Buying your first home is an exciting experience.
For doctors, however, it is often delayed due to their extensive education and training. While you'll still probably check out at least a dozen properties before finally saying, "this is the one", you may feel inclined to skim the selection process for a mortgage lender.
Sure, it's tempting to go with the first lender you find. Even more so to simply default to your current financial institution. But remember how much you’re spending:
Hundreds of thousands of dollars on your home, plus tens of thousands of dollars in closing costs.
So, finding the best deal really can end up saving you a small fortune. To help you navigate the mortgage market with confidence, this in-depth article covers:
- Personal requirements you need to get started.
- Best practices for interviewing mortgage loan officers.
- Must-ask questions when comparison shopping mortgage loan products.
Lets get down to business.
What you need to get started
Before diving in head-first, there are several pieces of vital information you will need confirm. You will want these readily available throughout your journey.
Check your credit score
When was the last time you pulled your credit report?
Unless it was yesterday, it's time to do so right now. Simply put, a higher credit score means more favorable terms from mortgage lenders.
Determine what yours is now --- it will make your life easier to compare your options along the way.
Review the types of mortgage loans available
If you are new to practice, you may not have the best credit. Chances are you still have a substantial amount of student loan debt to deal with as well.
Even then, you still have several types of loans to consider. To ensure optimal financing, look for lenders who can offer a variety of mortgage options, such as:
- Physician loans. As the name suggests, this type of loan is specifically designed for the unique financial challenges of new doctors. Higher loan balances, low down payments and no private mortgage insurance requirements are just a few of its notable features.
- FHA loans. Insured by the Federal Housing Administration, this type of mortgage loan allows borrowers with lower credit scores to qualify as well. FHA loans also only require a 3.5 percent downpayment.
- VA loans. This type of mortgage loan is available to U.S. veterans, current military members and surviving spouses of veterans killed in the line of duty. Eligible buyers can obtain a VA mortgage with no money down.
- Conventional 97 program. Unlike most conventional mortgages, this program allows borrowers to use gifts to satisfy the 3 percent down payment requirement. The conventional 97 program program is only available to first-time homebuyers and those who have not owned a house in the past three years. It's also limited to 30-year fixed conventional mortgages.
Seek referrals from people you trust
When people are making an important decision such as choosing a doctor, they ask others that they trust if they like their provider.
The same goes for mortgage lenders. A good place to start is by asking your reputable medical colleagues who have recently purchased a home. Your real estate agent should also know who the top mortgage lenders are in your area. Close family members and friends may be a good source as well.
Rather than doing the leg work yourself, you may also consider consulting a broker. A mortgage broker works with several lenders to negotiate the best deal for homebuyers such as yourself.
Regardless of which route you elect to go, you will need to thoroughly vet all potential candidates.
Best practices for interviewing mortgage loan officers
You've got the essentials --- now what?
Back to that blurb about mortgage brokers. At LeverageRx, we automate the entire brokerage experience online.
Simply head head over to the application form here. Based on your financial criteria, we'll provide you an instant comparison report that details:
- The best available rates.
- From the best available mortgage lenders.
- AND the loan officers you can work with.
Better yet, it's quick and free!
Now that have X amount of mortgage lenders to work with, how do you decide which is the best fit for your needs? That's we will discuss right here.
Test product knowledge
Like any financial professional you seek to consult, you will want to vet each loan officer's product knowledge.
For new doctors, this primarily pertains to their familiarity with physician mortgages and other loan programs for medical professionals.
Does the loan officer specialize in working with medical professionals? Or is the doctor loan just a product that the loan officer has access to and sells as a novelty when the circumstances fit?
This is an extremely important distinciton to make early on. You will want a loan officer that truly understands your unique financial circumstances
Furthermore, how well does each loan officer explain the relevance of loan products’ features to your situation? Of course, you're not the mortgage pro --- but you should be able to get a general sense of their product knowledge from the initial interactions.
Evaluate relevant experience level
If product knowledge is 1A in importance, experience level is 1B. Although often they go hand-in-hand, an older loan officer does not make always make him or her better for the job.
You can evaluate a loan officer's relevant experience by asking the following questions:
- How long has the loan officer specialized in loans for medical professionals?
- How many doctors has the loan officer worked with in his or her career?
You will also want to check their references from past clients. Does the loan officer keep them readily available? If not, this is likely a red flag.
It's time to review quotes.
- The first loan officer takes the time to review your credit, research the area into which you’ll be moving and obtain accurate estimates for fees and insurance up-front in order to offer a custom quote.
