What to Know About Home Loans During Residency or Fellowship

For physicians currently in residency or fellowship, the desire to buy a home can become overwhelming. There are many reasons why you may wish to do so, often just because buying a home often makes you feel as though you’ve reached a level of success. You’ve made it. While it is very important for individuals to consider their own goals and financial stability before making such a big jump, there are some reasons to go forward with obtaining  home loans during residency or fellowship.


Challenges of Buying a Home

Before getting that loan, residents have to think about what the challenges of homeownership (and the buying process) may be now. Challenges to a physician currently in residency often include a few key factors:

  • Low pay: Though you are on the path to building a strong financial future, as a medical student or those in residency or fellowship, you have not made it to the big leagues yet, at least when it comes to salary and qualifying for home loans. Though some make enough to qualify for a loan, that could mean living frugally for a while.
  • Long hours: Once you get into a home, you’ll have a long list of tasks that you need to complete. That could include some weekend home improvements, but it also means taking care of more boring chores like cutting the grass. Many choose to hire others to help them, but the low pay makes that hard to do. Putting aside all of this, you may just not have the energy to enjoy your home just yet.
  • Sizable debt: Many people in medical school, even those working as a resident or fellow, find themselves facing debt. No matter which medical school you’ve attended, chances are very good that you have a pile of student loans that you have an obligation towards. Forbes reports that the average medical school debt in 2022 is around $200,000, not including any undergraduate debt. That makes it hard to manage a mortgage within your budget and may even exclude you from some loans.

Pros and Cons of Buying a Home During Residency

Take a few minutes to create your own pros and cons list about buying a home during residency. Ultimately, this is very much a personal decision and one that revolves around your unique needs. Below are some factors to keep in mind, but remember to consider your personal experiences in each area.

Pros of Buying a Home During Residency

Here are some key reasons why you may wish to buy now.

  • Long Term Benefit: For those who plan to stay with the same institution throughout their training, that could mean one to three additional years. In this case, it makes more sense to buy rather than rent. The longer you plan to remain at that location, the more it makes sense for you to consider alternatives to paying rent.
  • Start Building Financial Wealth: Whether you buy a home for yourself or as a rental, real estate builds equity, and with that, the ability to build wealth. If you have the money for a down payment, this could be a good time to invest in real estate. Of course, your local market plays a role in whether this is a workable decision.
  • You Have a Family: For those who have a family, or will soon, having a home may be the desirable goal. You may simply want to provide a home for your loved ones or a place to raise children. If that is important to your future, you shouldn’t put it off if you qualify for a loan.
  • Begin Building Equity: Buying a home now may allow for its value to grow. If you tap into low interest rates and terms and keep that home for a few years, you may sell it later for a sizable return. Again, where you live plays a big role in determining if that is a likely outcome for you.
  • Interest Rates: As a financially savvy borrower, you may know that the real estate market remains highly competitive, but mortgage interest rates fluctuate. Interest rates may go up in the coming months and years. If you plan to stay in the area, it may be more affordable to obtain a loan now.

Cons of Buying a House During Residency

There are a lot of potential concerns as you make the decision to buy a home. Sometimes, it’s best to wait. Here are a few factors to keep in mind.

  • You May Move On Soon: For those planning to move within the next couple of years, it can be hard to get out from under the loan. Some loans have pre-payment penalties that could make it even more expensive to do so. If you plan to move soon, or there’s a chance that you will, consider waiting it out for a bit.
  • You’re Taking on More Debt: There’s no doubt that real estate debt is the better type of debt compared to personal loans. However, it is more of a financial obligation that you have to meet. That means you will need to ensure you have the budget to cover the costs of paying your student loans, mortgage loans, and other costs.
  • You May Find It Hard to Get a Loan: Lenders offering home loans to physicians in residency or fellowship typically do so when the borrower can show they have the financial means to cover these costs. That is not always easy to do, though. Some lenders expect you to have a solid ratio of expenses compared to income. If you have credit card debt, that could make it even harder to qualify.
  • You Don’t Have a Down Payment: Though there are physician home loans that keep costs low and do not require a large down payment, most often, it is in your best interest to have one. Your down payment helps to provide you with more affordability overall by allowing you to qualify for a lower interest rate. If you don’t have one yet, you’ll need time to build it.
  • You May Not Have the Credit You Need: Credit scores are a big factor when obtaining a loan of any type, especially a home loan during residency or fellowship. Make sure you have worked to build up your score so that you can qualify for a sizable loan to buy the home you desire.

