Step 1: Gather Financial Documents
The first thing you should do before applying for a mortgage (Physician Loan or other) is to gather all of the documentation you will need to apply for pre-approval for your mortgage loan. You will need to be pre-approved BEFORE you start house hunting so that you know your cost limits, and so that sellers will take you seriously as you start viewing houses and finding places you like (and may want to make an offer on). Each lender will have slightly different requirements, but there are some general documents you need to have on hand. You will need these later when you actually apply for your mortgage, so it helps to just collect them before applying for pre-approval. Basic documents most lenders will ask for include:
- Residency Contract stating start date and future income (some accept Offer Letters in place of a contract)
- Full Tax Returns for the last 2 tax seasons (most recent, and one year prior)
- W2’s for the past 2 years IF applicable (some lenders may ask for an unofficial transcript in place of a W2)
- Bank Statements for 2 months for all Checkings and Savings accounts you have
- Statements for any additional Assets: Mutual Funds, Retirement Accounts, etc.
- Itemized documentation of your estimated future student loan payments...see Step 2
Step 2: Address your Student Debt
As a graduating medical student or new resident, odds are that you have substantial student loan debt. This can make it difficult to qualify for a mortgage loan, which is why the Physician Loan can be very helpful. No matter what mortgage you apply for however, you will likely need to produce documentation of your future loan payments. This can be difficult if you are not yet paying on your loans and have not yet considered which loan repayment option you would like to go with.
Student Loan Hero has a very helpful article on the various med school loan repayment options: The Ultimate Student Loan Repayment Guide for Doctors You will most likely want to go with an Income Driven Repayment Option such as the IBR, PAYE, REPAYE, or ICR. PAYE and REPAYE seem to be the most popular options among our classmates this year. The AAMC Medcalc can help you decide on which payment option might be the best for you.
In order to fill out your Medcalc, and to obtain your estimate of future loan payment amounts, you will need to complete the following steps:
A) Go to the National Student Loan Data System (NSLDS) and select “Financial Aid Review” Log in using the username and password for your FAFSA Login (that thing you used to apply for all of those loans and hoped you would never need again after 4th year).
Once logged in you will see a list of all of your student loans. Click on the MyStudentData Download button (#1) to download a txt file of your loans, and save the txt file to your computer.
Then, hit back to return to your list and find your Loan Servicer. To do this, click on the small number in a blue box to the left of each loan (#2). You will see a summary of that loan, and in the bottom right corner you will see your “Current ED Servicer” = that is your Loan Servicer. Check each loan to confirm that all of your loans have the same servicer – if not, you will need to repeat the data gathering process for each different servicer.
**NOTE: If you are a student enrolled in the WWAMI Program through the University of Washington School of Medicine, your tuition may be partially paid for by your residential state. If your state has a payback requirement (e.g. that you must return to the state to practice after residency or you will owe the state that portion of the tuition) – then that tuition payment by the state is a LOAN, and will show up in your credit report. As such, you must also contact your state to determine who the Loan Servicer is for that loan. If you are having trouble, contact your Financial Aid office. (For Alaska WWAMI Students, go to the Alaska Commission on Postsecondary Education and create a login to see your loans).
You may need to apply for a WWAMI Deferment during residency first, so that your payment estimates will reflect the accurate $0 payments in residency. You must obtain an Itemized Estimate of Future Payments for these loans as well – regardless of whether you plan to return to the state to practice.
B) While you are doing this, it is convenient to upload your NSLDS into your AAMC Medcalc. Use your AAMC login (the same as your ERAS login). [Top right corner –> “Guest –> Log In”] and select “Get Started Now.”
Under the Medloans Organizer tab, select “Import NSLDS” and upload the txt file you downloaded from the NSLDS MyStudentData Download. Your loans will then be inputted into your Medcalc automatically.
You can then go to the Medloans Calculator and input your information to view estimates on the various different loan repayment options. This is NOT the estimate you will need for your mortgage lender, but IS helpful for deciding what repayment option you want to use.
C) Create a log in and call your Loan Servicer. Different Loan Servicers will have different website layouts and slightly different terminology. As an initial estimate BEFORE you have decided on a loan repayment option, you can look for your “student loan obligation statement,” or a mortgage “credit reference letter.” You can use this to submit to your mortgage lender as an estimate of your student loan payments. However, if you decide on an income driven repayment option, your payments will be much lower which will make getting approved for a mortgage much easier. As such, I recommend calling your servicer and requesting an ITEMIZED estimate of future loan payments based on the loan repayment program of your choice (e.g. PAYE), and your starting resident salary. This may take them 3-5 business days to get to you, so it is best to get and have on hand before applying for your mortgage.
