In our latest addition to the series, Brad talks about one of the biggest transitions for residents and fellow physicians – your living situation! Whether it’s to buy or rent a home, how much home you can (responsibly) afford, how it affects cash-flow and your other plans, and the biggie – exploring the use of physician mortgages and doctor loans.
The number one question we’re always asked about this topic by young physicians is should I rent or buy a home?
My short answer is - you should rent anywhere that you’re not certain you’re going to stay for at least five years. I’ll preface by saying, I’ve been proven wrong a few times recently, but hear me out (and remember, I’m a planner).
Yes…the real estate market has been very strong in recent history….and yes, property has generally appreciated in value – BUT this isn’t always the case. Remember 2008-2009? Countless people owed more than their houses were valued at after all the dust settled, and they were stuck! For someone just starting to explore professional opportunities, this could also seriously limit options early in your career.
The other thing to think about is your cash-flow. Even though the dollar amount of renting a home may be similar to a monthly mortgage payment, you’re not nearly as committed. Plus, you’ll save some money when you don’t have to pull out your wallet to fix the pipe that just burst in the basement.
A mortgage has a HUGE impact on your monthly budget. We’ve met many young physicians who have purchased a home too far ahead of their earnings curve. Soon after they find out it puts an enormous strain on their household finances, creates pressure to work that leads to burnout, and inhibits their ability to pay down student debt, save for retirement, and enjoy their well-earned money!
Of course we’re not saying don’t buy a home – but don’t if you’re not ready! It’s a big decision with potentially long-term effects, and shouldn’t be made without forethought.
On the other side of things – if you’re ready to take the plunge, you have a lot of different options for where you can house your mortgage – especially with the physician loan programs available.
So what is a physician mortgage? These programs are designed for dentists, doctors, and other medical professionals who want to leverage their future earning ability to purchase a home at a lower rate today. These products are typically structured with little to nothing down and no private mortgage insurance (PMI) required. Because the banks often keep these loans on their own books, they can be a little more lenient too. Another plus, banks don’t usually count your student loans against you as debt in your DTI ratio for a doctor mortgage - the bank knows you’re a lower risk and is therefore willing to extend more credit.
There are multiple programs available so if you’re pursuing this alternative, look into specific programs designed for your area. Doctor loans will vary from state to state, even with programs like Bank of America that exist across the country. Another thing to note – the largest servicers, like BOA, typically don’t have the most competitive rates.
Taking advantage of programs like these can also help you divert the money that would traditionally go to a down payment or higher monthly mortgage to pay down student loans, or the best one – investing that money to watch the magic of compounding go to work.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Investing involves risk including loss of principal. LPL Financial and Hollander & Lone do not offer mortgage services.