Doctor Loans: More Than Just For Physicians
If youre in any of the following professions, you could qualify for a doctor mortgage:
Its called a physician mortgage because thats the group that banks marketed this kind of mortgage to when it first started. It should really be called a grad school professional mortgage these days.
Banks have gradually figured out that having a multi-year professional degree makes you a far lower risk for default compared to the population at large. Thats why many have expanded their physician mortgage programs to other professions.
Dentists will have the easiest time qualifying, as banks lump you in with M.D.s and D.O.s. Some banks want to only work with board-certified veterinary specialists, although others extend the program to anyone with a Doctor of Veterinary Medicine .
Other professions tend to be bank by bank. Some will have good programs for a CRNA with a high salary and others wont lend but might have options for podiatrists. Id expect banks will continue to expand access to this mortgage type for other professions in the coming years and may have fewer restrictions.
Comparison Shop Physician Loan Options If Youre Ready To Buy
You should only check to see what your rate could be on a physician mortgage if youre ready to buy within the next six months. Please feel free to comparison shop other sources as well besides the ones mentioned on this site. Its not meant to be an exhaustive list, but hopefully its a great starting point.
If youre being responsible with your home purchase, then buy the house of your dreams! I dont believe that buying a home counts as an investment. Its something you do when you cant rent what you want for less than 0.5 percent of the purchase price and you plan to live somewhere for longer than five years.
If thats you, then compare away! Feel free to share your experience and questions in the comments below.
How Do Physician Loans Work
Physician mortgages work similarly to conventional mortgages but are much more accommodating to physicians and their unique circumstances.
The main point is that a doctor can put down less than 20% and still avoid paying Private Mortgage Insurance . PMI is insurance that you pay for to protect the lender against you defaulting. While still deductible in 2021, it does no good for you. It is simply an expense.
Physician mortgages also generally only look at the total required student loan payment, not the total amount owed, and will generally accept a signed employment contract as proof of income, rather than requiring tax stubs. Independent contractors often still need two years of tax returns to prove income.
Recommended Reading: 70000 Mortgage Over 30 Years
What Are Physician Mortgage Loans
Posted November 18, 2021 by Teresa Kakadelas
Category: Physicians / Doctors
After years of arduous medical training, many young physicians are eager to celebrate their new career with the purchase of their first home. The high amount of debt and low savings could make this dream discouragingly out of reachbanks typically require not only a large down payment, but also proof of past income, both of which are impossible to produce for a physician fresh out of training. However, banks do recognize the unique circumstances and the income potential of a young physician, so many offer physician mortgage loans to make home ownership possible. In California, with its high cost of living, this option is especially attractive to young doctors.
Unlike a conventional loan, which requires a Private Mortgage Insurance with down payment less than 20%, a physician mortgage loan necessitates 0-10% down payment and waives the PMI, saving you hundreds of dollars off your monthly mortgage payment. Additionally, these loans make allowances for medical school debt and will generally accept a signed employee contract as proof of income. The interest rates of these loans, however, are usually higher than conventional loans.
Which Bank Is The Best For A Home Loan
The first step you could take is to start with the bank you currently have a checking and/or savings account through. Ask if they have someone who specializes in these types of loans, and then start with this person. The likelihood of this being the most optimal solution is low, but if it does work out, then it will save you some time and effort.
As you really begin to narrow down your list of potential lenders, you will want to work with someone who understands the ins and outs of the physician mortgages. This is not a conventional loan, therefore you need someone with experience and a bank that has a competitive product.
Look for someone who is accommodating to your schedule too. You work odd hours and you cant always return phone calls when youre in the middle of a procedure. Make sure youre working with someone who understands your schedule limitations, and is familiar with your irregular hours.
Your career trajectory is unlike most other professions. You should work with someone who understands how different your path looks, versus someone who has chosen a different career.
Also Check: 10 Year Treasury Vs Mortgage Rates
Exempt From Caps On Loans
Most borrowers have limits on how much of a loan they can take out. There are also additional fees to borrowers if they go above the limit for jumbo loans. Jumbo loans are loans that are more than the Federal Housing Finance Agency conforming limit . In 2019, the jumbo loan limit is $484,350.
Physician mortgages are exempt from the additional charges, as well as a cap on how much the applicant can borrow. This can be a huge advantage to the physician.
Truist Physician Loan Review
The time, money and effort that goes into medical school has a silver lining: The Physician Mortgage. In case you aren’t familiar, medical professionals qualify for physician loans that cater to the unique financial situation of residents, fellows and doctors just entering the workforce.
LeverageRx helps you compare and contrast all the doctor loan programs but today we are going to review the physician loan program from Truist, specifically.
Let’s dive in.
Don’t Miss: Chase Mortgage Recast Fee
The Private Banking Difference:
- We can assist with application process and with compiling the necessary documentation to make obtaining your mortgage a streamlined process.
