Last Updated on August 29, 2024 by Luke Feldbrugge
In order to buy a home, you are most likely going to need a home mortgage loan. There are several different types of home loans for healthcare workers to choose from. They all have great advantages for first time home buyers, as well as healthcare workers who have already bought and sold more than one home. Let’s take a deeper dive into the four most common type of home loans for healthcare workers.
But first, we recommend figuring our how much house you can actually afford, before going too deep into the types of mortgage loans available to healthcare professionals. Knowing where your personal finances are will help you determine which home loan type could be best for you. This mortgage calculator is also a great tool to estimate your monthly mortgage payment. Once you have a better understanding of what you can and feel comfortable paying, we can cover the four main types of home loans: Conventional loan, FHA loan, USDA loan, and VA loan.
As a healthcare professional, chances are you qualify for more than one type of home loan. Our Homes for Heroes mortgage specialists will work with you and your finances to determine which home loan type will work best for you. You are also entitled to Hero Rewards and savings when you use our real estate specialists and lenders. Sign up now to talk to our specialists with no obligation.
# 1: Conventional Loan
Conventional loans are the most popular home loan, with more than 50% of mortgages being conventional. Because they are less restrictive in what type of home you can buy with them, there are a fewer number of required fees, and fewer terms to qualify make this a popular home loan program, especially for those in the healthcare field or nurses. 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 Home Loan for Healthcare Workers:
- Home buyers will typically receive a lower interest rate due to a good credit score, higher rate for lower credit scores.
- There are no upfront funding fees.
- There is technically no limit on your loan amount like with government-backed loans. However, you will still have a loan limit, determined by things like income and credit.
- Your down payment can be as low as 3% of the purchase price.
- If your down payment is less than 20%, you’ll need to have Private Mortgage insurance, or PMI. However, most conventional loans do not need you to refinance to get rid of the PMI once you have paid 20% of your home’s value.
Disadvantages of a Conventional Home 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.
Also, conventional home loans for healthcare workers typically come with 30-year or 15-year duration term. They can also be found in 20-year and 10-year terms as well, though not as common. This means by making the required payments each month, you will finish paying off your loan in that amount of years. When it comes to the interest rate options on these loans, there are two main types: adjustable-rate mortgage and a fixed-rate mortgage.
Fixed-Rate Mortgage
With a fixed-rate mortgage, your interest rate will stay the same over the life of the loan. The only time it will change is if you refinance, which actually creates a new 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.
Adjustable-Rate Mortgage (ARM)
With an adjustable-rate mortgage (ARM), the interest rate you pay will change after a certain 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 the 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.
After the fixed-rate period ends, your interest rate will adjust to 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 present a risk to buyers and makes budgeting difficult. With interest rates, one month your mortgage payment could be $1,000, and the next it could be $1,400. Increased regulations following the 2008 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 the rate options and which might be the best option for you.
#2: FHA Loan
FHA Loans are government-backed loans, issued by the Federal Housing Administration. A government-backed loan means that if the borrower can not pay their mortgage off and the house goes into forbearance, the government will pay the bank bank for the rest of the loan, and then take ownership of the home.
FHA loans help increase homeownership in America by reducing credit score requirements for home loans. Healthcare workers, nurses, doctors, and others with lower credit scores can qualify for these loans, thanks to Mortgage Insurance Premiums (MIP) and the Upfront Funding Fee. These are fees paid upfront and through the life of the loan as extra insurance that you’ll pay it back. 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 Home Loan for Healthcare Workers:
- Healthcare providers with a credit score of 580 or higher can qualify for a FHA loan. Scores as low as 500 can be accepted, although the down payment will need to be higher and you’ll need to find a lender who will accept that credit score.
- Home buyers can put down as little as 3.5% for a down payment. If healthcare workers have a credit score of 500-579, you may still qualify for an FHA home loan, but may need to put down closer 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, or the amount in your loan. 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. You can not refinance to remove MIP, unless you refinance into a conventional 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, a FHA home loan for healthcare workers will cost a home buyer more money over the life of the loan 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.
#3: USDA Loan
Although they’re named after the U.S. Department of Agriculture, USDA loans are not just for farmers, but actually are intended for rural development. But, many small towns and even some suburbs of metropolitan areas qualify as rural with these loans. USDA loans for healthcare workers can be very beneficial, as there are demand for nurses, RN’s, and doctors in rural hospitals nationwide. The USDA loan is intended to make homeownership a reality for low to moderate income families in rural areas. 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 eligibility requirements:
- The home buyer must meet income-eligibility. The USDA’s low to moderate income guidelines vary by state and county.
- Home buyer must personally occupy the home as their primary residence, so you can not use it as a cabin or vacation home.
- The home buyer must be a U.S. Citizen, U.S. non-citizen national or Qualified Alien.
- Must have capacity to handle the loan obligation.
- Must be eligible to participate in federal programs.
- Demonstrate the willingness to meet credit obligations in a timely manner.
Benefits of USDA Home Loans for Healthcare Workers:
- There is an option to have 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.
- The income guidelines are based on the income of all adults who will be living in the home.
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, however, 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. If the home has termites, for example, the odds the house the house becomes uninhabitable go up. This increases the probability that you can default on the loan.
#4: VA Loan
Of all the types of home loans, VA loans are the only loans designed exclusively for military members and their families. Several service members who served in some form of medical duty 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 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 been cleared by the VA to be eligible for 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 Home Loan for Healthcare Workers:
- No down payment is required, as long as the sale price doesn’t exceed the appraised value.
- No Private Mortgage Insurance (PMI) premiums regardless of down payment amount.
- There is a limited on closing cost charges, and closing costs are allowed to be covered by the seller.
- Interest rates are consistently lower than conventional loans and FHA loans.
- You can pay off your loan ahead of schedule without fees from your lender.
- You do not need to be a first-time home buyer to secure a VA loan, and in some cases, you can re-use the VA loan for future home purchases.
- The VA may provide some assistance if you run into difficulty making mortgage payments.
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 to must meet to take out a VA loan. Because the VA only guarantees 25% of a loan, lenders will typically have additional guidelines. Be sure to discuss any additional requirements with your lender.
No matter what type of home loan for healthcare workers you choose, Homes for Heroes can save you 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 in your area. They will be with you every step of the way, taking the time to explain the home buying process and answer any and all of your questions. Heroes who use our specialists to buy a home save an average of $3,000 in the process. It’s our way to say thank you for your service.
I would like a mortgage I am a nurse in New York City through the pandemic with credit score of 617
That’s great Larissa, thank you for your service! You can sign up here and we’ll put you in touch with a real estate agent in NYC to get you started. Best of luck on your home search!