Sometimes, it is simply better to wait until you are making more money to obtain a home loan. For others, especially those that plan to remain in the area, it may not be necessary to wait.


How Can You Qualify for a Residency or Fellowship Home Loan?

For those who are thinking about buying a home, there are some physician-specific loans available that could help you to meet the necessary qualifications. These loans may be a bit more tailored to the financial limitations that many people with high debt coming out of college and medical school have to deal with right away.

There are some opportunities that could work in your favor in this area. Remember, having a lot of debt makes it harder for you to repay your loans each month because you owe so many others money. Yet, there could be a few ways to reduce these risks and help encourage lenders to work with you.

Use a Spouse’s Income

One way to reduce some of the financial load that you are facing is to use your spouse’s income to help you qualify for a loan. Adding more income to the application for a mortgage helps to reduce the amount of debt risk you carry. When more money’s coming in, there is more money available to help cover the cost of that loan going forward. This is especially true if your spouse has a good income and a solid credit score.

Use Savings

One way to reduce risk in a lender’s eyes is to have a larger down payment. The more of a down payment you make, the less risk there is that you will walk away from the home and default on it. Many lenders require a 20 percent down payment, which means paying at least 20 percent of the home sale price. You may be able to find loan offers that reduce this significantly. The key to remember here is that you want to have enough of a down payment, but you also don’t want to run out of savings.

Financial Help from Family

Some may have family members that could be willing to offer some financial help. You could borrow some or all of the money to buy your home from a family member. Of course, there are risks to this. Sometimes it is simply not ideal to work with family members as repayment can be worrisome. However, if you have someone willing to gift you the funds, that could help you and reduce some of your debt load. Remember, if it is a loan, you’ll need to inform the lender that you need to repay those funds.


Considerations

Before moving forward in making a decision about the use of a home loan during residency or fellowship to meet your needs, keep the following in mind.

  1. Do you plan to remain in the area long? Do you plan to move after you finish your training? If so, could you buy now and recoup your money? Or could a drop in local real estate values create financial turmoil for you?
  2. Which is better financially for you, renting or buying? Consider the added costs that come with buying, such as paying for closing costs, paying taxes, meeting home improvement costs, and paying for other associated housing costs that you don’t pay for (or pay as much for) when renting.
  3. Could you make money from your home? One way to reduce costs of a home loan is to rent out a room in your home to fellow medical students or those in residency or fellowship. This could help you bring down some of the cost of your mortgage each month.
  4. What happens if you need to move? Even if you don’t plan to do so, what could happen if you move? Would you keep this property as a rental or sell it?
Are you relocating? Be certain to negotiate a relocation bonus!

Process of Obtaining Home Loans during Residency or Fellowship

Before you dive in further, know that the home buying process can be long and complex. You need to fully understand what goes into it. This includes:

  • Pre-qualify for a loan with a lender. You need to know what you qualify for before you start looking for a home.
  • Find a qualified real estate agent that understands your unique needs. We encourage you to check out how Physicians Thrive partners with the best realty team in the country. These are professionals that specifically focus on helping physicians. Submit a request for a Realtor referral to get started.
  • Start looking for your ideal home. Let your agent help you understand the entire process. They can tell you what you can expect in the area you hope to live in.

Remember that the real estate market has changed many times, and it continues to flex. The local area where you hope to live in is the most important factor to consider. Your real estate agent can help you by providing more insight. They will compare all of the options available while also navigating the ups and downs in the current market.

Be sure to consider factors such as increasing interest rates, home market prices, and home inventory within that local market before you make the decision to buy or wait. Your agent can give you more specific insights into what you can expect throughout this process.

For many residents and fellows, buying a home makes sense. Doing it wisely with financially sound advice is a critical step in that process.

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