After years of training, it’s logical for a young physician to aspire to put down roots. That includes finding a longer-term position and, potentially, buying a home.
Tal Frank, president of PhysicianLoans—a preferred home-loan provider for AMA members—recently offered some insight on the state of the residential real estate market and how physician buyers can navigate potential challenges in the home-buying process.
While high home-loan interest rates seem to be the headline that potential homebuyers are aware of, Frank said that rates are more of a secondary concern in today’s market.
“The challenge in today's market that buyers have to be aware of going into the process is, first and foremost, a lack of inventory,” Frank said.
In addition to lacking inventory, prices are also inflated because of a multi-year run-up in home values, Frank said. That was due to very low rates at the outset of the pandemic, which brought more buyers out to compete for real estate.
“Because of all those factors, the entry-level price point of homes for young professionals, including young doctors, is so much higher than where it was just several years ago that it prices many of them out of the market,” Frank said. “Then, once you find a home you do have to contend with the high interest rates on loans.”
For home buyers, the traditional time horizon has been to start looking weeks before you hope to buy. In today’s market, the advice Frank offers is to begin 90-plus days in advance of when you hope to purchase home.
“My advice is to start a lot earlier,” Frank said. “What that means is you need to reach out to a loan officer proactively. Not once you find a home or 30 days before you go shopping. Three months in advance is a good window if that's possible, to have all your ducks in a row. Make sure your financing is secure.
“Reach out to a real estate agent early on in your search and have them help you track the market well before you are looking to make a purchase.”
If you are dead set on buying a home, having some flexibility with your parameters will help you make that possible.
“When I talk to young doctors, one of the things I tell them is you might not want to look in this market if you are going to become easily frustrated,” Frank said. “You have to be mentally prepared for some setbacks and set your expectations properly. You might need to buy a smaller home than you expected. You might need to spend more than you expected, or you might need to live in a different neighborhood than you had originally expected.”
While physician borrowers are going to get similar interest rates on a home loan to most buyers, there is an opportunity to put less cash down, which can be an asset with high home prices.
“There is no magic cure for high interest rates, but the loan product that we offer physicians does allow for a lot less cash out of pocket, which can be particularly helpful for doctors who just completed residency,” Frank said. “We can go as far as no money down for many borrowers and not charge private mortgage insurance.”
Loans for physicians—offered by a number of financial institutions—operate like any other mortgage loan, so that if interest rates go down, the borrower has the chance to refinance.
“If you get a physician loan today, and let’s say three years down the road, the rates are lower, you can refinance out of a physician loan into whatever loan you qualify for at that time,” Frank said. “So by getting a physician loan, you're not prevented from refinancing as you normally would with any other type of loan.”
The AMA Transition to Practice series has guidance and resources on deciding where to practice, negotiating an employment contract, managing work-life balance, and other essential tips about starting in practice.