Is a zero down physician mortgage a good deal?

October 24, 2005 8:22 PM

I'm looking for info on zero down physician home loans.

I got a mailer from the Grubb Group/Bank of America for a zero down mortgage. Yes, I'm a physician. Yes, I would like to buy a home, and yes, it would be much easier without having to raise a down payment.

Have you done this or know anyone who has? Is this a good deal? What should I watch out for?

posted by anonymous to shopping (9 comments total)

Talk to the local bank - they probably have a private banking division that will be willing to help out. Because you are putting zero down it will take longer to build up any equity in the house. This could be a big problem if the market goes pear-shaped, so don't overextend yourself. Also, they may offer a balloon mortgage at a better rate - this may work out for you perfectly if you are only planning to be in the house for a couple of years (ie. residency, fellowship, whatever) - but it also means the entire value of the loan is due at the end of the balloon (or you can refinance at what will certainly be higher rates).
posted by jmgorman at 8:32 PM on October 24, 2005

You pay somehow, usually with higher interest rates and PMI. Compare carefully.
posted by caddis at 8:47 PM on October 24, 2005

You should watch out for any thoughts that (a) B of A is doing this to be helpful or nice (as opposed to making money), and (b) that they only do this for physicians (as opposed to doing this for anyone with high earning prospects).

After you get some details (interest rate, closing costs, etc.), you might want to talk to a mortgage broker (your real estate agent can suggest one, or talk to friends who have recently bought a home or refinanced) and see what he/she can offer.
posted by WestCoaster at 9:19 PM on October 24, 2005

If you have good credit - look into an 80/20 home loan.
posted by mildred-pitt at 10:59 PM on October 24, 2005

Check out the Liberty Gold program. It's not for physicians specifically, but it does cover the down payment and closing costs. From their site:

Many people believe that their dream of home ownership is just a fantasy because they lack the money for a down payment and closing costs. We can turn your dreams into reality by providing you with the money for a down payment and closing costs and best of all, it is a gift. The buyer has absolutely no obligation to repay the gift.
posted by Otis at 5:24 AM on October 25, 2005

Otis - what is this and where did you find it? It sounds like a scam where the Liberty Gold foundation takes $500 for convincing the seller to give the buyer the money for a down payment in exchange for raising the buying price by that much.

How does The Buyer’s Dream Fund replenish its pool of funds for future buyers?

The Seller or Builder pays a service fee to The Buyer’s Dream Fund of $495.00 plus the amount of the gift.

Is that even legal?
posted by Caviar at 1:44 PM on October 26, 2005

The Liberty Gold approach is pretty cute (and, I suspect, fraudulent):

Step 1: Buyer raises the price of the house by some amount ($X) beyond what is expected/reasonable.

Step 2: Seller agrees to pay the higher (unreasonable) price.

Step 3: Buyer give Liberty Gold "foundation" the excess amount ($X) (aka the "gift") plus a $495 service fee.

Step 4: The "foundation" gives a "gift" of $X to the buyer (after the buyer fills out a "grant" application).

Step 5: Buyer and seller hope that housing prices don't drop, or, if they do, the buyer doesn't default, because then the first mortage holder might learn that the selling price of the house was inflated, and that the "gift/grant" was no such thing. (Why does the mortage company care? Because it thinks it is making a 90 or 95% or whatever loan, when it's really making a 100% or more loan.)

One final point: the method above requires an unethical seller. What makes the buyer think that the seller won't overstate the real value of the house? For example, the seller prices the house at $200K, including a "gift" of $20K, but the real (market) value of the house is only $160K?
posted by WestCoaster at 1:01 PM on October 27, 2005

Sorry about the late reply. I thought the program was too good to be true as well, and even asked about it here. But after going through the complete process, I can't point to anything that appeared fraudulent or raised any red flags. The sellers did not raise their price above the initial listing price and the house was appraised before closing. The appraised value was in line with the asking price. I also researched the recent selling prices of similar homes in the neighborhood and found the asking price was in line with those prices. There was no "grant" to apply for. The program was first recommended by the mortgage company (one of the largest and well known) and all the paperwork was completed by them. From my experience, there is no reason not to at least take a look at a program like this. (YMMV of course.)
posted by Otis at 8:42 AM on October 28, 2005

Otis -

Thanks for providing the additional information. You're correct - there is no "grant" form. I was confused by this sentence: "In most instances only the application must be properly filled out and signed in order to qualify for a grant."

What the buyer fills out is a gift application, which is very straightforward.

While I acknowledge that there are some sellers out there who are truly willing to sell their house for less than what it would otherwise get (essentially donating part of the sales price) in order to help out the less fortunate, the following wording makes me think that sellers are being encouraged to overstate the selling price:

Many sellers accept less than the list price in order to sell their home. By using The Liberty Gold Program most Sellers are able to obtain their full listing price

I also acknowledge that appraisals are an inexact art, and that if the "gift" amount is small (say, less than 3%) then it's quite possible that a fair appraisal would support the sales price. On the other hand, a large percentage of appraisers say that they are often pushed by lenders to come back with an appraisal number that will support the proposed selling figure.

And if the house appreciates sufficienctly in value (to cover the costs of selling it, 6 to 8 percent with taxes, plus whatever percent the selling price was higher than the true value) and the buyer doesn't default early, then there would be no losers.

As you say, YMMV.
posted by WestCoaster at 1:12 PM on November 7, 2005