Mortgage Options

So you’ve decided to buy a house. If you haven’t read the previous post about whether or not you should buy a house, I would recommend reviewing that post. Depending on your circumstances, you have a lot of options available on the kind of mortgage to get. In this post I’ll briefly cover each of the major types of mortgages that medical students and residents might consider, and in future posts I’ll talk about the pros and cons of each and how a certain option might fit best in your own situation.

Conventional Loan

Who can get it:

Almost anyone who makes enough money and has a down payment saved up or is willing to pay a little extra for private mortgage insurance (PMI).

Pros:

With a down payment you’ll have equity in the home.

Lower interest rates than physician loans.

Cons:

Down payments mean more money up front, and PMI means a higher monthly cost.

Conventional lenders will almost always require you to already be working and earning a paycheck, so if you are moving to start a new job you may have trouble proving your income.

Best for: People who already have some money saved up.

Physician Loan

Who can get it:

Medical students who have matched and have a signed contract to start residency.

Residents, fellows, and new attendings in the first few years of practice may also benefit from a physician loan.

Pros:

Allows you to buy a more expensive house compared to other loans, and with little or no down payment.

Lenders will ignore student loan debt when determining your ability to borrow, so people with a lot of student loans who would be shut out of other loan types may still qualify.

Cons:

Most expensive in the long term, since lenders charge higher interest rates to offset the need for down payment/PMI

Best for:

Physicians without a lot of cash savings, or who haven’t started their job yet (such as graduating medical students who want to buy a house before starting residency).

 

Veterans Affairs (VA)Loan

Who can get it:

This type of loan is only available to people who have served in the military. There are very specific rules regarding how many days you have to have spent on active duty, depending on the dates of service and the type of service. This will be covered in more detail in an upcoming post on VA loans. 

Pros:

No down payment.

Best rates for those with lower credit scores.

There are loan origination fees of about 2%, but if the veteran has even a 10% disability rating from the VA this fee is waived. The fee can be rolled in so it is possible to buy without bringing any cash to the table.

Cons:

Strict loan limits – the VA will require you to pay in cash for any amount over the home’s appraised value.

Like a conventional loan, will also need to show proof of your current income. Unlike many conventional loans, however, they may accept a military contract as proof of your future income. 

Best for:

Qualified veterans, especially disabled veterans. 

 

I hope that has given you an idea of the general types of loans available to medical students, residents, and new attendings. Keep an eye out for a series of new posts coming in the next few weeks describing each of these options in more detail.

 

Full disclosure: My wonderful spouse, who knows more about these things than I do, assisted me in writing this post.