Category: Credit

2Nov2022

Today, we are happy to interview Lisa Durocher, CEO of Rogers Bank, who will share the launch of the new Rogers Connections MasterCard. Thank you Lisa for taking the time out of your busy schedule to answer our questions. Looking forward to what you are working on! 

Please tell us about yourself and your role with Rogers?

As a member of the executive leadership team at Rogers Communications, I lead Financial and Emerging Services, and I am CEO of Rogers Bank. I head up a talented team that drives our mandate to deliver innovative financial products and services, helping Rogers bring more value to our customers every day.

I bring a diverse approach to my leadership of Rogers Bank, guided by my more than 20 years of experience across industry-leading financial services, technology and consumer goods companies, in Canada, the U.S. and in Europe. Prior to my role leading Rogers Bank, I was Chief Digital Officer at Rogers Communications. I love driving change and innovation and creating new ways to solve problems for our customers.

2. Please tell us more about this NEW Rogers Connections Mastercard Launch?

The new Rogers Connections Mastercard is the latest addition to our suite of reward-rich credit card options for Canadians. The card offers compelling benefits to help our cardholders get even more from their Rogers products and services, which is an exciting new way for Rogers Bank to deliver value to our millions of Rogers customers from coast to coast.

The Rogers Connections Mastercard comes with cash back rewards, including 2% on eligible U.S. dollar purchases and 1% cash back on other eligible purchases. However, what is most interesting are the Rogers benefits that no other credit card in the market can provide.

The Rogers Connections Mastercard comes with five Roam like Home days at no cost each year, helping wireless customers stay connected as Canadians get back in the swing of regular travel. When it’s time to redeem cash back, there’s a 30% bonus on the earned cash back value when customers redeem for Rogers purchases including phone upgrades, wireless accessories, or their monthly Rogers bill. With this new card, it truly pays off to be a Rogers customer.

More information about the new card is available at Rogers Bank Connections Mastercard.

3. Why did Rogers decide to go into the credit card industry?

Rogers Bank has been issuing credit cards to Canadians since 2013 with a goal of delivering financial products and services that enhance our customers’ experience. Nearly a decade after issuing our first credit card, we remain committed to that vision as we expand and enhance our portfolio to create products that fit our customers’ needs.

Technology is driving innovation in payments, with wireless devices like smartphones revolutionizing not only the way we live and work but also how we pay. As a telecommunications company, delivering products in the credit card space is a natural extension of what we do.

We know that Rogers is big part of people’s daily lives. Our technology and media services help our customers stay connected to a world of possibilities and the moments that matter. This is a relationship we are committed to, and we take very seriously. Our credit cards are designed to help unlock more value for our customers and help them get even more out of the Rogers services that they are already using every day.

4. What else can we look forward to with Rogers Bank?

We have an exciting roadmap ahead of us at Rogers Bank, with product updates and developments on the way that will bring even more benefits to our customers while helping to deliver on some of the gaps and trends we’re seeing in the marketplace. We are interested in building products that make our customers’ relationship with Rogers easier and more rewarding, and you’ll see us focusing on innovation that differentiates our offering from both other banks and other telecommunications companies. With the future of 5G and open banking converging, we see tremendous opportunity to solve problems for our customers in new ways.

5. Any closing thoughts?

As a wholly owned subsidiary of Rogers Communications, innovation is in our DNA. Our networks are fueling the transformation of entire industries, and the way we live, work and play. The banking industry, and the way consumers pay, are all part of that transformation. It’s an incredibly interesting time to be in my position as we envision the future for Rogers Bank with the power of that innovation mindset, as we look to deliver the financial products and services for Canadians now and into the future.

For many of us, the American economy has felt like a rollercoaster lately. Interest rate hikes have become the new normal, and you can’t seem to escape inflation in stores or on the news. 

If you’re trying to buy a house, you’re probably wondering how interest rates and inflation will affect your home buying aspirations. To get a grip on what’s happening, you need to understand this key rate: the federal funds rate (aka the fed funds rate).

The federal funds rate is the interest rate banks and lending institutions pay to borrow money from each other for overnight loans. And the Federal Reserve Bank (aka The Fed) – our nation’s central bank – sets the rate.

Understanding the Federal Funds Rate

The Federal Open Market Committee (a branch of the Federal Reserve) meets eight times a year to review monetary policy and decide whether the federal funds rate target will change. The Fed generally hikes the fed funds rate to cool inflation and slow down the economy (think: get consumers to stop spending so much). And the Fed typically lowers the fed funds rate to stimulate economic growth (think: get consumers to open their wallets again).

For example, the Fed slashed the federal funds rate to record lows of 0% – 0.25% to stimulate economic activity during the 2008 Great Recession.^[1] They did the same in 2020 during the COVID-19 pandemic to boost the economy and avoid a financial crisis. 

By the way, the federal funds rate isn’t the same as interest rates – the federal funds rate applies to loans between banks; interest rates apply to loans between lenders and consumers.

