Particularly when physicians are just starting their careers, we see many of the same challenges in obtaining financing.
1. Large Student Loans
The first question I ask a client seeking mortgage financing is, “Do you have any student loans?” The majority of residents, fellows, and young attending physicians are going to say yes. Very few, maybe one in 50, make it out debt free. It’s typical to see student loan debts somewhere in the neighborhood of $150,000 to $250,000, although I have seen physician clients with $500,000 or more in student loans—yikes! Your student loans, which are only the first things we’re going to have to deal with, will likely preclude you from taking a conventional loan through Fannie Mae or Freddie Mac. This is because the Fannie Mae and Freddie Mac guidelines require that underwriting qualifies you at 2 percent of the outstanding student loan balance as a monthly payment for any student loan in deferment or showing zero payments at time of application.
*Information based on a hypothetical situation. Please contact your Loan Officer for information based on your situation.
For instance, let’s say you graduated from med school and are going into residency. You will have a salary of $50,000 a year. You have $200,000 in student loans, so that’s $4,000 a month that underwriting is going to count against your debt-to-income ratio, regardless of whether the loans are in deferment or forbearance. That puts you near a 100 percent debt-to-income ratio with student loans alone, so you are not going to qualify for a conventional loan under conventional guidelines. Know right away that you’re going to need some sort of a physician home loan to exclude those deferred payments.
2. Want to Be in the New Home Prior to Starting Work
Another common challenge is if you want to move into your home prior to starting your job. Most clients generally need to close before starting work because of their intense schedules. Virtually none of our clients want to move their family twice. It is an incredible inconvenience, especially when you have children and you’re trying to get them adjusted to a new school, new friends, and so on. Most physician loan programs will allow you to close prior to your start date.
3. Little to No Down Payment
It is rare that a resident, fellow, or newly attending physician will have a 20 percent down payment. I just don’t see that a lot. Physician loans generally offer higher loan-to-value financing, in some cases as much as 100 percent, with no mortgage insurance, so additional savings can be achieved and the loan is easier to qualify for.
*Eligibility subject to program stipulations, qualifying factors, applicable income and debt-to-income (DTI) restrictions, and property limits. Fairway is not affiliated with any government agencies. These materials are not from HUD or FHA and were not approved by HUD or a government agency.
4. Added Complexity and Stresses
Many of our physician clients aren’t fully aware of the added complexities and stresses on them. All they know and understand is their particular situation. As I look at a broad spectrum of clients, I see the circumstances surrounding most physicians: testing, licensing, student loans coming in and out of deferral, relocation, and new employment, to name just a few. As a student, you’ve likely been living on a low income, packed into a 900-square-foot apartment. You’ve been studying, going to school, working massive hours, trying to be a wife or a husband, trying to finance your student loan debt, and trying to pass your board exam so you can actually go on to practice. With all that is going on in your world, packing a stressful home-loan process on top of it can be too much to bear.
The easiest way to reduce stress in buying a home is to go through the underwriting process as early as possible and avoid compacting it all in the last 30 days before your move. The goal is to get all your financial documents in order, all the pieces of the puzzle put together so that you are already qualified and pre-underwritten once you find a home. Then, all that is left to do is the title search and appraisal. You’re pretty much coasting to the closing table from there.
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Physician Mortgage Grant Program:
Down payment grants are currently available in conjunction with one of our physician home loan programs.
For more information, please read our full article: Physician Mortgage Grant Programs.
I hope these tips help you avoid the landmines for a flawless home purchase! Contact our doctor mortgage expert Josh Mettle at (855) 260-9932 or Contact Us here. We’d love to hear from you!
Josh Mettle is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNAs, and physician assistants. You can enjoy great physician real estate and mortgage advice here or by visiting his book site. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.
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*A pre-approval does not constitute a full loan approval or a commitment to lend. Full approval is subject to underwriting approval based on program guideline requirements including but not limited to a satisfactory appraisal.
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