Buying a home is a key milestone for many Americans, but the average American can’t buy a home without taking out a mortgage. When it comes to choosing the right mortgage loan, there are many options to choose from.
The doctor mortgage program is a popular choice for physicians and dentists, but what about other common mortgage options? Just because you qualify for the doctor mortgage program, qualifying doesn’t mean it’s the right product for you and your current situation.
Here are the 6 main mortgage loan types (besides the doctor mortgage program):
Let's dive into the different loan types and actionable ways you can start saving for a downpayment on your home!
Listen to our podcast here on "Real Estate Loans and Other Lending Options for Physicians," or keep reading below:
Construction and renovation loans are used for building new residences or refurbishing your current ones. Construction loans are especially helpful if you only have a patch of land and want to build something from scratch. Renovation loans are appropriate if you love your existing house, but want to update your kitchen, bathroom, or other space in your home.
Jumbo loans are useful if you’re looking to finance a property that is higher than the conforming limit of $510,400 for 2020. Conforming limits refer to the amounts being financed, not the home’s value. These loans can also help you buy a property in expensive areas like Hawaii and parts of California, where the conforming limit is $765,600.
Conventional mortgages are just that: conventional. These traditional loans can be a great choice if you’re looking for flexibility. For example, you can choose between fixed, variable, or hybrid interest rate loans.
Unlike other choices on this list, most conventional loans aren’t offered or secured by a government entity. Instead, they’re offered by private parties like banks, credit unions, and mortgage companies.
VA loans have many generous benefits, including not requiring a down payment, and are meant for military veterans and their spouses. You can qualify for a VA loan if you meet one of the following conditions that apply if you’ve served in any military branch:
FHA loans can be a great option if you have a low to moderate income, since these loans have a lower down payment and credit score requirements than other types of mortgages. They’re insured by the Federal Housing Administration and are issued by an FHA approved lender.
As the name implies, this type of mortgage is great if you’re a first time home buyer. The main difference between this loan and the FHA loan is that this type requires you to be a first-time home buyer. Therefore, it has lower credit and down payment standards. Some states, including Texas, offer grants to new homebuyers who might be struggling to save a sizable downpayment.
Now that we talked about your different mortgage options, let's see how these options compare to the Physician Mortgage Loan.
Physician mortgages are designed for medical doctors, who usually have high debt to income ratios. These loans help physicians and dentists become homeowners since they have lower down payment requirements and can cater to residents as well as new graduates. These professionals can qualify for this type of financing as they just need to have a medical degree and defined start date for their job.
All in all, the best type of mortgage loan for your next home purchase varies heavily on your situation. Not sure which one best suits your situation? Connect with one of our financial professionals to start planning out your home purchase plan from a financial perspective!
Saving for a downpayment may seem burdensome without a financial plan. Here are some actionable ways you can start saving for a downpayment on your next home.
Setting and sticking to a budget is one of the most important ways to save for a downpayment. Some budgeting tips include:
One unique way to save for a downpayment is to receive a gift from a blood relative, distant family member, charity, or even employer. Some loan programs like the conventional mortgage require that the gift must be from a blood relative. Others like the FHA program have looser requirements and allow nieces, nephews, cousins, close friends, and charities to be donors.
You must also provide your lender paperwork, including the gift letter, which documents that you’ve received the gift and that it won’t need to be repaid. This letter also describes your relationship with the person or entity giving you the funds (i.e the donor).
Gifts can be a good way to save for a downpayment. But, these gifts can cause estate planning issues like triggering the gift tax. Each person can give up to $15,000 per year gift tax-free and amounts above that might result in additional taxes. Always consult a tax professional or financial planner before making or receiving a large sum of money.
Intrafamily loans let family members loan you a sum of money at very low-interest rates called AFR rates. These loans will help you pay less than what you would with a traditional mortgage. They also help the donor avoid gift tax consequences since the sum would be considered a loan. Consult this chart for current AFR rates.
Many high-income earners fall victim to big loans banks are willing to offer them. Then, they end up buying the huge dream home, resulting in an expensive housing payment. This is known as being house poor. Remember that housing costs include other items besides a mortgage like:
Always consider these costs and make sure that your total housing payment won’t break your budget. You should have enough money left over to save, invest, and even pay back other types of debts like student loans.
Buying and/or renovating a home isn’t a decision to be taken lightly as these will likely be your largest purchases. If you’re like most people, then you need financing (i.e a mortgage) to buy a property.
A home mortgage is usually considered “good debt,” but it’s always important to understand how much house you can actually afford, while funding the rest of your lifestyle. Don’t over-leverage yourself in an illiquid asset and be sure to have emergency (cash!) savings on hand at all times. If you’re planning to buy a house, prioritize your down payment savings goal over unnecessary, spontaneous purchases that might cross your mind.
If you are still confused about what home loan option is best for you, let's talk! Schedule a complimentary discovery call with one of our financial professionals to start the conversation.
The Prosperous Doc podcast producer and Marketing Director of Spaugh Dameron Tenny. Molly is passionate about connecting with people, digital marketing, and serving her community. Reach out to her if you have blog topic or podcast ideas.
For over 50 years, Spaugh Dameron Tenny has provided comprehensive financial planning for physicians and dentists across the U.S. In addition to providing personalized advice, we walk our clients through their options to help maximize finances and maintain financial security.
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