Buying a home is the single largest financial transaction most Americans engage in during their lifetimes, and questions with the process take on even greater weight for resident and early-career physicians, who face unusual financial circumstances that complicate an already overwhelming process.
With mortgage-interest rates hovering near 6.5%, down from a year ago, residents may be newly considering a home purchase to avoid paying rent. And physicians transitioning to practice could be looking to buy their first house after their fellowship or residency ends.
While some lenders make it seem as though you can just complete an application online and be done, the reality is that homebuyers—especially first-time buyers and new doctors who buy—should seek the advice of an expert.
Lenders such as Physician Loans by Huntington Bank, which provides special offers for AMA member physicians, residents and medical students, can deliver specialized home loans, often dubbed “doctor loans,” that are tailored to the unique needs of residents and early-career physicians.
“We see it almost every day—residents are so focused on completing the residency and taking care of patients that they’re not thinking about their long-term housing solutions,” said Michael Farner, director of PhysicianLoans by Huntington Bank.
Farner noted that the end of residency, and the ensuing move, “all comes on really fast.” With that in mind, he took time to break down some common concerns of residents, fellows and early-career physicians looking to purchase a home. He also doled out some key tips on making a wise decision about selecting a lender.
Can resident physicians use expected income to qualify?
Farner said that physicians just entering their first job after the end of residency training typically can use their employment contracts for full-time, permanent positions—sometimes with the addition of a letter from the future employer—to qualify for a home loan.
“We will work with that borrower to be able to close on their home, maybe even prior to them starting that full-time position,” he said.
Finding a home as much as 90 days in advance of beginning in a job can certainly “help ease that transition,” Farner added.
When it comes to a nonphysician spouse, they may be able to use their income to qualify, if they have either begun their new role or are remaining in a previously held position.
“If they are employed in a location that they're leaving and they’re able to retain that position as they move, if they can work from home or if they work remotely or if that company does have an office in the new location, then we would treat that income as if they were still in their previous location,” he said.
Otherwise, the spouse may need to have a pay stub from the new job. “Now, that will not stop that spouse from being on the title to the property. We just may have to use the physician’s income to solely qualify for the loan.”
How much will resident physicians have to put down?
The amount a physician will have to amass in terms of a down payment for a home purchase depends on their financial situation, the cost and location of the home they would like to purchase, and the lender they use.
Typically, a homebuyer who is unable to put down at least 20% of the cost of the house they are looking to buy will need to obtain private mortgage insurance (PMI) to cover the lender due to the increased risk in the loan. The cost and location of the home is also a factor.
The Federal Housing Finance Agency (FHFA) has set the limit for conventional—also known as “conforming”—loans at $832,750 for a single-unit property, but some higher-priced counties in the U.S. have higher limits. Any amount over the FHFA limit would need to be financed as a “jumbo loan,” which has different parameters and risks. Many lenders require higher down payments and lower debt-to-income ratios to qualify for jumbo loans.
Farner said that PhysicianLoans offers 0% down-payment financing up to $1 million, with no private mortgage insurance required. They also allow higher debt-to-income ratios, making it easier to qualify for larger amounts.
“Our biggest goal is making sure that our borrowers can afford the properties that they're interested in,” he said, noting that it’s key to have a conversation with physicians transitioning to practice about their often-substantial medical student-loan debt and how that affects the amount they should put down for the purchase.
Frequently, Farmer said, “it does make sense to use a low down payment, zero down payment home-loan option, allowing you greater flexibility to be able to repay your student loan debt.”
When’s the right time to contact a lender?
Resident physicians do not need to wait until they have a home they would like to purchase to reach out to a prospective lender. In fact, they do not even need to be certain that they will be buying a home at all for the information to be useful. Farner said that PhysicianLoans does education about home loans with medical students, hoping that they will reach out to a lender sooner with questions about their goals and needs.
Residents, who often are in training institutions located in larger metropolitan areas, may be paying significant amounts in rent and have questions about whether buying a home makes more sense. Then, once residency training ends, physicians will be familiar with the ins and outs and ready to purchase in the transition to practice.
“Once someone’s leaving residency, they're really looking to set roots in that community, and we believe home ownership is one of the single strongest things that you can do to firmly entrench yourself in the community where you’re working,” he said. “And there’s a lot of nuance to that early-career physician trying to purchase a home.”
PhysicianLoans offers a special benefit for AMA members with a discount of $750 applied toward mortgage-closing costs. Learn more about PhysicianLoans, the terms and conditions of this offer, and how to redeem it.