Consumer loan interest rates aren’t set by the Fed, but they are heavily influenced by the federal funds rate. When the Fed raises the fed funds rate, it gets more expensive to borrow money, and short-term interest rates go up. Interest rates usually drop when the rate drops, and it’s cheaper to borrow money. 

Federal discount rate

The federal discount rate is another number set by the Fed that applies to banks. It’s the interest rate banks pay to borrow money from the Fed. The rate is usually slightly higher than the federal funds rate to encourage banks to borrow from each other instead and promote more activity in the economy. 

What Does the Federal Funds Rate Mean for Mortgage Rates?

The mortgage market and fed funds rate generally move in the same direction. Sometimes one leads while the other follows. Today, mortgage interest rates are slowly climbing in response to federal funds rate increases. 

It’s totally understandable that first-time home buyers may feel anxious about buying a home while interest rates are ticking up. You can’t control what the Fed decides on interest rates, but you can decide to lock in the interest rate on your mortgage. If your interest rate isn’t locked in before you close, the rate could go up and make your once-affordable mortgage unaffordable. It’s always a good idea to budget for potential rate changes and give yourself some wiggle room. 

While the fed funds rate will influence your mortgage rate, it’s not the only variable that influences your rate. Your credit score is another major factor that plays a role in the interest rates a lender offers. 

Pro tip: The higher your credit score is, the likelier it is a lender will offer lower interest rates.

How to respond to mortgage rate changes

With mortgage rates on the rise, developing a strategy to buy a home can help you secure the best rates available. Consider these home buying strategies:

• Increase your down payment: The larger your down payment is, the less you need to borrow and the lower your monthly mortgage payments will be. And it shows your lender you’re a less risky borrower, potentially lowering your interest rate.
• Explore different loan products: If a conventional loan is too expensive, you may qualify for a government-backed loan, such as a Federal Housing Administration (FHA) loan or a U.S. Department of Agriculture (USDA) loan. Your lender will discuss different loan options with you during the application process. 
• Search for a more affordable property: If your dream home is out of your price range, consider looking at fixer-uppers or homes with an extra bedroom you can rent to help pay your mortgage payments. 
• Choose a shorter-term loan: If you can afford higher monthly mortgage payments, a 15-year loan will have a lower interest rate than a 30-year mortgage, and you’ll pay less interest over the life of the loan.
• Buy down mortgage points: You can decrease your interest rate with every discount mortgage point you buy. One mortgage point – which equals 1% of your total mortgage amount – will reduce your interest rate by about 0.25%. 
• Shop around for lenders: Finding the best lender for your needs is a key part of the home buying process. You should never feel pressured to work with the first lender you meet. Interest rates and quality of service will vary by lender. Do yourself a favor and shop around. 

How Does the Federal Reserve Determine the Federal Funds Rates?

There is nothing arbitrary about the federal funds rate. The Fed considers a wide range of factors before making any changes, including a review of key economic indicators, like major events, the core inflation rate and the durable goods orders report (a monthly survey that measures current industrial activity). 

If the goal is to get consumers to spend, the target rate is reduced. If the goal is to slow down inflation, the federal funds rate is raised. 

Current federal funds rate

On September 21, 2022, the Federal Reserve raised the target benchmark fed funds rate to a range of 3% – 3.25% (an increase of 75 basis points from the July rate of 2.25% – 2.5%). 

Financial analysts predict a peak federal funds rate of 4.5% – 4.75% by February 2023,^[2] so higher interest rates are coming. 

Rate hikes are no reason to give up on your dream of homeownership. They are an opportunity to be resourceful. The more you understand about mortgage qualifications and approvals, the better equipped you’ll be to buy a home you can afford despite rising interest rates.

When the Fed Meets, Mortgage Rates Can Change Overnight

If you’re an aspiring home buyer, keep your eye on the housing market and interest rates. The federal funds rate has been rising to combat inflation and will likely continue its upward trend for the time being. Making sure you’re prepared for potential changes in the home buying process means making sure you understand your buying power.

If you’re constantly running your heater and boarding off rooms like you’re defending the Wall from the Night King, it’s time to winterize your home.

Though not an epic CGI battle, the cost of insulating a house can feel daunting. Several factors influence the cost to insulate your home, such as the size of your house, the type of insulation and where you live. 

Let’s explore how much it’s going to cost to insulate your home.

Cost To Insulate a House: At a Glance

One of the best things about insulating your home (or upgrading existing insulation) is that the project can pay for itself in a short amount of time. 

Most people see a decrease in their monthly electrical bills right away, which then pays for the upfront costs within a few years.

It costs on average $7,900 to have a professional remove and replace insulation in an older 2,000 square foot home. 

House Size	Average Cost[2]
1,000 sq. ft.	$1,650 – $15,000
1,200 sq. ft.	$1,980 – $16,500
1,500 sq. ft.	$2,475 – $18,000
2,000 sq. ft.	$3,300 – $25,000
3,000 sq. ft.	$4,950 – $35,000
4,000 sq. ft.	$6,600 – $45,000

What Factors Influence Home Insulation Cost?

