Resident physicians are unique creatures of the working world. They leave medical school with an average of $180,000 worth of student loan debt, little to no savings, and no current income. However, graduating medical students are entering one of the most stable professions available in the United States and are contracted for at least the first three to five years of residency to make income, although it is only a small portion of their future potential earnings.
The unique situation a graduating medical student or resident physician finds himself or herself in is actually of significant benefit when it comes to buying a new house. Many other students leave undergraduate or graduate schools with loads of debt, however they are not automatically contracted into a guaranteed three to five years of income with the potential for a significantly more lucrative future.
Many graduating medical students and resident physicians use their position to their advantage and apply for a mortgage to purchase their new home. For most, this is their first home and there are two home-buyers loans available: the FHA and the Physician Loan. Comparing the FHA loan for first time home buyers and the Physician loan (or Doctor loan) reveals several similarities and a few major differences.
Similarities of the FHA and Physician loan:
-Lenders of either the Doctor loan or FHA loan do not have to count your student debt, particularly since the federal law of 2009 that guarantees residents the opportunity for forbearance.
-The FHA and Physician loan will both overlook the fact that a graduating medical student has no current income. They look past this major problem as long as the student is contracted into a residency and thus has guaranteed future income.
-A very small down payment is required by FHA and Physician loans. The FHA loan can accept a down payment as low as 3.5%, while some Doctor loan programs will accept a 0% down payment and offer 100% financing.
Differences between FHA and Physician loan:
-The FHA loan requires borrowers to pay mortgage insurance premiums, both on a monthly basis and as a large one time up front payment called a “funding fee”. Most other specialized mortgages for resident physicians do not require mortgage insurance.
-The Physician loan almost always has a significantly higher interest rate than the FHA loan. The FHA loan is often based on the Libor and usually quite a good deal. A Doctor loan is usually at least one to two points higher than the FHA.
-There are significantly fewer lenders providing Physician loans than those who provide FHA loans.
Graduating medical students, interns and medical residents will often find themselves in unique situation when applying for a mortgage. The FHA loan and Physician loan are two mortgage options that may be a good fit. Working with an experienced mortgage broker is highly recommended.