At some point, most physicians will think about owning a home. After years of renting during medical school and residency, you may have a strong desire to buy. Not to mention the sometimes-intense pressure to keep up with your peers and family members.
And when you’ve spent years in medical training, you probably haven’t had much time to learn about the world of finance — a place with a language of its own. There are a ton of options, conflicting advice and information, and little time to make sense of it all.
Before buying a house as a doctor, here are five questions to think about.
1. Should a new doctor wait to buy a home?
Once you’re a homeowner, you’re tied down in more ways than one, so you need to weigh flexibility versus commitment. If you’ve moved to a new city to practise, it takes a while to get to know it and appreciate what the real atmosphere of the city is like. Not owning a home provides you with the flexibility to change your location and set-up. It also leaves you freer to focus on establishing your practice. Ask yourself whether you really want to commit to a specific location — and to the responsibilities (financial and otherwise) of home ownership.
2. Do doctors get better mortgage rates?
As a physician, financial institutions want you as a client, so you’ll typically have access to preferred rates. But note that rates aren’t the only factor. Mortgages are complex, and you may qualify for other perks. Financial institutions recognize that some level of debt is typically acquired through medical school and training, and it doesn’t scare them away.
3. How much mortgage can a doctor qualify for?
The majority of Canadians will need to borrow money to buy a home. Banks will determine how much they’re willing to lend you, and any medical school debt will be factored into this calculation. So will your earning potential.
At Scotiabank, the mortgage amount that residents, fellows and new-to-practice physicians can qualify for is based on estimated projected income1 for your specialty. So, if you’re a surgical resident earning $80,000, your mortgage amount would be based on a surgeon’s considerably higher practice income.
4. What home ownership costs should you be prepared for?
Down payment: You must have a down payment of at least 5% on the first $500,000 of the home’s purchase price; and 10% for the portion of the price that’s above $500,000 (for properties up to $1 million). For properties over $1 million, the minimum down payment is 20%.
Mortgage default insurance: Note that if your down payment is less than 20%, you’ll have to get mortgage default insurance from the Canada Mortgage and Housing Corporation (a Crown corporation) or one of the two private residential mortgage insurers, Sagen or Canada Guaranty. The typical cost for this insurance ranges from 2.8% to 4% of the amount of your mortgage, plus the sales tax (to be paid separately). The mortgage default insurance can be added to your mortgage amount at the start or paid upfront. Bottom line, if you can make a down payment of 20% or more, you will save a considerable amount in insurance and interest charges.
Closing costs: Aside from your down payment, the largest single upfront expenditure will likely be your closing costs. In some provinces, the most significant of these could be the land transfer tax (typically 1.5% to 4% of the purchase price of your home). Others include moving costs and legal fees.
Other fees: Home appraisal fees are typically covered by Scotiabank for physicians. Home inspection fees can vary widely, but $300 to $500 is typical. Your lender may require an up-to-date land survey, and a survey fee can run from $1,000 to $2,000.
5. What mortgage terminology do you need to know?
Like medical jargon, there’s an entire vocabulary for real estate and mortgages. Here are the basics, to help you navigate the financing aspect of buying a home.
Term: The term of the mortgage is the period of time over which the interest rate, payment and other mortgage conditions are set. Mortgage terms can range from three months to more than 10 years, with the most common being five years. If you break the mortgage contract early (for example, to switch to another lender), there could be penalties to pay. At the end of the term, the mortgage is due and payable unless renewed.
Fixed versus variable: A fixed-rate mortgage gives you the stability of knowing what your interest rate, and thus your payments, will be for the full term of your mortgage. A variable-rate mortgage, on the other hand, has a rate that varies according to the bank’s prime lending rate. Although the payments can still be fixed, the portion of the payment that goes toward the principal versus toward the interest will change as the prime lending rate changes. This potential fluctuation requires a certain degree of risk tolerance but can mean saving money on interest.
Amortization: Amortization is the number of years over which the entire loan is repaid. The amortization you choose (15, 20, 25 or 30 years) will have a significant impact on how much interest you pay over the life of your mortgage. It is possible to have multiple terms over the full amortization.
Ready to buy?
Buying a home is one of life’s biggest decisions, and your home will become one of your largest financial responsibilities. Having the right information can guide you, make this a better experience, and save you money.
An MD Advisor* can help you with your budget and help determine how a mortgage will fit into your financial plan. Think about what’s most important to you and assess whether you’re ready for this commitment. When you’re ready, check out Scotiabank’s eHOME online mortgage hub, which lets you get pre-approved, search for a home and get a mortgage approval — all in one place, all online.2
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
1 The projected income is an average estimated amount based on available industry data and is subject to change. Your actual income may vary. Terms and conditions apply.
2 All mortgage applications are subject to meeting Scotiabank’s standard credit criteria, residential mortgage standards and maximum permitted loan amounts.
All banking and credit products and services are offered by The Bank of Nova Scotia (“Scotiabank"). ® Registered trademarks of The Bank of Nova Scotia, used under licence. Visit scotiabank.com.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice, nor is it intended to replace the advice of independent tax, accounting or legal professionals.