You may have heard me say that a CRNA loan similar to a physician loan or a doctor mortgage is more accommodating or has more liberal underwriting guidelines. But how does that relate specifically to your student loans because most of CRNAs that I know have a few student loans still? Alright so here’s how it works in the conventional world of the mortgage. Underwriting which is pretty much every bank in the country because conventional loans are typically purchased or saleable to Fannie Mae and Freddie Mac. Fannie Mae and Freddie Mac are the government-sponsored enterprises that make about 90% of the loans actually between Fannie, Freddie, and Jenny who does FHA loans they do about over 90% of the residential mortgage lending in the country. So pretty much they write all the rules.
Everything has to flow up to their guidelines and so conventional underwriting guidelines, regardless of the bank that you end up going with will typically want to count a 1% of the outstanding student loans against your debt to income ratio if your student loans are in deferral or in some sort of income-driven repayment. Now many of the especially younger CRNAs that we work with are either still in deferral or have some sort of an income-driven repayment until they kind of ramp up and get stabilized and qualifying at a 1% of that outstanding student loan balance can be prohibitive to them qualifying. For example, if someone had $300,000 in student loans and was just getting going and they had to qualify with a $3000 a month payment they very well may not qualify for the home that they want. They may have to settle for a much lower home.
So here’s how we look at it with a CRNA loan. If the loan is currently in a deferral, has a zero payment, we can simply get an estimate from your student loan provider – whoever the servicer is on your student loan – as to what the estimated income-driven repayment would be. If you’re going to pay as you earn or repay we simply just get a letter from them saying here are the loans that you have, here’s what your payment would be if you went into one of these income-driven repayments and that’s the loan amount that we qualify you for and the beauty with that is that’s typically done at the previous year’s tax return. So you’re almost always going to have a lower income driven payment qualifying amount than you would if you defaulted to the 1% rule.
Are interest rates higher with a CRNA mortgage or home loan?
Well, the honest answer is yes, in most cases your interest rate is going to be higher if you’re putting less than 20% down. If you’re putting 20% down or more then they should be on par with where those conventional rates are. But what’s important that you understand is that the CRNA loan helps you avoid that monthly mortgage insurance premium and I’ve mentioned in other videos that monthly mortgage insurance, number one, typically does not fall off until you’re somewhere between 8 and 11 years into the loan so it’s a very long period of time.
Its cost, the mortgage insurance cost is generally between 0.5 and 1.5%. So on a $4000 loan, you can pay $4000 to $6000 a year in mortgage insurance and generally speaking, mortgage insurance is not tax deductible where mortgage interest is and make sure you don’t miss that. So if you’re in a state that has a high estate tax plus federal tax it’s very possible to chart a 40% tax bracket. If you’re in a 40 % tax bracket and you’re paying a 4.5% interest rate that means you can minus 40% off that 4.5% interest rate so I don’t have a calculator in front of me, but I’m going to guess you’re paying somewhere in the high twos. That’s pretty darn good.
Now with a conventional loan, yes you’ve got a 4% interest rate, but if you pay a 1% mortgage insurance premium your total all-in cost is going to be closer to 5% in today’s world and that mortgage insurance is generally not tax deductible. So what you’re going to get with a CRNA loan is a potentially slightly higher interest rate, which gives you greater tax efficiency. Did you get that? Paying more interest at a higher tax bracket gives you more to write off and get back at the end of the year and helps you avoid private mortgage insurance