The advice I give my resident physician clients is: don’t get discouraged and don’t give up. Instead, I advise them to be aware of the challenges that they will face this year when trying to buy a home, and arming them with tools to overcome what can seem like insurmountable odds. I’m passionate about home ownership and feel strongly most residents will have a good equity position in three to five years and they will be better off buying a home than renting. Many of my clients agree, but just don’t know how to pull it off.
Here are a few of the challenges you can expect as a resident entering the home buying market and potential solutions you can employ to help you:
It's A Seller's Market
This is particularly challenging for relocating residents because of their small window of opportunity to find a home and an even smaller window of opportunity to close. Most of my clients are trying to do their house hunting on one to two weekend trips to their new home city. With increasing competition for homes, especially in the $200 to $300k range, it’s become challenging to find a home in the right area that fits their family’s needs.
There are two solutions to this challenge that I offer to my clients. First and foremost, you need to be working with the right kind of Realtor. Just what is the right kind of Realtor? Look for someone who is SERVICE oriented, who is not too BUSY to devote 100% attention to you when you come into town to preview properties. Look for a professional who cares as much for a job well done as they do for the money. Seek out referrals and speak to several Realtors to get a feel for them. Rule out anyone who feels pushy or salesy. You should sense they care when you speak to them and tell them your challenges with finding a home from a distant location.
You must be able to close on your loan quickly once you find a home. It’s highly advantageous to find a loan that will allow you to close as early as possible before your employment contract begins and that allows you to push your payment out as far as possible after you close. In past years you could find a home and write an offer in March and not close until June. Now sellers are in control, so you need to be able to close quickly. That may be 60 days before you are scheduled to start your new employment contract. These loans do exist; make sure you are working with a physician mortgage specialist who will allow you to close based on your employment contract or offer letter.
Most mortgage loan officers and underwriters will not know what do with your student loans and how to calculate your payment. I liken a resident's student loan situation to being in “no man’s land”. Student loans are currently deferred, but in most cases for less than 12 months. They can’t be deferred again before you’ll need to buy a home and you don’t want to roll into Income Based Repayment (IBR) until after your 6 month stay of payments after graduation.
Be aware that the vast majority of lenders will tell you no, you don’t qualify for a mortgage, but there are those that will tell you yes. You need to search them out. Start by searching online for physician home loans and the state you are moving to. (For example, physician home loans Oregon.) [You can also check out the Doctor Mortgage Loan page here on the blog -ed] Look for lenders who have have physician testimonials available and physician references you can call.
Another suggestion is to call your contact person at the residency program you are about to enter. Explain your situation and ask if they know of a professional lender who specializes in helping physicians.
There are lenders who have solutions; you just need to find them. Don’t make the mistake of working with a family member who does loans on the side or even your realtor’s referral if they don’t specialize in servicing relocating residents with student loan debt.
Limited or No Down Payment
Surviving college and medical school is challenging enough; saving a big down payment for your home at the same time is nearly impossible.
There are some areas and states that still have 100% financing options available, but most physician loan programs and areas will require 3-5% down payment. Depending on your situation, make sure the loan program you are qualifying for can accept a gift from family, or be sure to have the money for down payment in your account 90 days prior to when you expect to close. Underwriting will want to see a 60 day history of those funds and underwriting should occur 30 days prior to closing, so the funds must be in your account 90 days before closing.
If you have found a physician home loan specialist, they should have this low down payment product and be able to guide you through the documentation process.
I’m Sorry… Underwriting Declined Your Loan
This is not what you want to hear as you are driving a U-Haul from Cleveland to Arizona… unfortunately, I get more calls from residents who are declined at the last minute than any other physician or client type (yes, I have received calls from clients in the moving truck).
Why does this happen? Residents have more “moving pieces” to their loan file than do most clients. They may or may not have any income or tax return history; they want to close before they have their first pay-stubs to document income; their student loans show zero payment but are about to come out of deferral; money for down payment is magically showing up in their bank accounts, etc., etc., etc. At the end of the day, there is more complexity to a resident physician’s loan application than there is to almost any other type of client situation.
This may result in mental lapses from loan officers who have not thought it all the way through and way too many last minute declines by underwriters.
The solution is to get ALL of your documentation to the lender and ask for an underwriter to review and issue a credit approval as early as possible in your home buying process. If you are working with a physician mortgage specialist, they should be gathering all of this data early and having it underwritten anyway. If the mortgage specialist does not ask for all income, down payment and student loan info up front, there is a problem brewing. Don’t be afraid to ask your lender about their pre-underwriting process and what lengths to which they go to ensure your loan is truly pre-approved and you won’t get surprised at the last minute by underwriting.
You can do it. Home prices are still attractive in many areas of the country and with rates still below 4%, buying in many areas will be the same or less than rent. Good luck!
What do you think? Did you get a “physician mortgage?” What problems did you run into with it? Did you buy a home as a resident? Were you happy you did so? Comment below!