There’s a sense that the moment someone receives their medical degree, they become a wealthy doctor. But, in reality, a doctor at the beginning of his or her career usually has a massively negative net worth. Seven years of earning little-to-no salary while accruing hundreds of thousands in student loan debt puts doctors in a precarious-to-navigate position. They’re earning huge salaries and are on a path to wealth, but they’re not actually wealthy. In fact, they’re high-earning and highly educated, but technically quite poor.
Unfortunately, the massive-debt moment often coincides with the moment many doctors are ready to set down roots. They’ve spent years grinding through their education and now feels like a perfect time to invest in property and start a family. But, how do you buy a home with a negative net worth?
When Josh Mettle arrived at Celebrity Home Loans, the company didn’t have a specific team focused on physicians. But Mettle realized that young doctors were getting rejected for loans that they could absolutely afford to pay simply because loan officers weren’t experts at the strange reality of doctor’s finances. He decided to focus his attention on the market segment and has built Neo Home Loan with a focus on physician lending. Unifimoney partnered with Celebrity because many of our users are just the kind of high-earning, high-debt professionals that Mettle has designed his product to serve.
We called up Mettle to better understand the challenges young doctors face when buying their first home and what they need that banks just aren’t delivering to them.
Josh Mettle: The biggest problem is that when you come out of higher education with student loans and a lack of savings because you’ve been a starving student all those years, and you finally want to buy a house, there are just a lot of impediments to actually getting approved for a mortgage. The best story to explain this happened about eight years ago when my team was still just lending in Utah. I had some relationships at the University of Utah hospital and the wife of one of the realtors I worked with was involved in the onboarding of doctors as they would relocate, so we started helping a lot of local doctors.
I got a call from this guy who was moving to Missouri, and, and he was literally headed across the country with his wife, two kids and dog in the moving truck, going to his residency — he was supposed to close on his house the next day. He told me he’d just got a call from his loan officer: ‘You know, hey, I’m really sorry but my underwriter just declined your loan because of all your student loan indebtedness, and I didn’t calculate your payments right. And now your debt to income ratio is too high. You got no loan.’ So, the dude was out his earnest money, in a car with his wife and two kids and dog driving across the country, thinking he’s gonna sign tomorrow, move in over the weekend and start his residency, the next week. Now it’s all gone. Declined!
We ended up being able to salvage that deal, but at that point, we were only in a couple states, Missouri happened to be one of them. That was kind of the point where we’re like, ‘Alright, we got to open this thing up. We got to, you know, we got to get into every state so we can create the solution for these guys and ladies.’
Mettle: With doctors and other highly paid, highly educated professionals that have a long educational runway, the complications tend to be around four areas. Number one is student loan indebtedness. Loan officers just don’t see enough velocity of these loans to really be educated on what the underwriting guidelines are. A lot of times, you’ll see income-based repayment, where the doctor will have $230,000 in student loan indebtedness, but they have an income based repayment of 170 bucks a month. Well, loan officers will just take that and run with it and then it gets to the underwriter, and the underwriter’s like, ‘Uh, our guidelines, don’t let you do that. You have to qualify on a fully amortized payment.’ So, student loans are one of the landmines.
Another one is employment contracts. So many of our clients are timing their home purchase with the start date of their new job. No two employment contracts for medical professionals, or any professional really, are the same. They’re all created by legal counsel for these hospital systems and they’re all different. So, inside these contracts, there are all kinds of employment contingencies. Most of the guidelines for professional loans, say: Hey, we’ll let you close on future income — for example, our program will let you close up to 90 days before you start your new job — but most employment contracts will have contingencies that say, ‘This isn’t a valid employment contract until you fulfill obligation A, B, C, and D.’ And many times those contingencies don’t get filled until you’re actually there on the job, because it’s an on-the-job training that has you fulfill those last contingencies. So, the other area where people get declined all the time is: somebody’s on escrow for 30 days, they finally get it to the underwriter, and the underwriter is like, ‘Well, get me a letter saying these contingencies of the contract are met’ and they can’t get it until they start the job. Some of these employment contracts are 40 pages, 50 pages long, and nobody reads them! So, we go into them, and we know what to look for. We hit Ctrl F, we find contingencies. You don’t have to read through all 50 pages, but you do need to know the words that are the tripping points. And loan officers just don’t deal with it enough. It’s overwhelming to them. It’s not their main business.
