Guide to Physician Mortgages

What is a doctor mortgage?

Physician mortgages help physicians buy a home, often with no down payment or mortgage insurance and more flexible eligibility requirements. Physician loans can also be refinanced. They are ideal for doctors and other health care professionals who have a harder time qualifying for a typical mortgage due to their considerable college debt and limited savings.

“Since medical school costs tend to be astronomical, doctors can have a lot of debt that would otherwise prevent them from getting a traditional mortgage,” says Jeffrey Zhou, CEO of Fig Loans, a personal loan lender based in Sugar Land, Texas.

“Due to medical education requirements, many doctors are much older before they enter the workforce and they don’t have the down payment to buy a house; yet they have the income to qualify for a home, ”adds Mikell Richards, regional sales manager at United Community Bank in Mount Pleasant, South Carolina.

How does a doctor loan work?

Mortgage loans for physicians can offer up to 100% financing without the need for private mortgage insurance (PMI), which is standard with conventional loans when you put less than 20%. This cost equals a portion of your loan amount each year, so eliminating this expense can save you a lot of money.

Physician loans also have high limits, typically $ 1 million or more depending on the mortgage lender. There may be different limits depending on how much you are funding – for example, 100% funding could be capped at $ 1 million, while 90% funding could go up to $ 2 million. There are also other types of physician loans that can help you establish your practice – these can be up to $ 5 million.

Most physician lenders also allow you to have a higher debt-to-income ratio because they know new physicians have significant student debt.

“New graduates and residents often work for very little money and have a lot of student debt, so they may be at a disadvantage for a typical mortgage,” says Luis Strohmeier, CFP, Los Angeles-based partner and consultant. heritage of Octavia Wealth Advisors. . “Student loans aren’t counted against you with a doctor loan, luckily. “

Who can get a doctor loan?

Physician mortgages are generally available to physicians with specific degrees, including physicians and DOs. Some lenders provide similar loans to other healthcare professionals including veterinarians, dentists, and orthodontists with DMV, DPM, DDS, and DMD degrees.

“Physicians, physicians currently on scholarship, and physicians who are still completing their hospital residency are eligible,” says Kennis Tong, a mortgage consultant at Valley National Bank, a regional bank that covers New York, New Jersey, Florida and Alabama. . “We check their status with their employer and requesting transcripts or a medical degree if necessary.”

A medical loan is a viable option if you are confident that you can handle all of your debt repayments, including student and credit card debt, in addition to your mortgage. If you know you’re going to be moving in a relatively short time, it might not be worth it, Zhou says.

Cost of a doctor loan

Generally, the same closing costs associated with a traditional mortgage apply to a doctor loan.

“Our bank, for example, charges a fixed set-up fee of $ 1,175 regardless of the loan program,” Tong said.

Are Medical Loans a Good Idea?

Benefits

  • 100 percent funding of $ 1 million or more
  • No mortgage insurance
  • Higher DTI ratio
  • More flexible credit, employment and income standards

Most physician loan lenders offer up to 100 percent financing, which means you don’t need to make a down payment and won’t be required to pay the PMI even if you don’t. nothing. You also might not need such a high credit score to qualify, and unlike conventional loans, you can often have a DTI ratio above 50 percent and don’t need a established income or employment history. up to 90 days before your employment begins, says Strohmeier.

“Usually, a doctor who is just starting out will see a substantial increase in income over the course of his career, which is why these lenders are more flexible with this loan product,” explains Richards.

The inconvenients

  • Adjustable rates
  • Only for main residences
  • Risk of over-indebtedness
  • Potentially ineligible condos or townhouses

Physician loans are generally not offered with a fixed interest rate (although some lenders do). This means that you will have an adjustable rate, which changes at certain intervals and can increase or decrease your monthly mortgage payment.

There is also the risk of becoming overwhelmed with your loan if the value of your home goes down, Strohmeier notes, “if, for example, you buy a house for $ 500,000 but the value goes down if the market corrects and you still owe that $ 500,000 “.

Loans to physicians also generally cannot be used to purchase investment property or vacation home or second home, and condos, townhouses, and multi-family properties may not qualify either.

Finally, because there is no down payment requirement, you won’t have a lot of equity upfront with a medical loan, which can be a problem if you have to sell, Richards points out.

“In these cases, borrowers need to be confident in their ability to make their loan repayments and ensure that they have payment reserves on which to fall back in case there is a negative impact on their income,” he said. Richards said.

Where to get a doctor loan

Mortgages for physicians are offered by many types of lenders, including major national lenders, independent mortgage companies, and community banks. Some lenders offering this type of financing (some including business or convenience loans) include:

  • Bank of America
  • BMO Harris Bank
  • Caliber home loans
  • Citizens Bank
  • Fairway Independent Mortgage Company
  • Fifth Third Bank
  • First National Bank
  • Flagstar Bank
  • Guaranteed rate
  • Huntington bank
  • TCF
  • TD Bank
  • Truist
  • United Community Bank
  • American Bank
  • National Bank of the Valley

“Spend time shopping and talking to loan officers,” Tong recommends. “For each of these different loans, find out how the process works, the total costs and conditions involved, and what to expect. “

Alternatives to the doctor mortgage

A doctor loan is not the only option available to doctors. If you qualify, you may be able to get another low-down or no-down loan, such as:

  • Conventional loan – As low as 3% or 5% decline with PMI
  • FHA loan – As low as 3.5% with at least a 580 credit score and FHA mortgage insurance
  • VA loan – Available to eligible military and veterans with no down payment and mortgage insurance
  • 80/10/10 piggyback loan – Two loans for 90% financing (80% on the first loan and 10% on the second), plus a down payment of 10%

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