Buying a home is a meaningful milestone, and many people feel that it is a signal of true success. However, if you fail to follow certain financial principles, your home purchase can quickly go from success to mess. The ten tips below are designed to help doctors have a positive home buying experience and find the property of their dreams.
1. Get Organized
The process for a doctor to get approved for a mortgage requires a near-mountain of paperwork. You’ll have to provide quite a bit of documentation, so preparing it ahead of time will save you from frantically gathering documents when the time comes to apply for your mortgage loan. Here are a few items your lender will be sure to ask for:
- Proof of identification
- Two years’ worth of tax returns and W2s
- Three months of statements for checking, savings and brokerage accounts
- Proof of residency, if you’re matched to a residency program
- Debt statements for student loans, credit cards, and auto loans
- The source of your down payment, in certain scenarios
Gathering these items before you meet with potential lenders can save you time and anxiety, as well as help you secure the home of your dreams without unnecessary delays.
2. Understand Underwriters
Underwriting refers to the process by which you, the borrower, will be evaluated by potential lenders with regard to your ability to repay a mortgage loan. Underwriters review financial factors like income, debt, credit score, and more to determine your level of risk. This process will determine whether you qualify for a physician mortgage, and it will also be the means by which the lender sets your interest rate.
Understanding what underwriters look for allows you to make necessary financial changes prior to applying for your mortgage loan. You can use this knowledge to do things like pay down debt, ensure your payments are always on time, and work to develop a steady income history.
3. Seek Pre-Approval
The home buying process can be lengthy but getting pre-approved for a physician mortgage will expedite the process. Pre-approval means you know you’re qualified to get a mortgage loan, and you know exactly how much a lender will let you borrow. This means you can set your expectations and that you won’t waste time looking at homes that fall outside your price range.
Sometimes, sellers are more apt to accept an offer from a pre-approved buyer, especially if they happen to be fielding numerous offers. Your pre-approval will allow sellers to close more quickly, which is attractive when other potential buyers’ offers may be contingent on financing.
4. Start Wishing
Since doctors are high-income earners, you have a leg up on the average homebuyer in that you’ll have more options available to you. More options might sound like a good thing, but it can also be overwhelming and time-consuming. Narrow your choices by creating a wish list that will help you focus on which homes are truly worth seeing. List out all the attributes that are important to you, from location to a number of bedrooms to yard size, then determine which of the attributes are deal-breakers and which are the “nice to haves.”
5. Find the Right Agent
All homebuyers want a real estate agent who they believe understands their needs and who feels like the right fit, but this is particularly important for physicians. As a doctor, you have unique circumstances and needs, and it’s probably best to work with an agent who has previous experience selling homes to doctors. Seeking out referrals from other medical professionals is often the best way to find the right agent for you and ensure you’re working with a professional who can skillfully guide you through the entire transaction.
6. Watch Your DTI
Remember all those financial factors the underwriters are taking into account? Well, the debt-to-income ratio, commonly called DTI, is an important one. It measures the percentage of your monthly income that is currently used to pay the debt, and it’s a way for lenders to measure your overall financial health.
After you begin the process of applying for a mortgage loan, it’s important not to add any additional debt to your DTI until after closing on your new home. So, wait to purchase that new car or pay a large bill on your credit card.
7. Don’t Be Short-Sighted
The home you’re hoping to buy may be your dream home right now, but chances are you will someday want or need to move. It could be a career-related location change, or simply an upgrade as your career progresses. For this reason, you should be thinking about resale value from the very beginning. Ask your real estate agent about the most sought-after locations and amenities and consider a home that checks as many of those boxes as possible. Even if you don’t have children, it’s very possible that the next buyer will. So, you’ll want to learn about the quality of the school district, too.
8. Think About Lifestyle
Too often, buyers fall for the perfect home in a completely imperfect location. Before you start looking, know what kind of lifestyle you want. Is living in the country your dream, or do you prefer the buzz of city living? Is a short commute important to you, or would you rather live nearer to the amenities you love like golf courses or tennis clubs? Answering these questions before you begin looking at homes will save you from falling for a house that, while seemingly perfect, won’t allow for the lifestyle you prefer.
9. Learn About the HOA
Depending upon the type of home and location you’re looking for, you may find that you would need to join a homeowner’s association (HOA). These organizations are most common in gated communities and planned developments, but you’ll find them in townhome and condo communities, as well. HOAs enforce regulations designed to maintain the property, and they often require paying dues. It’s important to understand any regulations before you buy. For instance, if you hope to put in a pool, you’ll need to learn what types and sizes are permitted – if they are permitted at all. Failing to understand and follow HOA regulations can lead to hefty fines, not to mention strained relationships with neighbors.
10. Choose a Lender
Many lenders offer special terms to doctors and dentists for a mortgage loan with fewer restrictions than a conventional mortgage.
Here are a few advantages and disadvantages of physician loans:
- Avoid Private Mortgage Insurance (PMI) – this is insurance that most lenders require if the borrower puts down less than 20%. This insurance protects the lender if the borrower defaults on the loan. It can be very costly for the borrower. Some lenders will waive this for doctors and dentists.
- Student Loans – student loans that are in Income Repayment programs (IBR, PAYE, REPAYE, etc.) get special treatment with the doctor mortgage loan programs. You can still own a home even if you have hundreds of thousands of dollars of student loan debt.
- No Income history – you don’t have to wait until you start employment to qualify for a mortgage loan. An employment contract will be sufficient to qualify for a physician loan.
- Terms – some lenders offer loans of 95%-100% up to a $1 million loan amount and up to 90% for $2 million.
- Need good credit – you’ll need to have good credit to qualify – at least 720 fico score.
- Must have good cash reserves – most banks require 3-6 months of cash equal to your mortgage payments to be approved.
Buying a home is an exciting time for any physician, but it is also a lengthy process and a major financial commitment. Follow these tips above to maximize your home buying experience and land the home of your dreams.
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