Even when purchasing a home makes sense, it is critical to realize that a home purchase is mostly a consumption item, not an investment. Larger homes require more money to heat, cool, maintain, furnish, landscape, insure, upgrade, and clean. Try to buy a home closer to what you truly need rather than everything you could possibly want. Although a mortgage lender may approve you for a home costing four to five times your gross salary, you would do well to make sure your mortgage is less than two times your gross income. So if you make $250,000, the general rule is that your loan amount should be less than $500,000.
Explore This IssueACEP Now: Vol 34 – No 10 – October 2015
In recent years, many lenders have started offering “physician mortgage loans.” These are loans that banks will give to a physician that allow them to avoid private mortgage insurance (PMI). PMI protects the lender against you defaulting without your putting down a standard 20 percent payment. These loans usually also offer special underwriting that will allow you to close with just a contract rather than proven earnings and may take your student loans into special consideration. It is important to realize that these lenders aren’t doing you a favor out of the goodness of their hearts. These loans have slightly higher fees and interest rates than comparable conventional mortgages. The banks are also well aware that your risk of default is very low and hope you will then use their bank for your banking, investment, and insurance needs. A physician loan can make sense but only if you are using the money you would have used for a down payment for a better financial purpose, such as paying off high-interest student loans or making retirement account contributions. If you aren’t already using 15–25 percent of your attending gross salary to build wealth (ie, saving or paying off debt), then purchasing a home, with or without a physician mortgage loan, probably isn’t a great idea until you get your financial house in order.