, your overall debt to income ratio would go down, not up.
To address the challenges surrounding closing on your home prior to your start date, we’ve worked with our underwriters to allow you to close as early as possible so you don’t miss out on the perfect home that might come available earlier than you anticipate. Our underwriters will allow you to close up to 90 days before the commencement of your employment. We can document that employment with an employment contract, an offer letter, your match letter and something from your program administrator confirming the length of the program and compensation for each year. We do not require any paystubs before closing.
Last but not least, we have down payment programs that will allow 100% of the funds to come from a family gift or 401k loan, and require zero seasoning when coming from those sources. We have three percent down payment programs with zero monthly mortgage insurance, thus keeping the payment low and the tax efficiency as high as possible. If you don’t know much about mortgage insurance, I recommend you Google it. Essentially it’s a monthly premium you pay that insures the bank they are covered if your loan goes to foreclosure. This insurance is costly and in most instances is not tax deductible as your mortgage interest typically is.
To get tons more useful information about CRNA and physician home loans, you can download our free eBook here.
About Josh Mettle
Josh Mettle is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNA, and physician assistants. You can get more great CRNA real estate and mortgage advice here or by visiting his book site. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. He is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.
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