- Our Private Bankers serve as a single point of contact for a team of financial specialists dedicated to providing you with the expertise and performance you require to maximize the potential of your wealth.
- With comprehensive financial solutions from banking to investment management, we can help you achieve all of your financial goals.3
How Much House Can I Afford With A Physician Loan
You will find that banks will generally loan you more money than you should really borrow. They use guidelines like the 28% and the 36% rule. Basically, they’ll loan you money until the mortgage payment is no more than 28% of your pre-tax income and your total debt payments cannot use up more than 36% of your pre-tax income. However, that’s really an insane amount of mortgage debt for a doctor to take on. If you do that, you will almost surely have severe difficulty building wealth.
Run the numbers to see. Imagine a doctor with a $400,000 annual pre-tax income. 28% of $400,000 is $112,000, or $9,333 per month. How much house does that buy and how big is that mortgage? Let’s assume this doctor put 10% down and gets a 30-year fixed mortgage at 3.5%. That’s basically a $2 million mortgage on a $2.2 million house. That’s a 5X debt-to-income ratio. Do not do that.
I have two rules of thumb for doctors who actually wish to build wealth. The first is to keep all housing-related costs to less than 20% of gross income. That includes the mortgage, property taxes, insurance, and utilities. The second rule is much easier to use: keep your mortgage to less than 2X your gross income. It’s even better at 1X. Using that rule of thumb, our doctor making $400,000 could have a mortgage of up to $800,000. With a 20% down payment, that would equal a $1 million house. Want more house? Save up a bigger down payment or figure out a way to make more money.
Recommended Reading: Reverse Mortgage On Condo
Physician Mortgage Loans: What You Need To Know
In recent years, banks have been targeting physicians for a type of loan not available to the public called a physician mortgage loan. Physicians have unique challenges with borrowing because they have high debt-to-income ratios.
- Who qualifies for a physician mortgage?
- Advantages and disadvantages of physician loans
- What mortgage amount you will qualify for
- Common mistakes with doctor mortgage loans and how not to make them
We designed this guide to provide insights from years of experience working with attendings and residents to make your decisions much easier.
So, spend time with this guide to better understand if a physician mortgage loan is the right for you when it comes time to purchase your home. Consider this a journey through the entire process of understanding and applying for a physician loan.
As you know, physicians sacrifice an incredible amount of time and energy compared to other professions. While most of your other friends build their lives in their twenties, you work to complete your education and training.
You look around and it feels like everyone you know is settling down. Whether its getting married, purchasing a home, or starting a family life is happening all around you. Meanwhile, youre reviewing patient charts on a Saturday night.
And, when youre ready to purchase a home, you should consider a physician mortgage loan. This is one of the many benefits of becoming a physician, and its worth your time to learn more about this mortgage product.
Almost All Physician Mortgages Have Variable Interest Rates
Many lenders for the physician loans will quote you a variable interest rate, instead of a fixed interest rate.
You were probably wondering where the lenders made their money with physician mortgage loans and the answer is with the interest rate. It is very common to be subject to a variable rate for a physician loan.
This is where it is important to complete your due diligence and compare multiple lenders. You will find lenders can vary as much as a full percentage point with the rates they are quoting.
You should give very careful consideration to taking on a loan with a variable interest rate. If you believe you could be in your home longer than 5 years, then you will either need to refinance at some point or stay away from a variable rate. Since todays rates are still quite low, you would be taking a gamble by assuming you can refinance in the future. You are better off locking in a competitive fixed interest rate and avoid the headache in the future .
Also Check: Can You Refinance A Mortgage Without A Job
Not Paying Enough Attention To The Credit Report
Not only is your credit score is extremely important, but the number of open accounts will also be scrutinized.
Making timely payments and having a solid credit history will be your absolute best bet. You will need to demonstrate to the lender you have the ability to handle credit and make your payments on time.
But be warned even if you have a 780 credit score, if you are late on anything in the past 24 months, then you could possibly be disqualified.
Again, this is why you need to monitor your credit report before you start the application process. You want to review all of the elements, not just your actual credit score.
Alternatives To A Physician Mortgage Loan
A physician loan isnt the only option available to doctors. If you qualify, you could get another low- or no-down payment loan, such as a:
- Conventional loan As low as 3 percent or 5 percent down with PMI
- FHA loan As low as 3.5 percent down with at least a 580 credit score and FHA mortgage insurance
- VA loan Available to eligible servicemembers and veterans for no money down and with no mortgage insurance
- 80/10/10 piggyback loan Two loans for 90-percent financing , plus a 10 percent down payment
Read Also: Rocket Mortgage Qualifications
Physician Mortgage Calculator Estimate Your Monthly Payment
Here is a physician mortgage calculator that will help you estimate your payments. You want to understand the exact amount you will pay over the life of the loan with interest, as well as any additional fees .
A few things to remember. Doctor loans do not have Private Mortgage Insurance, so make sure to put a 0 in that field. If you need help understanding the taxes, use 1% of the purchase price and put that in the Property Tax field. This calculator is assuming that you have excellent credit and that you are buying a single-family house.