Several factors influence the cost of insulating your home. These include:

• How it’s installed 
• The type of insulation you choose 
• Where you live 
• Whether it’s a new or existing home 
• The cost of labor
• The size of your home

Installation method

There are four primary methods for installing insulation: blown-in, blanket batts and rolls, foam board and spray foam. 

Rigid board insulation may not be one of the primary methods of insulation. But it has become more popular in recent years as homeowners look to create a quiet home office space. We’re including it in the mix, too.

• Blown-in: Insulation is added to the home using a machine that blows the insulation material into your walls, ceilings and floors. Blown-in insulation is on the mid- to low-end in terms of pricing.
• Blanket batts and rolls: These come in pre-cut pieces or rolls that are easy to install in most common sizes and scenarios. Blanket batts and rolls fall on the low-end in terms of pricing.
• Foam board: This rigid type of insulation is made from polystyrene or polyurethane. Foam board is easy to install and often used in new construction. It’s on the high-end in terms of pricing. 
• Spray foam: Spray foam insulation is a newer type of insulation that is made from polyurethane. This type of insulation is sprayed onto your walls, ceilings and floors. Generally meant for smaller, harder-to-reach areas in the home, it’s on the high-end in terms of pricing.
• Rigid board: Rigid board insulation is similar to foam board insulation, but it’s made from more dense (or rigid) materials, like cork or wood. Since the materials for rigid board aren’t always waterproof, its placement is limited. Rigid board insulation is on the high-end in terms of pricing. 

Installation Method	Average Cost Per Square Feet[2]
Batt	$65 – $2.00
Blown-in	$1.65 – $3.80
Foam board	$2.40 – $3.75
Spray foam	$3.15 – $7.50
Rigid board	$5.75 – $15.00

Location

The cost to insulate a home will depend on the location needing insulation. For example, your basement will have significantly different insulation needs than your attic.

Location	Average Cost[2]
Ceiling	$400 – $1,500
Attic	$400 – $3,350
Exterior wall	$425 – $2,000
Garage	$600 – $8,000
Basement	$800 – $8,000
Roof	$2,400 – $8,000

Material

The materials being used also play a big role in the cost. Since not all materials can be used with all installation methods, we’ve included the installation options as well.

Material	Installation Method	Average Costs Per Square Feet[2]
Fiberglass	Batts and loose-fill	$0.40 – $1.50
Cellulose	Loose-fill	$0.60 – $2.30
Polystyrene	Foam board and spray foam	$1 – $15
Blue jean	Batts	$1.15 – $1.75
Rockwool	Batts and loose-fill	$1.40 – $4
Sheep wool	Batts	$1.50 – $2.80
Polyisocyanurate	Foam board	$2 – $4.50
Cork	Rigid board	$3 – $12
Wood fiber	Rigid board	$4.25 – $6.75

Labor costs

As with many home improvement projects, some installation methods are more labor intensive and time consuming than others. For example, foam board insulation may require an experienced installer, whereas spray foam insulation is as easy as point and spray.

Note that labor costs can vary by region, where you install the insulation and how easy it is to access the space.

Type	Labor Costs	Total Costs Per Square Feet[2]
Batt	$0.25 – $0.80/sq. ft.	$0.65 – $2.00
Blown-in	$1.15 – $1.30/sq. ft.	$1.65 – $3.80
Foam board	$1.40 – $2.50/sq. ft.	$2.40 – $3.75
Spray foam	$50 – $100/hour	$3.15 – $7.50
Rigid board	$1.50 – $2.50/sq. ft.	$5.75 – $15

New vs. existing construction

Whether you’re insulating a new home or an existing one, the price to insulate varies partly based on the materials used and how easy or hard it is to get to the space. 

Since everything is open in a new home – the walls aren’t finished, there’s no siding on the exterior, etc. – accessing any space is a breeze. When the insulation process is easier, it tends to be cheaper, too. 

Let’s compare the average cost to insulate a new construction versus an existing home per square foot.

Type of Installation	Average Costs Per Square Feet[2]
New construction	$0.65 – $6.50
Existing walls	$1.75 – $7.50

Insulation removal and replacement costs

Out with the old and in with the new! 

Home insulation removal and replacement can be a pricey home improvement project. The cost to remove insulation can vary – just like it does to install it – depending on access and material type matter. 

On average, homeowners report spending $1.00 – $1.50 per square foot to remove insulation.^[2]

Checking the quality and condition of your home’s insulation isn’t always easy or something you’re thinking about. Sometimes, you may not even know your insulation needs replacing until something goes wrong.

Being proactive can help you avoid bigger expenses down the road. 

It’s recommended to keep an eye on your insulation beginning 15 – 20 years after installation.^[1] There are several ways to tell if your home’s insulation is failing. 

If you see any of the following signs, it may be time to replace your home insulation:

• The insulation is visibly damaged and starting to degrade.
• The insulation is no longer effective in stopping the home from losing conditioned air.
• The insulation is allowing daylight or other sources of exterior light to come through the walls.
• The insulation is starting to compress and lose its thermal protection.
• Your energy bills have increased significantly without any change in your home’s energy usage.

