Why Physician Home Loans Fail – Dr. Fish, True Story
Dr. Fish, a surgeon, was coming out of fellowship. He was recruited by a practice across the country that was a subgroup of a larger hospital network. His employment contract was complicated, although not that uncommon, in that he had one contract with the large hospital network and another contract with the subgroup he was actually going to be working with on a day-to-day basis. All in all, the contract was about 50 pages long and very detailed. What Dr. Fish did not realize was that his income status was that of a 1099 independent contractor, a fact that was about to throw a wrench into things.
While house hunting, he decided to have a new house built. He contacted a home builder, signed a contract, and they began construction. As is typical with new construction, the builder recommended his preferred lender. Unfortunately, the preferred lender was not specialized or experienced in working with physicians and took the easy approach to preapproving Dr. Fish. Th e loan officer pulled his credit, wrote him a preapproval letter, and sent him on his way to write a $12,000 nonrefundable deposit, select upgrades, and commence construction.
Dr. Fish told the loan officer that he had a base salary of $25,000 a month, as well as incentives above and beyond that: ranging from $10,000 to $20,000 a month. The loan officer for the builder qualified him on this verbal information and moved forward. Dr. Fish logically concluded financing would not be a problem. He was a highly sought-after surgeon with perfect credit and did not think twice about moving forward.
His common-sense analysis was correct. There is no doubt he was capable of debt servicing the loan amount he was after, but unfortunately, he did not understand, and the loan officer failed to explain, the extremely rigid guidelines of conventional mortgages regarding income.
The home was two weeks away from being completed and the movers were scheduled. Dr. Fish and his family had planned to relocate across the country in two weeks, to arrive at their new home a few days before he was to start his new employment. He received a call from the builder’s loan officer, who informed him that after the loan had made it to underwriting, the underwriters had reviewed his employment contract and discovered Dr. Fish was to be a 1099 independent contractor, which, unfortunately, would require a two-year history of income before they could qualify him for the loan. He was declined and likely out $12,000 in nonrefundable earnest money.
When Dr. Fish contacted me, he told me he could not believe he was having a problem getting financing. He was going to be making a tremendous amount of money. His payment was only $3,000 a month. How in the world could he possibly not get approved for financing? Fortunately, we were able to qualify him for our physician home loan program and it all worked out beautifully in the end, closing within just a couple of days of his original close date.
Hi, I’m Josh Mettle. Author of Why Physicians Home Loans Fail. I wrote this book to help physicians avoid the landmines for a flawless home purchase. We are offering you a chance to download my book for free by visiting www.fairwayphysicianloans.com. If you have any questions at all, please feel free to reach out to me or anyone on our fairway team at 855-260-9932.