- The Washington Times - Thursday, September 9, 2004

Q: I am a resident at a hospital and will be in this position for another two

years.

My salary is low, only $45,000, which is normal for a resident just out of medical school. My income should increase to $150,000 or more when I finish my residency.

I am in the process of searching for a home and have found one I really like. The problem is that I’m having trouble qualifying for the best financing because my salary as a resident is so low.

The home is for sale for $400,000, and I plan on putting 20 percent down.

Lenders don’t seem to care that I’ll be making a lot more money after my residency. They will only count my current salary.

Every lender says I have to apply for a “no income verification” loan that carries a higher rate. Do you have any suggestions?

A: Unfortunately, I think your lenders are correct. Even though it is virtually certain that your salary will increase dramatically in two years, lenders won’t count future earnings when qualifying a mortgage applicant. Because your current salary is $45,000 per year, they will qualify you based on that number.

Before you reject an NIV loan, let me first explain what it is.

Lenders approve mortgage based on three criteria: Credit history, down payment and ability to repay the loan. An NIV loan approves a borrower based just upon credit history and down payment. Income is not examined in the underwriting process.

You have good credit and a good down payment but a poor ability to repay the loan based upon your current salary.

An NIV loan is the answer if you pick the right product.

Here’s the idea: Find an adjustable-rate NIV loan with no points and plan on refinancing when your income increases.

Adjustable-rate mortgages carry a lower initial rate because the rate can increase in the future. Look for a 3/1 ARM, an adjustable that carries a fixed rate for three years.

This will give you an affordable mortgage until your income is higher.

Also, consider an ARM with an interest-only option. This will further reduce the monthly obligation, making it easier to afford a large mortgage on a small salary.

This isn’t the perfect solution, but obtaining a temporary NIV loan without incurring excessive fees is better than waiting two years while throwing your money away on rent and losing the house you really like.

Henry Savage is president of PMC mortgage in Alexandria. Contact him by e-mail (henrysavage@pmcmortgage.com).

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