An ideal mortgage loan candidate has low debt and a sizable income. Low debt is not often the case, however, for new physicians leaving residency. On average, physicians start their careers with $166,750 in debt. Leaving residency with large debts and career opportunities still on the horizon, new medical practitioners have many of the characteristics banks often try to avoid.
Banks, however, have grasped the need to serve this special niche. After all, these young physicians are earning high than average salaries, many with higher earning potential on the horizon. They’re eager to purchase homes and start settling down, but what about all this debt preventing a mortgage approval?
What Can a Young Physician Do to Buy a Home?
When underwriting a mortgage, many lenders adjust to account for a physician’s future earnings potential by offering specialized products called “physician mortgages.” Requirements to obtain one may include:
An active physician’s license. Sometimes these products are made available to medical residents and fellows. This varies by lending institution.
A signed job offer letter. For physicians close to starting a new job, often lenders will not approve a loan until 60 days before the start date.
Time on the job. Some lenders require applicants to have spent 30 days to 6 months in their new positions.
A banking relationship. Some banks require physicians to maintain a checking or savings account at their institution. This is because offering physician mortgages is a great way for banks to acquire their continuing business. Many banks find that physicians become some of their best long-term customers.
What Are the Benefits of a Physician Mortgage?
If you qualify for a physician mortgage, some of the benefits you may receive include:
100% financing. Many banks offer these loans with very little or no money down.
Quick response times. Generally, decisions are made on a shorter timeline than typical home loans.
Less risk offsetting. Lenders typically do not require you to purchase private mortgage insurance. However, there will likely be a slightly higher interest rate charged.
A Few Tips for Physician Homebuyers
First, big new homes in expensive neighborhoods may gain value slowly, if at all, and upkeep and property taxes aren’t cheap. Think of them as a luxury rather than an investment.
Second, buyers pay a premium for a home if it will be relatively maintenance-free for their first 5 to 10 years of ownership.
And third, consider purchasing a less expensive home in a good neighborhood in need of some repairs and using your extra salary to invest in its restoration. You may have a chance to sell it for more than you initially paid, including your rehab costs.
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For more on physician finances, read Top 5 Financial Mistakes New Physicians Make and How to Avoid Them
For more on the investment potential of insurance, read Are You Missing Out on the Hidden Benefits of Permanent Life?
For more on how young physicians can handle major life events, read Having a Baby? A Quick Guide to Life Insurance for New Parents