DIY vs. Hiring a Professional

Installing insulation yourself, versus hiring a contractor, may sound tempting and does have its benefits. However, make sure the material you want is something you can install safely. 

Otherwise, consider having it done by a professional.

Tips To Save Money on Insulation Cost

Insulating a house can be expensive, but there are plenty of ways to save money on insulation costs. Here are a few tips:

• Get multiple estimates: Don’t just go with the first contractor you find. By speaking with several contractors, you’ll ensure you’re getting the best possible price.
• Look for pricing in the late fall or early winter: When the weather begins to turn, people’s attention turns to their home insulation needs. Many contractors offer discounts during the fall and early winter, so it’s a great time to get a deal.
• Ask for a free energy audit: Many insulation contractors will offer a free energy audit to determine where your home is losing energy and how best to address the problem.
• Search for local and federal rebates: There are rebates available for energy-efficient improvements to your home, including insulation. 
• Remove it yourself: If you’re comfortable with a little DIY, you can remove old insulation yourself. 

Even with the best tips, insulating a home can be a financial burden, and sometimes the project isn’t exactly optional. 

When you need to make an insulation upgrade but don’t have the cash upfront, you might consider opening a home equity loan or taking out a home improvement loan. 

Winter Is Coming

It’s time to prepare for the looming battle against the long winter. The cost to insulate a home can be significant. But with careful planning, the energy savings, comfort and environmental impact all make insulating your house worth it.

If you take out a mortgage on a home, you might be surprised to receive your first bill from a bank you’ve never worked with before. You can thank the secondary mortgage market for that.

When you take out a home loan, your lender can sell the loan – and the rights to collect payments and interest – to a different financial institution. Lenders usually sell the loan for a small profit before repeating the process of issuing and selling other home buyers’ loans.

For most borrowers, the secondary mortgage market has no direct impact on their loans – other than the name of the bank servicing it. Still, you might want to know more about how the secondary mortgage market works and its important role in the mortgage industry. 

What Is the Secondary Mortgage Market? 

The secondary mortgage market is where financial institutions buy and sell home loans and the rights to service those loans.

Lenders and financial institutions use the secondary mortgage market to sell loans they don’t want to hold – or to buy loans or loan servicing rights.

The secondary mortgage market is an essential part of the mortgage industry because it allows mortgage lenders to recoup the costs of loans they issue. 

You might be asking why the bank needs to get their money back since borrowers pay them back with interest. Good question. 

Because the 30-year fixed-rate mortgage is one of the most common home loans, banks often have to wait a long time to get their money back. If banks regularly issue new loans but don’t get their investment back until several decades later, they might run out of money to fund new loans.

They’d also be taking on a lot of risk by holding every mortgage they issue. Banks could run into financial trouble if a recession hits or borrowers fail to make their mortgage payments on time.

The secondary mortgage market helps lenders reduce risk and allows them to replenish capital (money) quickly so they can continue issuing new mortgages. It also clears the way for government agencies and government-sponsored enterprises (GSE) to securitize mortgages by packaging loans into mortgage-backed securities (MBSs).

But what do all these names mean and what specific role does each play in the secondary mortgage market? Let’s break it down.

What is a GSE? 

GSEs are entities that improve credit and make more capital available to certain parts of the economy (like the mortgage industry). GSEs are also mortgage aggregators, which means they bundle a group of loans together to sell them to investors, known as MBSs. The best-known examples of GSEs are Fannie Mae and Freddie Mac.

In the case of Fannie Mae and Freddie Mac, the government doesn’t own these organizations – though they did create them. Rather, the U.S. Federal Housing Finance Agency (FHFA) serves as conservator of these entities,^[1] ensuring they’re financially stable and continue operating smoothly.

GSEs like Fannie and Freddie guarantee loans that meet their standards (aka conforming loans), insuring investors receive on-time payments.^[2]

Within the secondary mortgage market, GSEs buy eligible loans from lenders, choosing to either package the loans into MBSs for investors to buy or keep them in their own portfolios. 

Though GSEs and government agencies, like the Federal Housing Administration (FHA), account for buying and selling most mortgages on the secondary market, there may be other mortgage aggregators who buy loans and package them as MBSs to sell.

What is a mortgage-backed security?

A MBS is a bond that’s tied to a group of mortgages. Investors can buy MBSs when they want to invest in a pool of mortgages. As borrowers repay their mortgage debt over time, investors who own MBSs receive monthly payments (aka coupons) consisting of principal and interest payments.^[3]

What is the difference between the primary and secondary mortgage market?

When borrowers want to take out a mortgage to buy a home, they go to mortgage lenders. This is known as the primary mortgage market. The secondary mortgage market is where lenders and other financial institutions buy and sell packages of mortgages, returning liquid capital that lenders can use to keep issuing home loans on the primary market.

How Does the Secondary Mortgage Market Work? 