The other big one is we see a lot of professionals, especially in the medical space, that are moving towards being 1099 or independent contractors, and most banks require two full years of tax returns for those people. We have an ability to get them approved and into financing way, way, way before that. In some instances before they even start their job. So that’s another major issue. And then, of course, the last one would be downpayment. Once you get into a jumbo loan size, most banks want to see — especially in the COVID area — 20% down. Our loan programs will do as little as 5%, down up to a million and as little as 10%, down up to a million and a half. So just lower down payment requirements and then more flexible underwriting guidelines, based on those landmines that professionals tend to get tripped up on.
Mettle: I read a lot of doctor forums to better understand their concerns. A place for you to go visit that would be really fascinating for you to subscribe to their blog is called the White Coat Investor.
Mettle: Nice! So, funny story: when Jim started that blog, he kind of started it as a way to bust scams, because there were so many scammers out there who were claiming to take care of doctors and to serve doctors, but really, they were just kind of con artists — like a lot of financial advisors that were selling really expensive financial products and making huge margins.
So, he called us to do an expose on us because he thought we were fake. We did this 45-minute interview, and he kept driving and driving and driving and I just answered all his questions. Finally, at the end, he’s like, ‘Alright, Josh, I’m gonna tell you the truth. I had this whole article ready to go on you guys. We were gonna bomb you guys on our blog. We thought you were frauds.’ But then he’s like, ‘I’m really glad we had this time to talk, and by the way, I need to refinance my house.’ So, I ended up doing two loans for Jim. Since then, I’ve been to his financial summit that he put on two years ago, and he’s come to speak to our group about financial planning.
One of the things that Jim brings up a lot is that there’s a lot of stress in the medical community — he talks a lot about burnout. Doctors are juggling so many balls between what they need to do from a professional standpoint, continuing education, and serving clients, while also trying to be parents, to be wives and husbands. All the while, they’re trying to have some semblance of like: I got to take care of myself. It’s really overwhelming to a lot of them and it causes that fatigue and that burnout.
So what I would say: the financial service they need is a platform where they can take a few bites to educate themselves along the way, but where they don’t have to. It would be a platform that would enable them to invest across asset classes. I think this is where you guys are headed at Unifimoney. I would love to see a platform where I can have a tool like Wealthfront, so I’ve got all my stocks in index funds, where I can do everything I do in Coinbase for my cryptocurrency, and one where there was also a plugin for real estate investment, a real estate-based lending platform, and maybe even a real estate debt platform where I can be doing some debt lending.
I’d design them a platform that would enable access to all those different market segments and make it easy. In the best case, one where I could just say, I’m putting 5 grand a month in, and on the 5th, and the 20th, you’re gonna just boom, boom, boom, boom, boom invest across all those platforms.
It’d be best if I can just set it and forget it. I can take education as I want it in bite-sized pieces, but I don’t have to be a master in anything in order to get that kind of diversification.
Mettle: I mean, if they’re three to five years out, that’s a heck of a runway. But I would be advising them that they need to be aware of revolving balances as they’re going through their low-to-no income years through med school and then eventually residency. Student loans, because their installment loans, really won’t ding or mess up their credit score, but the thing to watch out for is credit card debts. Once you start to utilize greater than about 35% of your credit card balances, those will start to bring down your scores. So, I would warn them from carrying credit card balances.
Student loans are a necessary evil, but those debts and that burden is real. When you come out of residency, and you start to be an attending, you start making income, but those debts are really pulling your future income forward, which means now you’re going to be working down the road in five or six years. So, just be conscientious about that. It’s not free money.
The other thing I would probably tell them goes back a little bit more to mental health: it sounds grim, but it’d be that it never gets easier. You know, they’re going through medical school, which I’m assuming is pretty grueling, and then they’re going to go through residency, which I know is pretty grueling, and then they’re going to go into an attending position. At that point, they’re going to be juggling family and kids and all those kinds of events. I think that people — I especially see this with some of the younger folks in my organization — they say, ‘Well, when I get to this point, I’ll start taking care of myself.’ The problem is that the new point carries a new set of challenges and a new set of demands that you can’t really foresee until you get there. So I would say, ‘Look, you’ve picked a field that is one of the highest in burnout and stress anywhere, period.’ And so I would counsel them to create a daily routine where they take care of themselves spiritually. I would counsel them to start that as early as humanly possible because if they haven’t installed an operating system, in terms of how they run their day to take care of their hearts and their soul and their bodies, they’ll never install it later on. The earlier they create a morning ritual and they create a routine that fills their soul before they go into the workday, the better they’ll be.
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