Last Updated on July 2, 2021 by Maggie Sutton
Buying a home almost always requires obtaining a home mortgage loan to pay for it. There are several mortgage programs available to medical professionals. But, knowing which is best for you can take some research. We outline the most common home mortgage programs for registered nurses, physicians, CNA’s, lab technicians, and anyone else in the medical profession, and how Homes for Heroes can help you save even more money when buying a home.
But, before we get too deep into the types of mortgage loans available to medical professionals, we first recommend determining how much house you can afford. Once you know what you can afford, you can determine which type of home loan is best for you. This mortgage calculator is also a great tool to estimate your monthly mortgage payment. If you have an understanding of where your finances are, we can cover the four main types of home loans: Conventional loan, FHA loan, USDA loans, and VA loan.
Being a medical professional, it’s likely that you qualify for more than one type of home loan. Working with one of our Homes for Heroes mortgage specialists, they’ll be able to talk through your options, work with you and your finances, and can determine which type of home loan is best suited for you. Sign up now to get more information from our specialists with no obligation.
An interest rate is the cost you pay to borrow money from a bank. It is a percentage of what you owe, based on a few factors including your credit score. When it comes to the interest rate options on home loans, there are two main types: adjustable-rate and fixed-rate.
Adjustable-Rate Mortgage (ARM)
With an adjustable-rate mortgage (ARM), the interest rate you pay will change after a fixed period of time. Initially, your interest rate will remain the same for 3-10 years (the exact length of time will vary between lenders). This initial interest rate is referred to as the “fixed-rate period.” The interest rate during this fixed-rate period is almost always lower than entirely fixed-rate mortgage interest rates. This makes adjustable-rate mortgages attractive to buyers who don’t plan to stay in their house for the long-term. Because the interest rate is lower, your total payment will also be lower in the fixed-rate period, which can be a positive to someone just buying a home.
After the fixed-rate period, your interest rate will adjust based on the current market interest rate. This means your interest rate could increase or decrease based on the overall financial market. However, the changing interest rate is why ARMs can be risky to buyers and make budgeting difficult. One month your payment could be $1400, the next it could be $1800. Increased regulations following the 2009 housing crisis made most adjustable-rate mortgages come with a cap on how high your interest rate can increase in a given year.
Either way, the rate will continue to adjust based on a schedule predetermined in your loan agreement. Your mortgage lender will walk you through all the dates and terms for this home loan if it’s the best option for you.
With a fixed-rate mortgage, your interest rate will stay the same over the life of the loan. This makes it much easier to plan your monthly budget. Most people choose a fixed-rate mortgage. However, if you don’t plan on being in your home long term, an ARM might be a better option.
Conventional Home Loans for Medical Professionals
Jumping in to the different types of home loans, we’ll start with the Conventional loan. Conventional loans are the most popular home loan. Because they are less restrictive, there are a fewer number of required fees, and fewer terms to qualify, conventional home loans are a popular choice for medical professionals. In fact, over 50% of home loans are conventional home loans. Conventional home loans are not backed by the federal government like the other loan types we will cover. Instead, conventional loans follow guidelines set by two private agencies, Freddie Mac and Fannie Mae.
Benefits of a Conventional Loan:
- Buyers will typically receive a lower interest rate based on their credit score.
- There are no upfront funding fees.
- There is a higher loan amount limit than with government backed loans.
- Medical Professionals can have a down payment as low as 3% of the purchase price.
Disadvantages of a Conventional Loan:
- Generally requires a credit score of 620 or higher.
- If your down payment is lower than 20%, you’ll need to pay Private Mortgage Insurance (PMI).
- Guidelines can vary from lender to lender, because they are backed by private institutions than can set their own terms instead of the government.
FHA Home Loans for Medical Professionals
FHA Loans are government-backed loans, issued by the Federal Housing Administration. A government-backed loan means that the home will become property of the government if the borrower can not pay their mortgage. If the house goes into forbearance, the government will pay the bank back for the rest of the loan, and then take ownership of the home. This applies for all the remaining types of loan we’ll cover, which are all government-backed.
FHA loans help increase homeownership by reducing credit score requirements for mortgages. Medical professionals and others with lower credit scores also can qualify for these home loans, thanks to Mortgage Insurance Premiums (MIP) and the Upfront Funding Fee. Their low down payment requirement is also an attractive benefit of these loans. FHA loans are popular with many first-time home buyers for these reasons.
Benefits of a FHA Loan:
- Nurses with a credit score of 580 or higher can qualify for a FHA loan. Scores as low as 500 can be accepted through some lenders, although the down payment will need to be higher.
- Home buyers can put down as little as 3.5% for a down payment. If medical professionals have a credit score of 500-579 they may still qualify for an FHA home loan if they are able to put down up to 10% for a down payment.