You also need to carefully consider how much money you are willing to put down. Not only will this impact your monthly payment, itll help build equity sooner.
You can definitely work with a mortgage broker who can run the different scenarios for you. Remember though, the quotes from a broker will be based on their fees and terms. You can compare products, but ultimately the quotes can be different from lender to lender.
Another option is to have your fee-only advisor run the scenarios with you. Your financial planner can help you weigh the pros and cons of the various options, and then you can pick the mortgage which makes the most sense for you.
Use Your Loan Estimates
The easy way to assess the different deals youre offered is to make sidebyside comparisons of Loan Estimates from at least four different lenders. These are now standardized with the same information and layout. So its easy to compare them.
In particular, look at page three, where youll find what youll have paid after five years. Heres a sample, from the CFPBs website:
For detailed information on how to compare mortgage offers, see: How to shop for a mortgage and compare mortgage rates.
Don’t Miss: 10 Year Treasury Vs 30 Year Mortgage
How Is A Doctor Loan Different From Other Loans
Just to compare, a conventional loan requires the buyer to pay for private mortgage insurance if they put down less than 20 percent of the homes purchase price. A conventional loan also requires the use of current income to qualify and counts student loan debt, while the doctor loan program allows flexibility when it comes to qualifying with their student loan payments.
For a physician or a dentist who qualifies for the program, a doctor loan may be a great option to purchase or refinance your home. The interest rates, flexibility, and underwriting in a doctor loan program can offer great benefits to those seeking to refinance or purchase real estate.
Are They A Good Deal
Together with a trusted financial advisor, a young physician must weigh the pros and cons of home ownership and a physician mortgage loan. Most physicians complete their training with very little savings to invest in a down payment, and conventional loans require PMI for loans with less than 20% down. A lower down payment and the absence of PMI will increase your cash flow, allowing you to save more of your income. Additionally, a lender will offer a higher loan amount for a physician mortgage loan versus a conventional loan.
In these loans, lenders will overlook medical school debt and not calculate it into the debt-to-income ratio assessment found in conventional loans. With this exception, a buyer with significant student debt can still buy a house. The physician mortgage loans also allow you to purchase your home 30-90 days before your first day of work, allowing you plenty of time to settle into your new residence. With all of these allowances, however, the physician mortgage loan does require a solid credit score in the 720-740 FICO range.
Also Check: Rocket Mortgage Launchpad
Lake Michigan Credit Union
A credit union is a financial cooperative, which means members rather than private investors own unions.
This generally results in favorable terms, which is the case for the LMCU doctor mortgage.
You can receive up to 100% financing on loans of up to $1.5 million, although larger amounts require down payments up to 5%.
No PMI is needed, student loan debt is excluded from debt calculations, and you can receive up to $650 in closing cost credits.
Underestimating Your Student Loan Repayments
You might be tempted to ignore the amount of your student loan repayments, since they arent factored into the DTI. But just because the lender isnt scrutinizing your loans, doesnt mean you should forget the amount your owe.
You do need to be aware of how much you can afford to pay in both a mortgage, and the amount you will be paying towards loans each month. Obviously your loan obligations will not disappear once you buy a home.
Make sure the mortgage payment you are quoted allows you plenty of room to make your loan obligation on time.
Also Check: Rocket Mortgage Payment Options
Where To Get A Physician Loan
Physician mortgage loans are offered by many types of lenders, including big national lenders, independent mortgage companies and community banks. Among the lenders providing this kind of financing are:
- Bank of America
- U.S. Bank
- Valley National Bank
Spend some time shopping around and talking to loan officers, Tong recommends. For each of these different loans, learn how the process works, the total costs and terms involved and what to expect.
How A Physician Loan Works
Doctor loans differ from conventional mortgages in three ways: They don’t require PMI, they’re flexible with debt-to-income ratios and they accept residency contracts as verification of employment.
PMI: Most mortgages require private or government mortgage insurance for loans with down payments less than 20%. A physician loan is distinctive for not requiring PMI, even with a down payment of less than 20%.
On large loan amounts, PMI can add hundreds of dollars to the monthly payment. By not charging for mortgage insurance, a physician loan frees up that money so it can go toward other obligations, such as medical school loans.
Debt-to-income ratio: When assessing a mortgage application, lenders scrutinize the borrower’s debt-to-income ratio, which is the percentage of monthly income that goes toward paying off debts. A borrower with a high debt-to-income ratio, or DTI, is deemed riskier than a borrower with a low DTI.
Doctors, especially early in their careers, would be disadvantaged by lenders’ preference for low-DTI borrowers because most doctors graduate from medical school with six-figure debt. During internship and residency, student loan payments can gobble up much of a doctor’s income, making it difficult to qualify for a mortgage because of high debt-to-income ratios.
Don’t Miss: 10 Year Treasury Yield And Mortgage Rates