Your path to becoming a physician has involved patience and sacrifice. You have experienced your fair share of making well-informed decisions, both with your professional path and personal choices. This type of dedication has resulted in lenders offering a unique option with mortgage lending, which is tailored to physicians.
This special option in home lending is referred to as a physician mortgage loan. You may be curious as to what makes this product superior to other types of loans and if it’s worth your time for consideration. If you’re a physician, you should consider all the facts about physician loans and how they could ultimately benefit you before you start making decisions regarding your home mortgage.
Facts about Physician Mortgage Loans
The 15 and 30 year fixed-rate mortgages are the typical products utilized by most future homeowners. They usually require a large down payment and there are also strict income requirements set in place by the lender. A physician mortgage loan is a mortgage especially for doctors, dentists, and other medical professionals and the requirements for qualification are quite different.
Why are physicians given special consideration when it comes to home loans? Physicians are known to earn a higher-than-average salary and the income is typically quite consistent in earnings. Statistically speaking, physicians have a much lower default rate on their home mortgages, which makes it less risky for the lender. And, since physicians could potentially use multiple banking products (such as lines of credit, checking accounts, savings accounts) chances are good the lender will eventually be used for other services.
These conditions are great for the lender, but what about the physician? Are there any advantages for doctors who choose this type of loan instead of a conventional loan?
Advantages of a Physician Mortgage Loan
We reached out to Neil Surgenor, a loan officer who specializes is physician mortgages, to find out why a physician should consider this type of loan versus the typical lending route. Surgenor says these types of loans offer four distinct advantages versus conventional lending: a low down payment, no PMI, qualifications based on future income, and your student loan debt isn’t factored in. Let’s explore these advantages even further.
Low Down Payment
A major benefit of a physician mortgage loan is the fact you do not have to pay a full 20% down payment. If you have ever researched traditional 15 or 30 year mortgage products, you will quickly realize how important a 20% down payment is for the approval process. However with a physician mortgage loan, your down payment could potentially be a minimal amount. In some cases, you could qualify for as little as 0% to put down towards the loan.
PMI is short for Private Mortgage Insurance. PMI is required for borrowers of mortgage loans who are unable to put down the full 20%. This is a pesky charge from the lender which results in an additional amount tacked onto the monthly payment. The idea behind PMI is it protects the lender if the borrower were to be foreclosed on due to lack of payment on the mortgage. The lender uses PMI as a way to avoid taking on as much risk if the borrower has not put at least 20% down.
Not only is PMI a charge which only benefits the lender, it can literally add hundreds to your monthly mortgage payment. One of the biggest advantages of the physician mortgage loan is it’s not subject to this monthly PMI charge. This could potentially save you thousands of dollars over the life of a loan, keeping more money in your pocket.
Qualification Based on Future Income
Rarely will you come across another situation will you will be lent money based on your future earnings, as opposed to your current income. Conventional mortgages typically require you to be in your current role for a minimum of a year, sometimes as much as two years. Physicians, or the other professions which also qualify for these types of loans, are viewed as stable, highly employable, high-income producers. This can be quite a help for those who are applying for these loans as they are finishing up a residency or fellowship program and have yet to reach a full attending physician’s salary. In order to qualify, you usually only have to present a copy of your contract.
Debt to Income Ratio
When it comes to mortgage lending, lenders have to look at the borrower’s debt-to-income ratio. This ratio is simply the amount of debt (credit cards, student loans, car loans) a person carries versus how much income they are earning. A physician has the income part typically, but it’s the student loan debt which really puts the debt portion out of proportion.
Consider this: the average amount of student loans for doctors is now creeping into the $194,000 range after graduating from medical school. For most physicians, this massive amount of student loan debt can cause issues in obtaining credit for car loans, credit cards, or personal loans. With physician mortgage loans, the student debt amount is usually not considered as a factor, which makes the debt-to-income ratio much more appealing to the lender.
Additional Factors Considered with Physician Mortgage Loans
There are other factors to be considered when it comes to these types of loans – both by the physician borrower as well as the lender. For instance, depending on the lender, some physician loans only offer an adjustable interest rate versus a fixed-rate option for interest. The interest rate is typically slightly higher for physician loans and these loans have multiple types of fees.
A credit score will be factored into consideration with a physician mortgage loan. Every lender has a different set of requirements – some lenders require a much higher score while others will accept something lower. If the credit score is a concern, it may require you to shop multiple lenders.
Similar to any other type of product a consumer can purchase, the terms and rates will vary from lender to lender. The more you can shop around and compare rates, then the more likely you are to find a product which fits your exact lending needs.
Although not offered in every state, there are several lenders who offer physician mortgages. Some lenders also require you to be an account holder with their bank.
Lastly, financing is typically for homes only – condos could potentially be excluded by the lender. If you think you want to purchase a condo and use a physician mortgage, then you need to verify the lender will work with condos.
Other Considerations With Physician Mortgage Loans
While a physician mortgage loan offers multiple advantages, there are a few points to consider as you review your options.
You should purchase the home you can truly afford – not necessarily the one you qualify for. It may be tempting to stretch your budget for your new home as far as possible but this could put a strain on your finances. Since your student loan debt isn’t factored into the equation, you may be approved for an amount which exceeds your monthly budget.
Not only do you need to consider the monthly payment amount, but you also need to factor in the amount of money you will need for home maintenance. Being a homeowner means there will always be projects around the house and items which need your attention. Make sure your monthly budget considers the cost of maintenance, repairs, furnishings, and yearly services.
Lastly, you need to remember if you do not put any money down towards the purchase of the home, then it will take you even longer to build up your equity. The more money you can put down, the quicker you can build up equity, which will only improve your overall financial picture.
Next Steps to Obtain a Physician Mortgage Loan
Purchasing a home can be a life-changing step for you and your family. If you’re ready to take this next step, you should start this process by doing a lot of research. You’ll need to find out which lenders offer this type of mortgage in your state and will lend money for the type of property you want to purchase.
You’ll definitely want to make sure you diligently compare the quotes you receive. The same process you would use for any big purchase is the same way you should approach a physician mortgage product. You will want to shop around and receive quotes from several lenders. You need to compare interest rates as well as the exact qualifications needed to obtain the loan.
Taking advantage of a physician mortgage loan can allow you to enjoy the journey of home ownership, even while finishing up your training and starting your career in medicine. Working with a loan originator who specializes in physician mortgage loans is a critical first step in understanding your options. You may find you will be on your way to home ownership much sooner than you ever dreamed possible.