Month: June 2016

Dealing with online lenders

dealing with online lendersIn my previous post, we discussed some of the first steps in getting a mortgage loan. This post will focus on online lenders.

Frankly, the loan process was confusing as hell, especially to a first-time home buyer. Hopefully my series of posts will help reduce some of your anxiety and point out some mistakes not to make.

The Process of Online Loan Applications

I submitted my loan reapplication criteria through Costco’s website. This collates basic data such as the amount that you plan to borrow, the type of loan, the cost of the property, and your estimated credit score. A list of vendors approved by Costco will be available with basic estimates on the rate that they typically offer for the life of your loan. You can then choose which lenders to contact, and you will eventually be contacted by these lenders both by e-mail and by phone.

Bankrate.com also has sponsors who offer very competitive rates. I submitted a few test requests as well. Note: submission of this generic information does not constitute an application.

The Good.

The centralized process to receive bids through online lenders makes it easy to compare quotes. At first glance, the online rates were significantly better than what my local lenders offered. For instance, one of my local lenders offered a rate of 3.125% on a conventional 15 year loan while most of the online lenders offered rates around 3% or less. Obviously this is a relatively small difference, but it is clear that online lenders are more willing to offer lower interest rates even without any negotiation. This is an important point, as there is no free lunch. Realizing this was the first step in figuring out who was actually giving you a better deal long term.

 

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The bad.

The unfortunate result of having so many bids is that you will be swamped with calls. I believe I submitted my contact information to about 5 lenders, and ultimately received over 15 calls in one day. This was during business hours on a weekday—I obviously had no time to return most of the calls.

Even though borrowers often focus on interest rates, there are a number of other factors that are critical in making a loan decision. Unfortunately, there is little standardization among lenders. After preliminary discussions with many of the lenders, including my local ones, the terminology used by each of them was confusing in that it was not easy comparing the details.

Understand the terminology.

It is challenging to learn the terminology on short notice, especially if you have already found a house that you are interested in buying. There are plenty of real estate books available in the library that you can peruse before you delve into the home buying process, but here are a few critical terms that I found helpful in understanding:

  1. Interest rate. Realize that the interest rates quoted may not necessarily be the same as the annual percentage rate (APR). As your interest accumulates in your loan, the amounts compound. Hence, the APR is what you will actually pay over the long term.
  2. Points. As someone who is rarely involved in debt accumulation, I was ignorant about what points were. As with stock market points, each point typically represents a certain percentage of the entire sum. In real estate, one point represents 1% of your loan amount. These “points” are often used to settle on a lower interest rate. For instance, a lender may offer you a loan at 3.5%, but if you “buy” a point, they may be able to knock down the rate to 3.1%. In essence, points are means to “buy into a lower” interest rate. Obviously you’d have to do the math to determine whether the points are worth it, but the first time I learned about this concept I was fascinated.
  3. Origination fees. Closing fees. Lender fees. Very confusing. Some lenders have “no fees”. Otherwise will have various fees tacked onto the closing statement. Make sure you understand where the charges are coming from. This portion of your loan will likely have the most variability among lenders.
  4. Closing costs. Some costs such as appraisal fees, title fees, and various escrow amounts are unavoidable. Some of these fees are mandated by the loan company. What I didn’t know initially was that you can still bargain for better deals. One example are the title fees. You can shop around for title companies and negotiate for the lowest bidder. Is it worth your time? I don’t know. My real estate agent worked with a title company who handled escrow accounts to hold onto earnest money for potential buyers. It turned out that I was also deep into contract with the seller and title company before I realized that I could actually shop around for a title company. Would I have saved more if I had looked? Most likely. Would it have been worth the hassle? It might not.

 

Stay tuned for the next installment where I discuss online vs local lenders in more detail.

 

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(Photo courtesy of Flickr)

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The Basics of Home Mortgages and How Not To Get Scammed

the basics of mortgage and how not to get scammedI’m in the process of purchasing a home, and figure that I should document the process that I’m going through, the problems that I’ve encountered, and what to do to get the best deal possible. If anything, I’m sure that it will be helpful for me in the future if I decide to purchase another home.

First off, this series will detail the process of purchasing a residential home through a mortgage lender. If you are purchasing a property for commercial purposes (such as rentals), the process will be different.

 

When do I need a loan?

 

There is an obvious answer for most of us, but there are also plenty of people who are in the position to purchase a property outright. That means a cash deal without having to go through a bank. The advantages of avoid loans altogether include not having to deal with a lender. You can agree on a set price with the seller and close the deal once you agree on a price and finish up any inspections. In contrast, going through a mortgage lender may delay your closing date by several months!

 

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There is also validity in obtaining a mortgage even if you are able to purchase a property with cash. With interest rates as low as they are now, you might even consider investing the difference. The Internet is littered with debates on this subject, so scroll around the web for discussion. I may revisit this debate in the future, but this has less to do with obtaining a mortgage.

 

Where can I get a loan?

