A Physician’s Guide to Mortgages

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What is a doctor’s mortgage?

Physician mortgage loans help physicians acquire a home, often without an initial fee or mortgage insurance and weaker qualifications. You can also refinance doctor loans. They are ideal for doctors and other healthcare professionals who find it more difficult to obtain a typical mortgage due to their significant college debt and limited savings.

“Because medical education costs tend to be astronomical, doctors can be in high debt that would otherwise prevent them from obtaining a traditional mortgage,” explains Jeffrey Zhou, CEO of Fig Loans, a personal loan lender based in Sugar Land, Texas. …

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

How does a doctor’s loan work?

Physician mortgage loans can offer up to 100 percent financing without the need for private mortgage insurance (PMI) that comes standard with ordinary loans when you put in less than 20 percent. This cost is equal to a fraction of your loan amount annually, so eliminating these costs can save you a lot of money.

Doctor loans also have high limits, usually $ 1 million or more depending on the mortgage lender. There can be different limits depending on how much you fund – for example, 100 percent funding can be capped at $ 1 million, and 90 percent funding can go up to $ 2 million. There are other types of doctor loans that can help you master your practice – they can go up to a maximum of $ 5 million.

Most lending institutions that provide medical services allow you to have a higher debt-to-income ratioAnd also because they know that the new doctors have large student debt.

“New graduates and residents often work for very little money and have large student debt, so they can be at a disadvantage for a typical mortgage,” says Luis Stromayer, CFP, Los Angeles-based partner and welfare advisor to Octavia Wealth Advisors. … “Fortunately, student loans do not count against you with a doctor loan.”

Who can get a doctor loan?

Physician mortgage loans are usually available to physicians with specific degrees, including MD and DO. Several lenders provide similar loans to other healthcare professionals, including veterinarians, dentists, and orthodontists with DMV, DPM, DDS, and DMD degrees.

“Physicians, physicians currently on fellowships, and physicians still completing hospital residencies are eligible,” says Kennis Tong, a home loan consultant at Valley National Bank, a regional bank serving New York, New Jersey, Florida and Alabama. “We check their status with their employer and, if necessary, request an extract from a medical school or a diploma.”

A doctor loan is a viable route if you are confident that you can manage all of your debt, including student and credit card debt, in addition to your mortgage. “If you know you’re going to move in a relatively short time, it might not be worth it,” Zhou says.

Doctor loan cost

Usually the same closing costs related to traditional mortgages, apply for a doctor loan.

“Our bank, for example, charges a flat lending fee of $ 1,175 regardless of the loan program,” says Tong.

Doctor Loans – A Good Idea?

pros

  • 100% funding of $ 1 million or more
  • No mortgage insurance
  • Higher DTI
  • Lower standards of credit, employment and income

Most medical loan lenders offer 100 percent financing, which means you don’t need to make a down payment and you don’t have to pay PMI even if you don’t contribute anything. You also may not need such a high credit rating to qualify, and unlike regular loans, you can often have a DTI above 50 percent and you do not need a statutory income or work history – in fact, you can close as Po according to Stromayer, about 90 days before the start of work.

“Typically, a doctor who is just starting out sees a significant increase in their income as they move up the career ladder, so these lenders are more flexible with this loan product,” says Richards.

Minuses

  • Adjustable rates
  • For main residences only
  • Risk of overuse of borrowed funds
  • Potentially ineligible condos or townhouses

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

There is also a risk of becoming underwater on a loan if the value of your home falls, Stromeier notes, “if, for example, you buy a house for $ 500,000, but its value goes down, if the market corrects, and you still owe the $ 500,000.”

Doctor loans also generally cannot be used to purchase investment property or vacation, or second home, and condos, townhouses, and tenements may not be eligible either.

Finally, since there is no down payment requirement, you won’t have a lot of capital to start with with a doctor loan, which can be a problem if you eventually need to sell, Richards notes.

“In such cases, borrowers need to be confident in their ability to make payments on the loan and to ensure that they have certain payment reserves that they can count on in case there is ever an adverse impact on their income,” says Richards.

Where to get a doctor loan

Physician mortgage loans are offered by many types of lenders, including large national lenders, independent mortgage companies, and public banks. Among the lenders providing such financing (some of them commercial or practical loans) are:

  • Bank of America
  • BMO Harris Bank
  • Home Loans Caliber
  • Citizens Bank
  • Fairway Independent Mortgage Corporation
  • Fifth third bank
  • First National Bank
  • Flagstar Bank
  • Guaranteed rate
  • Huntington Bank
  • TCF
  • TD Bank
  • Truist
  • United Community Bank
  • Bank of the USA
  • Valley National Bank

“Spend some time shopping and talk to loan officers,” Tong recommends. “For each of these different loans, find out how the process works, the overall costs and timing, and what to expect.”

Alternatives to a mortgage from a doctor

A doctor’s loan is not the only option available to doctors. If you meet the requirements, you can get another low or zero down payment loan, eg:

  • Ordinary loan – Just 3% or 5% with a drop in PMI
  • FHA loan – A decrease of only 3.5% with a credit rating of at least 580 and FHA mortgage insurance
  • VA credit – Available to eligible military and veterans with no payout and no mortgage insurance
  • 80/10/10 piggyback loan – Two loans with 90 percent financing (80 percent for the first loan and 10 percent for the second), plus a 10 percent down payment

Learn more:

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