- Closing costs can sometimes be rolled into the mortgage payment, meaning you’ll pay less up front in a large chunk.
Disadvantages of an FHA Loan:
- Those who go with a FHA home loan will need to pay a Upfront Funding Fee when you go through the closing process. This fee is 2.25% of the total financed amount. This is extra insurance for the government to assume the risk of your loan. Usually, this can be rolled into your mortgage, or you can pay it at your closing.
- All FHA loans must include Mortgage Insurance Premiums (MIP) for the life of the loan. MIP protects the mortgage lender in case you are unable to pay the loan back. This insurance is a big reason why home buyers with lower credit scores and less cash to put down for a down payment still have the ability to purchase a house.
Generally, an FHA home loans for medical professionals will cost a home buyer more money over the life of the mortgage versus a conventional loan due to the higher interest rate and MIP costs. However, it still makes homeownership possible for someone with lower down payment funds or credit scores.
USDA Home Loans for Medical Professionals
Although they’re named after the U.S. Department of Agriculture, USDA loans are not only for farmers. USDA loans are intended to get people to move to rural areas, but rural areas don’t have to be farmland. In fact, many small towns and even suburbs qualify as rural with these home loans. These home mortgages can be very beneficial for medical professionals, as there is demand in rural hospitals and clinics nationwide. If you live in or are moving to a more rural area anyways, you might as well take advantage of these loans!
USDA loans are available for households and/or properties located in designated rural areas that meet all of the USDA eligibility requirements:
- Home buyer must meet income-eligibility. The USDA loan is intended to make homeownership a reality for low to moderate income families in rural areas. The USDA’s low to moderate income guidelines vary by state.
- Home buyer must personally occupy the dwelling as their primary residence.
- Buyer must be a U.S. Citizen, U.S. non-citizen national or Qualified Alien.
- Must have the legal capacity to incur the loan obligation.
- Must be eligible for federal programs.
- Demonstrate the willingness to meet credit obligations in a timely manner.
Benefits of USDA Loans:
- It is possible to obtain a USDA loan with no down payment.
- The loan terms offer competitive interest rates.
- Flexible credit guidelines with no minimum credit score. But, most lenders prefer a credit score of 640 or higher. This will vary by lender.
- Available in common fixed-rate terms like 30-year and 15-year loans.
Disadvantages of USDA Loans:
- There is an Upfront Funding Fee, up to 1% of the total financed amount, paid when you close on the loan. Typically this can be rolled into your mortgage payment.
- There is an annual fee, which is 0.35% of the loan. This can also be rolled into your monthly mortgage payments.
- Must meet all the above USDA loan requirements to qualify.
- Must pass a strict inspection of the home. This is to ensure the home is suitable for living, making it less likely you will go into default.
VA Home Loans for Medical Professionals
Of all the types of home loans, VA loans are the only home loan designed exclusively for active and former military members and their families. Several service members who conducted medical duties while they were in the service continue their medical training and careers as civilians. Backed by the U.S. Department of Veterans Affairs, these loans offer great advantages to those who are serving, or who have served in the U.S. Armed Forces.
To get a VA loan, you will need to show your lender a Certificate of Eligibility (COE). This shows your lender that you have double checked with the VA and they approve that you meet the requirements of obtaining a VA loan. The primary criteria to qualify is you must have served in the US military for 90 days of active duty during war time, or 181 days of active duty during peace-time, or you are a surviving spouse of a military member who has also not remarried.
Benefits of a VA Loan:
- No down payment is required, as long as the sale price doesn’t exceed the appraised value.
- No Private Mortgage Insurance (PMI).
- There is a limit on the amount to pay at closing. Closing costs may also be paid for by the seller.
- Interest rates are consistently lower than conventional and FHA loans.
- Your lender cannot charge a penalty fee if the VA loan is paid off early.
- You do not need to be a first-time home buyer to use a VA loan.
Disadvantages of a VA Loan:
- You must meet VA loan requirements to qualify.
- VA charges a funding fee to cover operating costs. However, this fee is usually rolled into the home purchase price.
- Your lender may have additional requirements borrower must meet to take out a VA loan. Because the VA only guarantees 25% of a loan, lenders will typically have additional requirements. Be sure to discuss any additional requirements with your lender.
No matter what type of home loan you choose, Homes for Heroes can save medical professionals money on your next home purchase. A hero working in the healthcare, law enforcement, military, firefighter, EMS, or teaching professions are eligible. Register with no obligation and you’ll be automatically matched with a real estate and mortgage specialist local to your area. They will be with you every step of the way, taking the time to explain the process and answer any and all of your questions. Heroes who use our specialists to buy a home save an average of $2,400 in the process. It’s our way to say thank you for your service!