 

In general banks and credit unions are the most obvious sources for loans, but these are actually not the most common institutions offering loans. Mortgage lenders and loan originators are individuals who work for certain institutions that are able to secure loans for potential buyers as well. Consider these guys the middlemen in loan dealings. Your real estate agent will likely have a list of agents (and probably their favorite one) who have helped clients secure loans.

 

You can obtain a mortgage through Costco!

 

If you are like the average upper middle class American, you probably have a Costco membership. If you don’t, you can even consider getting one. A Costco Executive membership costs $110 annually. You might save more than that on lender fees.

Costco assists with mortgage lending by pairing you up with potential lenders involved with their program. You can fill in your lending terms and potential lenders will bid for your business. These lenders are not likely to be in your local area, but are all licensed to lend to you.

The motivation behind going through lenders outside of your local area is that they might be able to offer you a better rate and terms than your local lender. Moreover, speaking to multiple lenders will allow you to familiarize yourself with more of the terminology, what terms are negotiable, and how different lenders approach the lending process.

Stay tuned for upcoming installments on mortgages! We will talk about the steps I went through and my experiences with the Costco lenders.

Photo courtesy of Flickr.

Being a Doctor Could be A Guaranteed Way To Have A Stable Job

Being a Doctor Could be A Guaranteed Way To Have A Stable Job

being a doctor could be a guaranteed way to have a stable jobEver since I started working harder to build my medical practice, I’ve found it more challenging to stay up to date in the digital world. I end up coming home tired, cranky, and famished on days that I don’t take the time to eat appropriately. I stand by my opinion that just as medical conferences are bad for your health, so is working too hard at your job.

I finally was able to catch up on one podcast in the car along the way between meetings by Joshua Sheats, of Radical Personal Finance fame. In the latest episode, Joshua debates the merits of being a doctor with Peter Steinberg, a urologist at Beth Israel in Boston.

Thought provoking discussions, I might say.

I haven’t followed the entire podcasts of Radical Personal Finance from the beginning, but I take it that Joshua (who is not a doctor) believes that becoming a doctor is not worth the cost.

I absolutely agree with Joshua.

To summarize, there is a huge cost in becoming a doctor: time, increased risk, sacrifice of financial growth through compound interest, and sacrifice of talent that could be used in other careers. I agree, to become a family physician or an ER doctor, you need to invest eleven years in your training. You’d be lucky to get a job earning $200,000 as a family physician. We practice in a risky field. Doctors get sued. Patients can and will have bad outcomes. We are more than 10 years behind our peers financially. Our job is hard. In the podcast, Joshua makes an analogy that a plumber can achieve financial independence by starting out early while apprenticing in grade and high school. This hypothetical plumber can earn $100,000 a year around age 20. Additionally, he’ll also learn the value of small business, tax laws, and common sense by working for himself. By age 30, he will have becoming financially independent and be able to do whatever he wants.

 

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Dr. Sternberg argued that despite the long years and hard work, being a doctor guarantees that you will be employable, have a high income, and have a meaningfully long career since most medical practice is not as taxing as, for example, being a laborer. More importantly, the plumber example that Joshua gave was extreme. What kind of plumber has his act together enough to map out his future starting at age 15? The average vocational worker may not necessarily have the organizational and foresight to become this successful. True.

How successful can a doctor who knows how to plumb be?

 

Fortunately for these guys, Smart Money MD is a board-certified doctor AND handy with plumbing. I’ve written about cleaning lime deposits from your toilet bowl, maintenance for Kohler toilets, and changing the flush valve in the Mansfield toilet.  Plumbing is dirty work, but you can definitely command a high hourly rate. I would not be surprised that plumbers who run a moderately successful business have higher net worths than more doctors up until their early-mid 50’s.

Would I have been successful as a full-time plumber? Most likely. Would I have had a higher net worth as a plumber than I do now as a doctor? Definitely for now. Based on what I earn and the number of years I spent in training I’d need a total of 15 years after fellowship to catch up even with aggressive saving. Of course as a doctor, I’m obligated to have higher living expenses.

I agree with Dr. Steinberg that not all doctors are capable of having any other jobs. Most doctors I know majored in Biology, Chemistry, or other non-vocational subjects that would otherwise condemn them to an income range between $60,000 and perhaps $120,000 (if they’re lucky). Some doctors may not have had the exposure growing up to realize that one can earn a comfortable living as an electrician or plumber.

Where I do disagree with Dr. Steinberg is that not all doctors actually would be better off financially as doctors. Think of the lower income physicians. These doctors’ income ranges are very close to that of many vocational specialties. Some of them choose these specialties because they are misinformed, unsure what they want to do with their lives (more common than you’d think), or ideally because they like it. There are likely more lower income physicians than the higher income ones. The argument for being a doctor is also easier if you are one of those high income doctors (likely urologists!).

Would I have become a doctor? It depends on what I would have been otherwise. Software developer? I would have been equally or more challenged as a software developer. A plumber? I probably would not be as happy if I were a plumber, mainly because I am not sure that it is as intellectually stimulating as being a doctor. The grass is likely greener on the other side, but if I were a plumber, I’d probably wonder what life would be like if I were a doctor…

Fortunately I already am a doctor, so I’d have some more flexibility becoming a plumber if I really wanted…

Would you have become a doctor with the information that you know now?

