The Home Buying Process for Physicians

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Buying a home is a challenge at any stage of life. The entire process entails a number of steps, and requirements that can’t be done overnight. Hassle – and paperwork abound. Preparing for the process ahead of time is key to  reducing any potential mistakes, surprises and ensuring everything goes smoothly. After all, buying a home is one of the biggest purchases a person can make over the course of their lifetime. 

The home buying process has been relatively similar for decades.and is no different for physicians as it is for anyone else. However, physicians may qualify for a specific type of mortgage program that saves them steps along the way as well as money.  

The Physician Mortgage Loan Program is designed to help those in the medical field qualify for a mortgage. Candidates must ensure they have everything in order to buy a new home in order including: a qualifying credit score, a down payment and money for closing costs. 

According to the National Association of Realtors (NAR), Profile of Home Buyers and Sellers, the median down payment is 13% with 8 weeks spent on the typical home search and an average of 8 homes being toured before making a purchase. 

The first step is to find a home. 

There are a number of options for finding houses, including real estate agents, searching online listings and driving around neighborhoods of interest. It is important to have an agent before seriously walking into an open house, however. 

Taking location into consideration is important. The vibe, the amenities that surround it, the schools and distance from work should all be considered.  

Also, what type of property? For the budget-conscious, homes that need a little work in the future might be an option. Additionally, single-family homes, condominiums and townhomes all vary in terms of size and amenities. Being part of an HOA has advantages but also adds an added expense. Fee.

The next step is to consider financing options, then secure that financing. According to the 28/36 rule, potential buyers should spend no more than 28% of their monthly gross income on housing costs. Lenders focus on more than just  income when it comes to qualifying for a mortgage. They also look at monthly expenditure on debt – known as  debt-to-income (DTI) ratio. The average acceptable  DTI is 36%.

There are a wide variety of options including conventional vs. government-backed loans. Buyers can also use their individual retirement account (IRA) or Roth IRA without paying the penalty for early withdrawal. Government backed loans include Federal Housing Authority (FHA)-backed mortgages, the HUD website has  information about grants, various state programs, programs for Native Americans, and Veteran Home Loans. Then there is the Physician Home Loan program. 

Each of these has their own benefits and potential drawbacks, and each comes with a set of qualifying standards. For instance, The FHA sets limits on the loan term and the amount that can be borrowed.

Government-backed loans are not made by the government. However, they are guaranteed by the government, so that if a borrower fails to make the payments, the government pays the lender the balance of the loan after foreclosure. 

Conventional loans have no guarantee, therefore they have higher qualifying standards than government-backed loans.

Many local banks, large banks, credit unions, and mortgage bankers and brokers offer the Physician Home Loan. 

With the Doctor Mortgage Loan Program, lenders make allowances for the aforementioned DTI Ratio. Debt from med school is usually waived from the DTI  score. This is a huge advantage for physicians and residents who may otherwise not qualify for a conventional or government-backed loan due to the huge amount of school loans they typically carry.

Another major advantage of the Physician loan is that lenders are able to offer a mortgage with zero to very little money down – only 0%, 5% and 10% down depending on the lender. 

Additionally, and importantly, these types of loans require no private mortgage insurance (PMI.) Also known as Principal mortgage insurance, this type of insurance protects the bank if a borrower defaults on their payments via a conventional loan. PMI is an expensive addition to the monthly payment and is not tax deductible. With a physician loan, borrowers can borrow 95% to 100% of the home price with no PMI required. 

Other advantages of a Doctor Home Loan include:

  • Fixed rate options as well as competitive Adjustable rates
  • Higher maximum loan amounts on average depending on career ‘level’
  • Employment contract can be used as evidence of income
  • Early closing on a loan: up to 60-90 days before starting any new employment 
  • Gift funds or seller contributions may be used for closing costs

Once a physician qualifies, the next step is to make an offer on a home. 

After that comes the home inspection and appraisal. The home inspection will identify areas where repairs or renovations are needed. Lenders require an appraisal before they agree to release any monies.

Being a first-time home buyer can be intimidating and confusing as each state has their own requirements. Locating a qualified lender who specialize in Physician mortgage loans can take the load of the process. 

MD Mortgage Loans have compiled a list of Physician Mortgage Lenders and Banks by both state and qualifications. MD Mortgage Loans can also help narrow it down by comparing the pros and cons of the program being offered with regard to the needs of each individual. Buying a home is a lengthy and complex process. With MD Mortgage Loans as a resource, preparation is the key to success. 

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