Many graduating medical students and resident physicians desire to purchase a new home. For most this is their first home, thus there are two home-buying loans available: the FHA and the Physician Loan. There are specific details about FHA loans that graduating medical students and residents should be familiar with before deciding on a mortgage lender.
The FHA loan is available for first time home owners. Any individual applying for an FHA loan must meet certain criteria. For example, the debt-to-income ratio is preferred to be at 43% or less and a minimum of 3.5% down payment is required. However, in general individuals who meet all of the minimum requirements, and often would not be approved for a non-FHA loan, will be able to obtain a mortgage and buy a house.
Extra costs of the FHA:
The FHA can be a great deal for people who normally wouldn’t be able to get mortgage approval. However, there are extra costs associated with an FHA. The FHA requires the monthly payment of mortgage insurance premiums. In addition, an FHA loan also extracts a funding fee, an upfront bulk payment of mortgage insurance premiums.
FHA mortgages and medical student debt:
Lenders who supply FHA mortgages do not have to count medical student debt as long as the resident physician intends to put their student loans into forbearance during residency. In the past, it was difficult to show that student loans would be in forbearance during residency and many graduating medical students and interns found themselves in a difficult position unable to get final approval the day of closing because of a hastily pre-approved loan.
However, in 2009 a federal law was enacted that guarantees that any medical student will have the right to place their loans in to forbearance during their time as a resident physician. Medical students and residents can now easily prove that their loans will be in forbearance by referring their lender to the federal law.
FHA loans and the “first paycheck” catch:
Many lenders will love the fact that residents are contracted into at least three years of guaranteed income. However, they will not love the fact that at the time of application most graduating medical students have absolutely zero income. Fortunately, there is a way to get around this. Many lenders will agree to provide a home loan as long as the closing date and first pay check both fall within a reasonable time frame.
For many lenders this is a 30 day time frame. They expect to have the closure of the home purchase occur no more than 30 days before the intern will provide them with evidence of a first paycheck. Luckily, any medical student entering a residency program can find out exactly when his or her first pay check will be received.
The FHA loan is a great opportunity for many graduating medical students and current resident physicians to invest in their first home. There are certain very specific requirements, but working with an experienced mortgage broker should get you to a FHA loan without a hitch.