The secondary mortgage market can be complicated, but it tends to follow the same general pattern, moving through a cycle of the following four steps:

• Lender approves the loan: A lender approves a borrower’s mortgage application, and the borrower agrees to the loan terms.
• Lender sells the mortgage on the secondary market: Once a loan is issued, the lender can go to the secondary mortgage market and sell the loan to GSEs, like Fannie Mae and Freddie Mac.
• Loan is packaged by a GSE: GSEs (or another aggregator like a government agency) take the loan and others they’ve purchased and pool them together into bonds known as MBSs. Most MBSs are made up of mortgages with a similar risk level.
• Investors buy the packaged mortgages: Investors buy these mortgages by investing money in MBSs, replenishing the GSE’s capital and allowing them to buy more loans and repeat the cycle.

What’s the Purpose of the Secondary Mortgage Market?

The secondary mortgage market keeps the mortgage industry liquid, affordable and stable. This benefits lenders (aka mortgage originators), borrowers and investors.

The Great Depression resulted in roughly 25% of American homeowners succumbing to foreclosure and losing their homes.^[5] Banks failed and didn’t have the money to issue new mortgage loans, which highlighted the instability of the mortgage market.

In response, Congress established the secondary mortgage market by creating Fannie Mae in 1938 (and Freddie Mac 32 years later).^[6] The goal of these entities is to stabilize the mortgage market, increase liquidity for lenders and encourage homeownership by making home loans more affordable for borrowers.

Benefits for lenders

Lenders benefit from the secondary mortgage market because it keeps them flush with liquid capital and offers a guaranteed buyer for the mortgages they issue to borrowers. This helps lenders control risks, maintain stability and allows them to sell mortgages and mortgage servicing rights.

Benefits for investors

Virtually anyone can invest in the secondary mortgage market. Examples include individuals, corporations, institutions, hedge funds, pension funds (or mutual funds) and governments. The secondary mortgage market makes it easy for investors to research and invest in the types of MBSs that best suit their needs.

MBSs can serve as an alternative investment to government bonds, often yielding higher returns than fixed-income assets, like I bonds.

Benefits for borrowers

Though borrowers don’t interact directly with the secondary mortgage market, they still benefit from it. The secondary mortgage market contributes to making mortgages more accessible and affordable.

Pros and Cons of the Secondary Mortgage Market 

The secondary mortgage market is an important contributor in promoting economic stability, but it’s not a perfect solution. Let’s discuss the pros and cons of the secondary mortgage market.

Streamlining Mortgages for Borrowers, Lenders and Investors

The secondary mortgage market was created to help bring the dream of homeownership within reach for more people by making home loans more affordable. Though the underlying system of buying and selling mortgages on the secondary market is an imperfect one, it generally helps the economy and real estate markets operate smoothly and efficiently. As a result, homeownership is more affordable, lenders stay liquid and investors have ready access to MBSs.

While most people buy a house under their own name, there are those who choose to purchase real estate with a Limited Liability Company (LLC).

Buying a house under an LLC is something you might consider if you want to limit your liability exposure, conceal your identity as a homeowner or separate your business and personal finances.

Let’s discuss how LLCs work, the process of buying a house with an LLC and the pros and cons of purchasing a home with one.

What Is an LLC?

The acronym LLC stands for Limited Liability Company, and it’s a way to structure business ownership. Liability is the legal obligation to do something. This usually entails paying someone else for debts, damages or injuries. As the name suggests, LLCs limit liability, which is one of the primary advantages of buying a house using an LLC. 

LLCs are regulated by each individual state, though most states allow plenty of flexibility within LLCs – from tax structure to the number of members. LLC owners are known as members. They can be a single individual, several individuals, corporations or even other LLCs.

So how do you go about buying a house with an LLC? 

How To Buy a House With an LLC

Now that you know you’re able to buy a house with an LLC, and understand some of the advantages, how do you actually go about taking the next steps?

First, you’ll have to create an LLC, which you can do by filing the appropriate state paperwork and paying applicable fees. Getting your LLC application approved usually takes a couple weeks, with exact times varying by state.

Once your LLC is official, the easiest way to buy a house with that LLC is to name the business as the buyer on the purchase agreement and pay for the property in cash.

If you want to take out a loan to buy a house with an LLC, you have some options, but they might be trickier.

Can you get a mortgage with an LLC?

Asset-based lenders and other private lenders are usually more willing to give you a loan than a bank. Although, these loans tend to come with high interest rates and are better for short-term needs, such as house flipping. 

You may be able to get a mortgage under your LLC from a traditional lender, provided you’re willing to accept a higher interest rate, make a larger down payment (at least 20% – 25%) and offer a personal guarantee on the loan in certain cases.

What happens when you buy a house with an LLC?

When you buy a house using an LLC, the property is tied to that business. So if something happens to the house, the business is on the hook, not you personally. However, if you agree to a personal guarantee on a mortgage, you could “pierce the corporate veil” by mixing your LLC’s finances with your personal finances.