- The second loan officer sends you a generic quote immediately upon request.
Easy choice, right?
Relying on a vague or even inaccurate quote is like trusting a diagnosis that is not supported by lab work or imaging.
Furthermore, take note of what various loan officers cover in-depth and what they gloss over. If a particular point seems like it’s being overlooked or portrayed as unimportant, you may want to ask for them to elaborate.
On the flip-side, keep track of the questions a loan officers ask you. This is great way to gauge whether or not they truly understand your situation and goals.
Check availability and communication
When vetting loan officers, you will also want to consider their availability.
- How easy is it to get in touch with the loan officer?
- How will the loan officer communicate with you during, and outside of, regular business hours?
- Are you actually able to reach the loan officer and get answers to questions after hours or on weekends?
Answering these questions will help set the expectation level.
Take the closing for example. Having your loan officer present at your closing does not guarantee that the event will go smoothly, but it often helps.
Always ask prospective loan officers how they handle situations like these.
Run a "background check"
Ok, not a real background check. But take a few minutes to research your prospective loan officer and see what you can dig up.
A quick Google search will show what customers have to say about loan officers.
Furthemore, check the professional status of loan officers online by looking up their NMLS numbers and verifying that they are in good standing.
While a bit tedious, it's important to review each loan officer equally for an accurate comparison. This will give you a good idea of:
- The different types of physician loan programs that are available.
- Which loan officers are most knowledgeable and willing to work in your best interests.
But you're interviewing potential loan officers is not enough. You also need to conduct a thorough examination of your actual mortgage product options.
Questions to ask mortgage brokers and loan officers
As you can see, asking the right questions is crucial to making informed decisions throughout the home financing process.
At this point, here is what you have completed:
- You have gathered your financial itinerary and identified what you're looking for.
- You have reviewed your free comparison report to pinpoint the your best available options.
- You have connected with the recommended loan officers and carefully vetted each and every one of them.
Now, it's time to dig deeper into the specifics of each of the mortgage loan products they have to offer. Here are the essential questions you need to ask.
What is the loan-to-value?
Comparing the loan-to-value (LTV) limits for two physician loan products is important if you plan on financing 100% of the home’s purchase price.
Lenders have different limits for “no down payment” or 100% LTV loans. That means you may want to consider whether you prefer to make a down payment or prefer to keep more cash available for furnishing the home or investing elsewhere.
If you’re looking ahead to setting up your budget, you may want to consider how much a down payment would actually change your monthly mortgage payment.
- Some doctor loans cap LTV at 90-95%. Others allow 100% financing. Depending upon your personal financial obligations, you may prefer the flexibility to finance 100% of the purchase.
- Some buyers want 100% financing of the sale price (no down payment).
- Limits vary from lender to lender. Some doctor loans offer 100% financing up to $1.5M. Others have lower limits, say $650K.
Questions to ask:
- What price range am I considering and is that level of financing available?
- Do I want to make a down payment? If so, how much can afford?
- No down payment keeps cash available to furnish my new home. Do I need that cash flow?
- Yes, a down payment builds instant home equity. But what is the opportunity cost of using that money for the home compared to using it for other investments?
- How much will a given down payment really change my monthly mortgage? Is it enough to even matter?
- What are the rules for using retirement funds toward a downpayment? Would doing so be a wise decision long-term?
How much cash is required to close the loan?
When it comes to the closing your loan, you may want to consider whether those out-of-pocket expenses have implications for your planned down payment.
The closing cost on a property can vary widely by lender. You can compare by asking for a “good faith” estimate in the form of an itemized list from each prospective lender.
Many medical professionals opt to finance as much of their purchase as possible in order to conserve cash for closing costs and for furnishing the home.
- Cash required for completing the transaction may be significant.
- Cash to close includes loan origination fees, title and settlement fees, title insurance and escrowed amounts for taxes and insurance.
- Some states and cities have significant transfer taxes and/or mansion taxes that add to cash required at closing.
Questions to ask:
- Should I reconsider my down payment amount given closing cost estimates?
- Mortgage costs aside, will I have funds left to furnish my new home?
- Do I have sufficient liquid assets (checking, savings, money market, etc.) to cover closing costs?
What seller concessions are allowed?
A closely related issue is that of seller concessions. A seller may pay an agreed-to amount toward closing costs depending on:
- What your loan program allows.
- What you and your agent negotiate with the seller.
Some allow up to 6% of the sale price, while others have lower limits.
