Mortgage Options for Residents

[FreeRadical2013]

Hey everyone,

I had a question about mortgage options available to resident physicians. I have a year internship at my medical school hospital and will then move to a new area of the country for residency, so I have a year to review all the options. Does anyone have any experience with these so-called "doctor loans"? If so, did anything in the terms surprise you or did you have any trouble with the payments? Are there other mortgage products that could work for a resident?

Thanks in advance for your help. Much obliged.

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[gutonc]

This has been discussed quite a bit over the past year or so. Check those threads out and come back. There are also probably more outside of Gen Res that I didn't bother to look for but you can use the search function as easily as anybody else can.

A lot of it will depend on where you go and how the housing market is there. The "physician mortgage" is, while not dead, on life support, primarily because there's nobody to shift that paper to anymore before it goes sideways (i.e. the secondary mortgage market and Fannie/Freddie aren't biting anymore) so they're tougher to find and may have stricter (but still not horrible) terms than they used to.

But, unless you're planning to stay there for 5+ years, or have a 50% downpayment at your disposal, renting will probably be a better deal.

If you're looking somewhere other than Detroit (where I could buy a place for what I get from selling my 2000 Saturn plus a couple cartons of smokes) or the non-SoCal sunbelt, look at the 10 year sales average for similar properties (find it someplace like Redfin), ignore the years 2003-2008 and see what the line looks like.

You can also check out this (or other similar) buy-rent calculators to get a more solid idea of what your best option is. I like this one because it allows a lot of customization including tax and savings rates. I just did it again (this time adjusted to the current best CD rate at my credit union for savings and the marginal tax rate I paid this year) and I still have another 7 years in my current place before I would have been better off buying in the same area. I'm not staying here for 7 years, but you get the point.

 

[SurfingDoctor]

The "physician mortgage" is, while not dead, on life support, primarily because there's nobody to shift that paper to anymore before it goes sideways (i.e. the secondary mortgage market and Fannie/Freddie aren't biting anymore) so they're tougher to find and may have stricter (but still not horrible) terms than they used to.

Yep, what he said. This is lender specific but as far as most banks are concerned, "doctor loans" don't exist anymore.

 

[McGillGrad]

Yep, what he said. This is lender specific but as far as most banks are concerned, "doctor loans" don't exist anymore.

Local credit unions associated with the hospital general offer "doctor loans" but it is region specific.

 

[FreeRadical2013]

Thanks to all the above posters for such helpful information.

 

[45408]

If you don't have a family, or you aren't quite sure that you'll be staying in the house after residency, then I think buying a house is a pretty bad option for a resident.

If you think that you're "throwing money away by renting," then I strongly encourage you to add up all of the following, based on actual quotes for the property you're considering:

1. Mortgage interest
2. Private mortgage insurance (PMI)
3. Homeowner's insurance (much more expensive than renter's insurance)
4. Property taxes
5. Closing costs (look how much is rolled into this - http://en.wikipedia.org/wiki/Closing_costs )
6. Realtor's commission when you sell the house
7. Basic upkeep of the property (landscaping, snow removal, replacing a window/sink/toilet)

And then remember that your furnace could implode, your basement could flood, or your roof could leak. I love owning a house, but the $2000 to repair my roof last fall? Yeah, that was a painful bite.

Most new homeowners don't realize that maybe $200 of your entire mortgage payment is actually going toward your principal, and it will remain that way for several years (i.e., the duration of your residency). You will accumulate almost no equity unless you upgrade the property, which takes time and effort, which is limited during residency. Right now, I'm "throwing away" over $800/month in PMI, mortgage interest, property taxes, and homeowner's insurance. It's even more when you add in all my maintenance costs.

I have a house, but I got the $8000 first-time home buyer's credit, I have a family, I enjoy landscaping and basic home upgrades/maintenance, and my wife wanted a place that was "our own."

 

[HondoCrouch]

Rent, dont buy.

 

[deleted103644]

Advice for this will vary according to your situation.

Here's a pretty thorough calculator to figure out which is better:

http://www.nytimes.com/interactive/business/buy-rent-calculator.html

Unless you're going to be in the same location for 5+ years though, it probably won't make sense.

 

[captaincrunch]

I think the decision to rent/buy is a difficult one. In order to limit the scope of this, I'll guess that you want to buy a house for a short duration, say 3-5 years, after which you will either move to a fancier house or to a new city.

As some posters have noted, the costs of owning a house can be deceptively high. The insurance, closing costs, taxes, realtor fees, transfer taxes, title fees, etc all add up. Upkeep is also expensive. Also, as someone mentioned, you won't build much equity in the house in the first few years. Most of these payments are directed towards interest.

The doctors-only loans are typically zero-percent down loans (no longer available to the general population). The advantages to them are that they don't factor student loan dept into their assessment and they allow little or no down payment. They do this on the assumption that physicians have a very low default rate and that their earning potential is high. However, I would advise against it. If you can't put some real money down and build some equity in the home (e.g., 20%) I wouldn't bother. And if you're credit rating won't let you get a traditional mortgage, it might be better to wait until you're done with residency, especially if you would want to "upgrade" to a nicer house at that time anyway.

But if you can buy, there are some advantages to owning right now. In some cities, including my own, monthly rents are actually higher than mortgage payments (I presume a 30-year fixed rate morgage with 20% down), even after property taxes and insurance are factored in. If you opt for a ARM (a risky move), you can get your monthly costs even lower for the first 5-7 years. This might be a viable option if you're planning on selling the house after residency and therefore never entering the variable-rate period of your loan. Also, your interest payments are tax-deductible. You need to know the costs of renting vs owning in your city. A good way to do this is to look at houses that are listed on MLS for sale and for rent. You can use a mortgage calculator to make the comparison.

By buying a house, you're making a high-stakes bet that the value of your house will increase enough over the next few years to make it worth the hassle and to cover the costs of selling the house. The house would need to increase by 6% to cover the closing costs alone. Obviously, if you plan on staying in the house for decades this is a no-brainer, but if you're only staying for a few years it's not so straight forward.

I realize the origianl question was actually about mortgages and not the pros and cons of buying vs renting, but consider these factors before moving foreward. As for which banks to use, my understanding is that BofA and SunTrust have such programs.

 

[deleted103644]

Yeah, for example in NYC rents are now sky high but sales prices are still moderately depressed, so buying may work in some situations there.