The corporate veil separates you from your business, identifying each as discrete entities. But if you make a personal guarantee with your own credit and finances, you’ll likely lose the personal asset protections under your LLC ownership. In this instance, if someone files a lawsuit against you, it could negatively impact both you and your LLC.

Why buy a house with an LLC?

People who use LLCs to buy a house are often real estate investors, celebrities or business owners seeking to limit liability, increase privacy or avoid double taxation.

Can I live in a house owned by my LLC?

Absolutely. Living in a home owned by your LLC can help preserve your privacy by keeping your name off public real estate records. But it’ll come at the expense of certain tax advantages, like the Internal Revenue Service (IRS) exclusion on capital gains tax when you sell the home.^[1]

What Are the Drawbacks and Benefits of Buying a House With an LLC?

Companies and individuals alike can enjoy the benefits of buying a house with an LLC. However, choosing to own your home under an LLC’s name may come with some disadvantages, too.

Many of the benefits and drawbacks of buying a house with an LLC depend on what you’re planning to use the house for. Are you looking to invest in real estate for passive income? Or maybe you want to flip the house for a profit while avoiding the risk of getting personally sued.

Whatever your reason for wanting to buy a house with an LLC, you should understand the pros and cons before deciding if it’s the right decision for you.

Frequently Asked Questions

Consider Your Goals, Weigh Your Options

You can certainly buy a house with an LLC. But before you do, think carefully about what you want to accomplish. Are you prepared to take on extra costs and limit yourself to fewer financing options? If you sell the home, are you willing to give up the capital gains tax breaks? Only you can answer these questions and decide if buying real estate with an LLC is right for you.

After years of studying to begin a career as a medical professional, you’d think getting a mortgage would be a breeze. Unfortunately, many doctors come out of medical school with a significant amount of debt and a more modest income than seasoned physicians. 

This large debt-to-income (DTI) ratio can make it harder for doctors looking for a new home to secure a conventional mortgage.

However, there’s a mortgage option specifically designed for doctors. If you’re a doctor facing a tough housing market with a lot of medical school debt, using a physician mortgage loan is likely your best option. 

Learn everything you need to know about physician mortgage loans, how they work, how to apply for one and what kind of rates and terms to expect.

What Is a Physician Mortgage Loan?

A physician mortgage loan (also known as a “doctor loan”) is a type of mortgage that, in most cases, doesn’t require a down payment. As the name implies, these loans are meant for doctors who’ve either just graduated – and may not have proof of employment yet – and newer physicians.

With high medical school debt and possibly no immediate income, newer doctors have a way to qualify for mortgages without having to put down thousands of dollars upfront. 

Are physician loans conventional?

No, physician loans are not conventional. They’re unique to doctors and don’t offer the same terms and requirements as conventional mortgages. 

A physician mortgage loan makes it possible for recent med school grads to achieve homeownership sooner than with a conventional mortgage. This is largely due to lenient application requirements and the ability to put no money down.

How Do Physician Mortgage Loans Work?

Doctor loans work differently than conventional home loans. There are degree requirements, lower loan qualifications and potentially higher interest rates for doctor loans than conventional mortgages. 

In the sections below, you’ll learn exactly how a physician mortgage loan works. 

Costs

Like traditional mortgages, exact costs vary by provider. However, $1 million is the industry standard for how much doctors can borrow without a down payment. Properties with a higher purchase price may require a down payment – even if you’re using a physician mortgage loan. 

You can also choose to make a down payment to increase your approval odds and lower the long-term costs of your loan. Some of these costs include:

• Monthly payment: This amount goes toward the principal amount and interest of your loan. It may also cover additional home costs, like taxes and homeowner association (HOA) fees. 
• Closing costs: Every home buyer has to pay closing costs. These are expenses associated with finishing a real estate transaction. You can expect to pay 3% – 6% of the loan balance. 
• Earnest money: Also known as a “good faith deposit,” this shows the seller you’re serious about buying the home. Earnest money can also incentivize the seller to schedule the necessary inspections and speed up the closing process.

Interest rates

Most doctor loans are adjustable-rate mortgages (ARM), which means they tend to have lower interest rates at the beginning of the loan. The interest rate can change over time based on market conditions and your personal credit. 

With physician mortgage loans, the rate tends to increase over time. But this isn’t always the case. 

Your lender can’t increase your interest rates without limitations. There are various caps on adjustable rates to ensure lenders don’t use these mortgages to take advantage of borrowers. 

So do doctors get better mortgage rates? No – at least not with a physician mortgage loan. 

In fact, interest rates for doctor loans are, on average, higher than the fixed rate available with conventional mortgages. Even with a doctor loan, you should always shop around to find the best loan terms.

Private mortgage insurance (PMI)

If you take out a traditional mortgage and make a down payment of less than 20% of the loan, your lender will usually require you to get Private Mortgage Insurance (PMI). 

The cost of PMI is added to your monthly payments and varies based on the size of the loan. 

However, if you get a physician mortgage loan, you can put down less than 20% (even 0%) and waive private mortgage insurance goodbye! 