- Lenders may have different maximum limits on seller concessions.
- Seller concessions can offset closing costs.
Questions to ask:
- What are the allowable limits for seller concessions for the different loan products that you are considering?
- Does the lender cap seller concessions at a level that impacts me?
What cash reserves are required for physician loans?
Other points of comparison, such as cash reserve requirements, can be addressed in a similar manner.
Does a lender require you to document cash reserves above and beyond cash required to close, down payment, and earnest money?
How will the lender ensure that the timing of the transaction works for you and acknowledges your new position’s income?
Is there a prepayment penalty if I pay the entire loan balance before the end of the term or minimum period? Some lenders require a minimum timeframe before you sell or refinance to recoup their costs; otherwise they may charge a pre-payment penalty at closing.
- Some lenders require significant additional reserves aside from cash to close and down payment.
Questions to ask:
- Does the lender require reserves?
- Do I have sufficient assets for reserves once I subtract cash required for closing?
- Do I want my cash tied up in a reserve status?
- Do my reserves have to be liquid?
- Can I use some or all of my retirement account to meet reserve requirements, if they are required?
Is private mortgage insurance required?
Private mortgage insurance (PMI) protects the lender in case the borrower defaults on a mortgage payment. Many physician loan programs waive requirements for PMI – which is good, because it gets expensive over time.
- Purchasing a home will involve a one-time up-front expense for title insurance. In some cases, owner’s and lender’s title are packaged together. In other cases, they are separate and the owner’s title is optional. Title insurance addresses risks with clouds on the title, such as liens or other claims to the property that come up later and were not uncovered during the title search.
- Homeowner’s insurance is separate as well. This is the coverage that you’ll need to protect yourself in case the home is damaged by fire, storms and so forth. Typically, a year’s worth of premium is paid up-front as part of the cash required to close. After that, insurance payments and taxes appear as components of the mortgage payment along with amounts paid toward principal and amounts paid toward interest. Collectively, you might see this figure called PITI (Principal, Interest, Taxes, Insurance).
- Finally, you’ll hear about flood insurance. In some areas, flood insurance is mandatory; in others, it's not. You will find out whether it is required for a given property when your lender orders and receives the flood certificate.
Questions to ask:
- Does the lender/loan product require PMI?
- If I’m purchasing in an area that might require flood insurance, am I prepared for that?
- Do I want to get owner’s title insurance?
- Have I considered homeowner’s insurance costs?
What is the interest rate for physician loans?
The interest rate plays a significant role in the total amount you will pay for your mortgage over the life of the loan. Generally, lower interest rates are better, but sometimes chasing the lowest available rate – for example, by opting for an adjustable rate mortgage (ARM) – carries other risks.
Questions to ask:
- What interest rate are you being offered on the doctor loan?
- How aggressive is your lender when it comes to matching or beating other lenders’ rates?
- If I opt for an ARM, and the rate adjusts upward in 5, 7, or 10 years, how will the higher monthly payment affect me?
- If rates begin to climb and I refinance out of an ARM at then-effective rates, will I be comfortable with that new payment moving forward?
- If I am planning to make a down payment, will it be enough to lower my interest rate?
- Am I better off making a down payment and getting lower rate, or keeping that same money invested elsewhere?
- How long do I plan to stay in the home, and what does that mean for comparing ARMs and fixed rate products?
- Lenders may have different maximum loan amounts for residents, fellows and attending physicians. How should my career status impact the mortgage lender that I choose?
Does property type matter for physician loans?
Some physician loan programs do not apply to condominiums. Others require a higher down payment if purchasing a condo, and still others will finance the condo at 100% loan-to-value.
Questions to ask:
- Are condominium purchases allowed with this lender’s product? If so, are there associated down payment requirements? How much?
- Am I satisfied with a loan product that requires a down payment in the event that I choose to purchase a condominium?
- Physician mortgage loans are for primary residences, not second homes; will this new home be my primary residence?
When it comes to the homebuying experience, house-hunting is the exciting part many people look forward to. Home financing, on the other hand, well --- not so much.
Still, it's crucial that you take the time to properly assess all of your mortgage loan options. To help you do so, this in-depth article covered:
- What you need to know before beginning your mortgage loan search.
- Best practices for dealing with mortgage lenders and loan officers.
- Must-ask questions when comparison shopping mortgage loan products.
In the end, it all comes down to finding the lender with most favorable rates, terms and loan provisions. So, once you know what you're looking for, how can you get started? Request a free, automated comparison report in less than a minute right here at LeverageRx.