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(Photo courtesy of Flickr)

Do I need to send my kids to private school?

should my kids go to private schoolI think that all parents hope that their kids live better and more successful lives than themselves. We strive to give them the best opportunities possible, whether it is through education, extracurricular activities, or cultural exposure. I can certainly say that I certainly had a more luxurious childhood than my parents, and that subsequent generations are having more luxurious lifestyle than I did.

One common point of contention I encounter with present education is whether to put your kids through public or private primary school. This is strictly a first-world problem, as one would assume that most public primary education schools (K-12) in the U.S. are relatively safe. The real question is, which situation would allow my child to thrive and succeed? Would public school be good enough for my kid? What is the best way to get my daughter into an Ivy-League school?

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Private school is superior

 

Assuming that life is fair and that you get what you pay for, private schools MUST afford better opportunities for your children. Better education. Better teachers. Better extracurriculars. Better counselors. Hell, the average private elementary tuition was $8441 per year. For high school, it was $12,900. I’ve seen private non-boarding high school tuition in the Northeast running in the $25,000 range. Those in Manhattan are even more.

If you can afford to actually pay your teachers, shouldn’t you get a superior education? Furthermore, the cost filters out those in the lower income pool, which can potentially filter out the less educated!

Those of you who balk at the cost of private schools can read the article from Time Magazine in 2014 arguing that private school can potentially save you money. That’s right. Private school is cheaper because if you send your kid to private school, you don’t have to pay as much for your house to be in a good school district. A nice house in a B- school district will save you money.

Bullshit.

When was the last time someone you knew chose a “B- school district” to save money because their kid goes to private school? There are families without kids who buy homes in good school districts simply to help increase resale value. Most people I know who send their kids to private school actually live in good school districts anyway.

You will spend more in a private school.

 

This not only includes the cost of tuition, but also any ancillary costs like textbooks, school trip fees, uniforms, and sports equipment.

 

Is it really worth it?

 

Going to a private school will not guarantee that you will get into an Ivy League school. It can certainly give you a supportive environment to potentially increase your changes of entrance into a good college, but by no means does it guarantee success. Highly successful students from middle-range public high schools are also likely to enter great colleges as well—it ultimately depends on your beliefs, access into good private schools, and your wallet.

As a high income professional, you should be able to afford to place your kids in these opportunities. Just understand that costs of about $50,000 a year for two kids in private school for at least 4 years will add up. This doesn’t even include college! If you have plans to retire early (FIRE), make sure you save up as much as you can before you decide to send your kids to private school.

(Photo courtesy of Flickr)

Do you plan to send your kids to private or public primary school?

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How Shark Tank Makes You A Better Doctor

shark tank will make you a better doctorI like watching the business ideas pitched on Shark Tank. In this weekly show, aspiring entrepreneurs pitch their services and products to wealthy investors. Not only do I feel inspired by the entrepreneurs while watching their pitch, but I also learn about the thought processes of successful businessmen (women).

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“You’re dead to me.” 

Kevin O’Leary, one of the investors, has a demeaning quip whenever the potential investment opportunity is no longer viable to to him. It sounds horrible, but it is an effective approach to running a business.  You can’t take things personally in business. What are your goals? Do you plan to make friends or run a profitable endeavor? Don’t expect that you’d be able to run a successful business AND run a profitable business all the time? The last thing you want is to dwell on issues either out of your control or not in keeping with the plan.

This mentality also works in medicine. We are bombarded with information overload—an excessive number of clinical patients, excessive e-mails, and hiring/firing of staff. Prioritize and only sweat the details that you have control over. Even those issues under our direction need to be prioritized. I’m not a big fan of last-minute decision making, but trying to do everything at once is also a recipe for disaster.

Set your plan. Automate, and reassess frequently.

Learn to Hustle

Successful entrepreneurs hustle. They work out of a corner of their living room or build their businesses out of their garage. They eat and sleep their work. Some of them put their families’ livelihood on the line. As a doctor with a stable income, you probably don’t need to be so extreme, but hopefully you understand that there is a correlation between hard work and success.

You will be more productive in your work if you hustle. It may be more stressful, but remember that you are always compensated at a rate that is dictated by efficiency. I have seen plenty of Internists spend an extra 2-3 hours closing notes and following up lab work after they’ve signed out. This is mostly a problem with our healthcare system, but we still have to adapt. How can you function during your work day more efficiently so that you don’t have excess work to deal with after hours? Are you able to take a short lunch break? What about following up on labs in between patients and consults? If you are a dermatologist seeing fifty patients a day, can you get a scribe?

Hustle while you are at work. You might need to do it for a few years, but no matter how much you work, you probably still have a better lifestyle than you did while you were in training. After you hit your financial goals, you can cut back.

What characteristics of an entrepreneur do you mimic?

(Photo courtesy of Flickr).