Looking to buy an upper-end home in 2019? For doctors and other high-earning medical pros, there may now be another viable option to consider.
Recently, the Federal Housing Administration (FHA) increased maximum FHA mortgage loan limits in more than 3,000 counties across the country.
So, what exactly does this change mean for homebuyers? Let's take a closer look.
What is a FHA mortgage loan? (A quick refresher)
An FHA mortgage loan is a type of home financing that is insured by the Federal Housing Administration. This provides a safety net to lenders, enabling them to loosen lending requirements. FHA loans typically only require a 3.5 percent downpayment. They accommodate borrowers with lower credit scores better than conventional mortgages do.
Of course, FHA loans do have some downsides. Namely, loan amounts are capped much lower than what you can borrow with a physician mortgage loan and other types of loans.
However, the recent increase in those caps could make FHA mortgage loans a viable option for some house-hunters in healthcare.
Maximium loan limits increase by up to $43,000
The FHA raised the caps, in part, due to increases in home values around the country. By law, the agency must set a floor and ceiling for mortgage loans based on median home prices. The FHA calculates limits by Metropolitan Statistical Area and county. Depending on the market, the FHA limits increased between $19,000 and $43,000 over 2018 caps.
In 82 percent of the country, the maximum loan you can take out for an FHA loan in 2019 is $294,515. This represents the nationwide loan floor, which increased from $275,665.
The FHA loan ceiling in designated high-cost areas of the country will increase from $636,150 to $679,650. There are 75 counties at the loan limit ceiling in 2019, compared with 82 in 2018. High-cost areas include counties that comprise the following metropolitan areas:
- San Francisco-Oakland-Hayward, CA
- Los Angeles-Long Beach-Anaheim, CA
- Napa, CA
- San Jose-Sunnyvale-Santa Clara, CA
- Santa Cruz-Watsonville, CA
- Edward, CO
- Glenwood Springs, CO
- Breckenridge, CO
- Washington, D.C.
- Honolulu and Kapaa, HI
- Jackson Wyoming-Idaho
- Vineyard Haven, MA
- New York City, NY
- Elizabeth City, NC
- Summit Park, UT
A physician loan still might be your best bet
Based on this new information, doctors should consider FHA mortgage loans if:
- You can find a suitable home within the new FHA limits.
- You can manage the 3.5 percent downpayment.
Yet even with the higher FHA limits, a physician mortgage loan still may prove more advantageous.
Sure, you may be able to get a lower interest rate on an FHA loan. But there are other costs that you will not incur on a physician mortgage.
FHA loans include private mortgage insurance (PMI) --- something that physician mortgages almost never require. FHA loans require a one-time mortgage insurance premium. This is 1.75 percent of the loan amount at closing, and can be financed into the overall loan. There is also an annual premium you will pay monthly as part of your mortgage payment based on:
- The loan amount.
- The length of the loan.
- The downpayment made.
The annual premium amount can range from 0.45 percent to 0.85 percent of the overall loan amount.
While FHA loans require a downpayment, most physician mortgage lenders offer 100 percent financing. Even then, those that do require downpayments often allow physician borrowers to use gift money.
FHA loans allow borrowers to use financial gifts if they meet a minimum credit score. Eligible gifts from a family member, employer or charity can cover the entire downpayment. Gifts must be verified in writing with the date and donor's signature.
Borrowers do not need a minimum or maximum income to qualify for a FHA loan. However, they must have two established credit accounts, such as a credit card or car loan. You also cannot have any delinquent federal debt or judgements --- including past FHA-insured mortgages.
Physician loans allow doctors to close on their homes before beginning work if they have a contract or offer letter. Self-employed medical professionals can qualify with as little as six months of historical income. Traditional mortgages require two years worth of 1099s.
If you're in the market for a home in 2019, a FHA mortgage loan may be a more viable option than in past years. Following the FHA's recent increase in mortgage loan limits for 2019, it's important that homebuyers (new and old) review:
- What is a FHA mortgage loan?
- What the increase in FHA loan limits means for buyers.
- Why a physician mortgage loan may still be your best option.
Like any other financial decision, there is no one-size-fits-all solution mortgage lending. Physician loans are will probably remain the ideal option for medical professionals. But depending on your situation, a FHA loan could be just as effective (if not more).