Property requirements

Doctor loans have strict property requirements compared to traditional mortgages. Most notably, you can only use a physician mortgage loan to buy a primary residence. In other words, you can’t get a doctor loan to pay for a second home or investment property.

Additionally, your lender may put restrictions on the type of property you can buy with the loan. Many doctor loans won’t allow you to buy condos, townhomes or multifamily properties. 

You’ll need to check with your lender to see what types of properties are accepted.

Who Is Eligible for a Physician Mortgage Loan?

Contrary to popular belief, doctor loans aren’t just for doctors and other medical professionals. They’re available to a wide range of high-earning professions, including but not limited to:

• Doctors
• Dentists
• Podiatrists
• Veterinarians
• Optometrists
• Certified Public Accountants
• Attorneys
• Advanced Practice Clinicians

Keep in mind that not all lenders offer doctor loans to home buyers who work outside of the medical field. They’re generally reserved for medical professionals only. However, if you have the right credentials, you could find a lender that will accept your application.

Qualification requirements for physician home loans

As mentioned above, there are many professions who can qualify. Even if you don’t have a medical degree, you should consult with one or more lenders to see if you can get a physician mortgage loan.

That said, you’ll still need to show evidence of the following:

• Degree: You’ll need to show proof of an advanced degree in a qualifying field of study, including but not limited to MD, MO, DVP, DVM, DDS and DMD. Remember that eligibility requirements, including accepted professions and degrees, vary from one lender to another. 
• Employment or income: If you’re right out of med school, you can generally qualify for a doctor loan without proof of employment or income. If you’ve been out of school for more than a year, your lender will likely want to see that you have some way to make your mortgage payments.
• Debt-to-income (DTI) ratio: You’ll need to show how much debt you have in comparison to your current income. Fortunately, even if you have a lot of medical school debt and little or no income, many lenders will still accept your application. Doctor loans don’t automatically disqualify borrowers with high student loan debt.

What credit score do you need for a physician mortgage loan?

Credit requirements vary significantly by lender. As a general rule, 620 is the lowest score you can have to qualify for a non-government-backed mortgage. The same rule applies to doctor loans. 

However, if you don’t plan to make a down payment, your lender may require a credit score of 680 or above.

Are Physician Mortgage Loans a Good Idea?

Even if you’re a recent grad or a new doctor with a lot of debt, you may not want to rush into a physician mortgage loan. It all depends on your specific circumstances and goals. 

Below are some important pros and cons of doctor loans to help you decide if they’re the right choice for you:

Alternatives to Physician Mortgage Loans

If you decide a physician mortgage loan isn’t the best choice for you, there are other loan options. 

It’s important to remember that physician mortgage loans are specifically designed for new doctors and med school grads who wouldn’t qualify for a conventional mortgage. 

If you fall into one of these categories, you may find it difficult to qualify for other loans.

Federal Housing Administration (FHA) loan

An FHA loan is a government-backed mortgage that helps people with lower credit scores or limited savings get access to home financing. 

To qualify for the reduced down payment of 3.5%, you’ll need a credit score of at least 580. Alternatively, you can qualify for a down payment of 10% – if your score is above 500. 

You’ll also need to show proof of employment and income, pay for PMI and have a DTI ratio of less than 43%. FHA loans are great options for borrowers who don’t want a doctor loan and don’t qualify for a conventional mortgage.

Conventional loan

A conventional loan is offered through a private lender and offers competitive terms and rates based on your qualifications. 

Most conventional mortgages require you to have good credit and a steady income The upside is you can get virtually any kind of property with a conventional loan (second home, investment property, etc). 

You’ll also be expected to make a down payment of 20%. If you can’t, you’ll pay for PMI. 

Assuming you have a high DTI ratio due to med school loans, you probably won’t qualify for a conventional loan. Even if you do qualify, the terms won’t be very favorable.

Fortunately, you can turn to a low down payment loan program like Fannie Mae Home Ready or Freddie Mac Home Possible for help with the upfront costs.

Department of Veterans Affairs (VA) loan

Lastly, if you’re a military veteran or a current member of the military, you may qualify for a VA loan. This type of loan gives veterans and military families access to mortgages with no down payments. 

However, you’ll have to pay the funding fee (a fee that helps fund the VA loan program) of approximately 2.3% of the loan amount. 

Like a doctor loan, you can only use a VA loan to buy a primary residence – with some exceptions if the military relocates you. Generally, VA loans are a good option if you don’t qualify for conventional loans. 

You have to be a current or former member of the U.S. military to qualify.

Doctor up Home Buying With a Physician Mortgage Loan

If you’re a recent med school grad with student loan debt, a physician mortgage loan is one of the best home financing options on the market.

In some cases, it may be the only way for new doctors to become homeowners right now. Just remember to weigh all of your options to see if a physician mortgage loan makes sense for you.

physixfan      2022-10-28     2022-10-28

Advertiser Disclosure: This site is part of affiliate sales networks and receives compensation for sending traffic to partner sites. This compensation may impact how and where links appear on this site. This site does not include all financial companies or all available financial offers.

