Physician loan or standard loan

[Vee Tee]

Which is better a physician loan in 1 year and refinance in a few years after saving 20% down or save up in a few years for a standard 20% down payment?

[WallStreetPhysician]

Vee Tee wrote:

Which is better a physician loan in 1 year and refinance in a few years after saving 20% down or save up in a few years for a standard 20% down payment?

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It depends on how certain you will be in your area long-term. Many physicians who need physician loans are recently out of residency. Why not rent your "starter" home and when you are sure you will settle in that area long-term, then buy your dream home using 20% down.

-WSP

[Peds]

If interest rates go up you won't refinance.

[mobilehomegurl]

Depends on your situation and stability in the area. If you plan to refinance down the road, there's always the possibility rates can go up. If you're not comfortable with that, it may be better to wait and save up for the down payment before you buy.

[cgossage]

As others have said it depends.  We used the Physician loan to be a home in residency and to buy our current house when my wife finished fellowship.  Interest Rates were almost equivalent to putting 20% down.  You may want to price shop now to see what your options are if you are considering buying.

[dayman]

Are interest rates significantly different for a physician loan vs conventional 20% down? My first physician loan was at 2.6%. My current one is at 3.6% (both 7/1 ARMs). Are people putting 20% down getting better terms than that?

[Nysoz]

Physician loans generally have a slightly higher interest rate than conventional loans (somewhere in the vicinity of 0.25-0.5%), but don't carry PMI. If you're sure you want to stay in the area and like a house, a physician loan is a viable option. If you're not sure about the area or like the current housing options, rent to save the 20% then buy.

Semi off topic, has anyone run the numbers about the difference between a physician loan vs conventional loan? The slightly higher interest rate and putting the 20% into the market vs 20% down payment into the house?

[hightower]

The prudent thing to do is to save up the cash for a full 20% down payment.  If you don't have that, you probably shouldn't be buying a house right now.  Are your student loans paid off yet?  I would also recommend you save an additional ~$20k outside of the down payment to cover costs of moving and some new items for the new house.  All of this will make buying a house a much less stressful ordeal.

All that being said, this is "do as I say, not as I do" advice.  I bought a condo during residency (2008) with a physician loan.  Then we sold it in 2012 and bought our current house. We sunk a lot of money into this house when we bought it because it was a total renovation of an old home (built in the 1880's).  If I could go back and do it all over again, I would have paid off my loans and saved up lot's of cash before buying anything.  In hindsight, had I done that, I'd be debt free and have much larger retirement accounts now.  Instead, I'm still paying off student loans nearly 7 years after residency

[lost]

Check with multiple local banks, many will allow you to put lower down payment and perhaps even a better rate than "physician loan".

[Jarpee]

In my smallish TN town the physician loan product through a state bank was by far the best choice. Zero down payment, no PMI, and the interest rate was 0.25% less than the next lowest traditional mortgage with a down payment. The bank said they can offer such a good physician loan product because they are competing for our business, and of course our relationship with potential future bank services. My 30 year fixed rate is 3.7%, closed last year.

[OrthoInAL]

We did a physician loan in Fall of last year through Synovus. 30 yr fixed at 3.75%. Wasn’t planning to do it, but when I shopped around and they quoted me the same rate as competing banks, I decided to use my down payment money to pay off my student loans instead.