Regardless of whether you go the Physician Loan route or a traditional mortgage route, you will eventually need to have some sort of proof of your loan payment amounts, so this step is very important.
Step 3: Decide on a Loan
Before finding a lender, you should think about what type of mortgage loan you want to apply for. There are many options available. Carefully research the different loan types and decide which one might fit you – but also be prepared to change plans depending on the loans and interest rates you are offered. If you want a Physician Loan, you could end up with a national corporate bank and might not be able to use a lender who is local to you. If you want a local lender, you may want to look into more conventional mortgage options.
Some good resources to read ahead of time include:
- White Coat Investor
- Physicianloans.com – Medical Students
- The Broke Professional
- The Complete Guide to Physician Mortgage Loans
Step 4: Find a Lender
Now that all of your documents are in hand and ready to go, and you have some ideas on what type of mortgage loan you might want, it is time to find a lender. If you are going to apply for a Physician Loan, the easiest way to find a lender is through a mortgage broker from Physicianloans.com – submit your contact information on their Prequalify page, and a broker will contact you and help you find a lender.
Note: In an email response from Physicianloans.com RE Physician Loans for graduating Medical STUDENTS (as of April 2017): “Bank of America and Umpqua Bank are the only two banks that I know that offer a 95% physician loan with no mortgage insurance.“
Be aware that many local lenders may offer you a “Physician Loan” that is NOT a true Physician Loan but rather a modified Freddie Mac loan – these are often called “Faux-sician Loans.” Consider enrolling in a Physician Loan Webinar to find out how to watch out for these Faux-sician Loans, and learn what questions to ask a lender.
If you want to go with a conventional mortgage, you can shop around with local lenders, or ask your realtor for recommendations.
Once you find a lender you can apply for pre-approval. It is often recommended to apply with 2-3 lenders to compare interest rates – you can oftentimes then request a specific lender to match or beat the offer made by another. Use caution when applying for pre-approval with too many lenders though, as they will check your credit and *too many* credit checks on your file can raise a red flag to potential lenders in the future.
Step 5: Apply for Pre-Approval
Once you have a lender (or two) picked out, you can apply for pre-approval for a loan. You may consider applying for just above the upper limit of your housing budget to allow yourself some wiggle room when shopping. Don’t get too carried away though! Once you have been pre-approved your lender will send you a preapproval letter. This should include the purchase cost and total loan amount (purchase cost – downpayment) you are approved for, interest rate, and the Estimated Principal & Interest Payment (including escrow & MI). Once you have a pre-approval letter in hand, you are free to start house hunting!
Step 6: Find a Realtor
A realtor is an invaluable resource when you are trying to purchase a home. They will guide you in searching for houses that meet your wish-list criteria, scheduling viewings of houses, and negotiating the complex process of making an offer through to closing on your new home. Particularly for first-time home buyers, there are many advantages and no real disadvantages to using a realtor vs trying to navigate the journey yourself.
While you can look for a realtor at any point in the process, you may wish to wait until you have been pre-approved for your mortgage and have a pre-approval letter in hand. Then once you find a realtor, you will be ready to jump into house hunting right away. However, if you decide to apply for a conventional mortgage loan rather than a Physician Loan, your realtor will be able to help you with suggestions for local lenders. Finding a realtor earlier in the process also allows you to start “window shopping” for houses with the aid of your realtor, in order to get a feel for the local market while you wait for pre-approval. There is no right answer, so you can start the search for a realtor whenever you feel ready.
There are many ways to find a realtor including online searches, friend and family recommendations, or Physicianloans.com may suggest a realtor if you request it.
Step 7: Find a Home, Make an Offer, and Apply for a Mortgage!
Your realtor will help guide you in your hunt for a new home, and throughout the buying process. Once you have found a home you love, it is time to make an offer. After you and the seller have both agreed on an offer and signed a contract, you can begin officially applying for your mortgage. Even if you have been pre-approved, many things can happen in the financial world from the time of your pre-approval to the time of your loan application, and your offered interest rate may change. Many offer contracts offer an out if you suddenly find yourself unable to obtain acceptable funding for your home purchase. While you may or may not have needed to supply the various documents from Step 1 for your Pre-Approval, you will need them now for your application. Luckily if you have read this article, you will already have the needed documents in hand and ready to go so that your application will move smoothly and you will be on your way to purchasing your new home!