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2022.10 Update: The offer is now 90k, and it is the best ever offer on this card.

2020.11 Update: The offer is now 75k, and it is the best ever offer on this card.

Application Link

Benefits

1. 90k offer: earn 90,000 Ultimate Rewards (UR) points after spending $6,000 within the first 3 months of card membership. This is the best offer on this card.
2. Although this card is advertised as a cash back card, it actually earns UR points. We estimate that Ultimate Rewards (UR) points are worth about 1.6 cents/point, see below for a brief introduction. So the 90k sign-up bonus could be worth about $1,440!
3. Earn 5x UR per $1 spent on the first $25,000 spent in combined purchases at office supply stores and on cellular phone, landline, internet and cable TV services each account anniversary year. If you have a business that can max out these categories, that’s 125,000 UR per year!
4. Earn 2x UR on gas and restaurant on the first $25,000 spent each year. Earn unlimited 1x UR per $1 spent on all other purchases.
5. Purchase Protection – Covers your new purchases for up to 120 days against damage or theft up to $10,000 per claim and $50,000 per account.
6. Primary car rental insurance. HOWEVER, unless you can prove that you are traveling on business (which you will be required to do in the case of a claim), you will be better using the primary car rental insurance on the Chase Sapphire Preferred or the Chase Sapphire Reserve.
7. [Limited Time] Earn 5x UR points on Lyft, until 2022.03.31. Here is the official link for this promotion.
8. Refer a friend: You can earn 10,000 bonus UR points for every approved account you refer, up to a maximum of 5 approved referrals (50,000 UR points) per calendar year.
9. No annual fee.

Disadvantages

1. It has foreign transaction fee, so it’s not a good choice outside the US.

Introduction to UR Points

• You can earn UR points with Chase Freedom Student, Chase Freedom, Chase Freedom Unlimited (CFU), Chase Sapphire Preferred (CSP), Chase Sapphire Reserve (CSR), Chase Ink Cash (Business), Chase Ink Unlimited (Business), Chase Ink Preferred (Business), etc.
• You can move your UR points from one UR card to another at any time.
• UR points never expire. You will lose the UR points on one card if you close the account, but you can prevent losing your UR points by moving the points to another UR card beforehand.
• If you have Chase Sapphire Preferred (CSP), Chase Sapphire Reserve (CSR), or Chase Ink Preferred (Business), UR points can be transferred to some hotel points. One of the best way to use UR points is to 1:1 transfer to Hyatt points. UR points can also be transferred to some airline miles. One of the most common and best way to use UR points is to 1:1 transfer them to United Airlines (UA) miles (Star Alliance), and combine them with the UA miles earned from the UA card. Other good options are: Southwest (WN) (Non-alliance), British Airways (BA) (Oneworld), Virgin Atlantic (VS) (Non-alliance), etc. If you use UR points in this way, the value is about 1.6 cents/point.
• If you have Chase Sapphire Reserve (CSR), you can redeem your UR points at a fixed rate 1.5 cents/point towards air tickets or hotels on UR travel portal; if you have Chase Sapphire Preferred (CSP) or Chase Ink Preferred (Business), you can redeem your UR at a fixed rate 1.25 cents/point towards air tickets or hotels on UR travel portal.
• If you have any of the UR cards, you can redeem your UR points at a fixed rate 1 cent/point towards cash.
• In summary, we estimate that UR points are worth about 1.6 cents/point.
• For more information about UR points, see Maximize the Credit Card Points Values (overview), and Introduction to UR: How to Earn and Introduction to UR: How to Use (very detailed).

Recommended Application Time

1. [5/24 Rule] If you have 5 or more new accounts opened in the past 24 months, Chase will not approve your application on this card, no matter how high your credit score is. The number of new accounts includes all credit card accounts, not only Chase accounts. See this post for details about how to possibly bypass this rule.
2. You are not eligible for this sign-up bonus if you received a sign-up bonus on this card within 24 months. Note that what this 24-month clock starts from when you last got the sign-up bonus, not the time you open the account or close the account. [Correction] There is no such rule for Chase Ink series!
3. Don’t apply for more than 1 Chase business credit cards within 30 days, it’s highly likely that you will get rejected.
4. We recommend that you apply for this card after you have had a credit history for more than a year.

Summary

The sign-up bonus is really nice considering it is just a no fee card. Also it is a good card to earn 5x UR.

Related Credit Cards

After Applying

• Call 800-453-9719 to check Chase business cards application status. This is an automated telephone line, and the information has the following meanings: Receive decision in 2 weeks means your application is probably approved; Receive decision in 7-10 days means your application is probably rejected; Receive decision in 30 days simply means your application requires further review and there’s nothing to tell you for now.
• Chase reconsideration backdoor number: 888-270-2127 or 888-609-7805. It’s pretty hard to recon Chase business cards. Be prepared to be asked about a lot of details of how your business operates.

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