7 Best Physician Mortgage Loans in Colorado
Last year, more than 28,000 students graduated from medical school. If you were one of that number, you may find yourself in a conundrum when it comes to your housing situation. You’re about to be making a healthy paycheck, but you may have a mountain of debt, no work experience, and no money for a down payment.
Luckily, banks have set up specific programs designed to help new doctors buy houses. Read on to learn more about physician mortgage loans and how to find the best ones in Colorado.
What Is a Physician Loan?
Before we dive into the best physician loans you can find in Colorado, let’s talk about what they are. New physicians may have a harder time getting approved for a traditional mortgage than most.
They often come out of school with more than $150,000 in debt, and despite the fact that they’re in their late twenties or early thirties, they may have next to no career experience or established income.
Banks have set up programs to address this need with mortgages designed specifically for doctors. Some banks may offer similar programs to dentists and veterinarians, who may find themselves in a similar situation. As we’ll discuss more in a moment, the qualification requirements and terms of these loans may be a little different than traditional mortgages.
Why Do Banks Offer Physician Loans?
You may be wondering why banks would bother setting up special loans for borrowers with lots of debt, no proven income, and often no down payment. The simplest answer is that, eventually, most doctors will wind up having a lot of money to manage.
A bank that earns new doctors’ loyalty with an incredible mortgage may be able to expand its working relationship in the future with the doctor.
In addition to earning your loyalty, banks can earn solid referrals from their satisfied customers. And although new doctors may seem like high-risk borrowers, banks have found that these loans tend to be very low risk. Default rates on physician mortgage loans tend to be much lower than on traditional loans.
Low Down Payment
One of the biggest advantages of a physician loan is that it allows for a low down payment without as many consequences. Traditional mortgages require borrowers to put down 20 percent of the purchase price of the house. But if you’ve spent the last twelve years of your life paying for school, you may not have been able to save up that kind of money.
Physician home loans tend to waive the down payment requirements, usually requiring a maximum of 5 percent. Some loans even allow you to buy a home without any down payment, although you will still have to pay closing costs. But if you roll those expenses into your mortgage, your initial home-buying expenses can be very low.
Saving up a 20 percent down payment can be challenging whether you’ve been to med school or not, and some borrowers who get traditional loans don’t have that money. When a borrower doesn’t have a full down payment, they may wind up having to pay private mortgage insurance. PMI helps to protect your lender’s investment if you default on the loan.
Typically, PMI costs can range between $30 and $70 per month for every $100,000 you borrowed. If you get a physician loan, however, you can usually avoid having to pay all those insurance premiums. Since your risk of defaulting is lower, lenders will typically waive this requirement even if you don’t have a 20 percent down payment.
No Pay Stub Requirements
Most of the time, when you apply for a mortgage, your lender will want to see pay stubs from your employer. They may also want to see a W-2 form from previous years in order to confirm that you do, in fact, make enough money to afford the loan. And in many cases, lenders want you to have been with your current employer for a certain period of time to prove your employment is stable.
If you’ve been in med school and residency, you may not have pay stubs, W-2 forms, or a history with an employer. Lenders know this and know that you’re about to get a very stable job with a solid paycheck. They’re willing to waive this employment requirement if you have a contract with an employer in your field showing that you’ll start within three months.
Student Loans Disregarded
Student loans are one of the biggest hindrances to young doctors trying to get a mortgage. On average, doctors come out of medical school with more than $200,000 in student loans. This basically means you’re trying to get a second mortgage on top of the one you already have, which can wreck a debt-to-income ratio calculation.
Most lenders want you to have a DTI ratio of 45 percent or less, meaning that all your debts (including your mortgage) will take up less than 45 percent of your monthly income. But with a physician loan, lenders are willing to exclude your student loans from this calculation. This will leave any credit card debt you have, car notes, and so on.
Interest Rates & Types of Home Loans Vary
In some cases, lenders may require that a physician loan use a variable interest rate, rather than a fixed one. This means that, rather than your interest rate staying the same as it was when you took the loan, it will change to reflect current market interest rates after 7 years or 10 years. This can cost you a lot of extra money, especially if you stay in your house for more than fixed period of years.
1. BMO Harris
BMO Harris offers one of the most flexible physician loan programs available in Colorado. You can get either a fixed-rate or a variable-rate loan, and you won’t have to pay any special fees. You also won’t have to pay private mortgage insurance, even if you don’t have a 20 percent down payment.
BMO Harris allows you to take out a very large loan even with no down payment or employment history. You can borrow as much as $1 million with no down payment and up to 95 percent of a $1.5 million loan. You can even borrow up to $2 million as long as you have a 10 percent down payment.
2. Huntington Bank
Huntington Bank offers a mortgage program tailored to people graduating with an MD, a DO, a DDS, a DVMM, or a DMD. They offer up to 100 percent financing with no PMI if you don’t have a down payment. They’ll also allow you to pay off your mortgage at any time without charging extra fees and penalties. Their max debt to income is 50% giving you a little more buying power than other lenders. Their relationship pricing option is a lesser-known advantage as well.
You can get a fixed or variable rate loan through Huntington Bank, allowing you to take advantage of current lower interest rates. You can borrow up to $1 million without any down payment. Depending on how much of a down payment you have, you can even borrow up to $2.5 million without any penalties or PMI. See more details here.
3. U.S. Bank
U.S. Bank is one of the largest lenders in the country, so it should come as no surprise that they have a physician loan program. That being said, their loan program is somewhat more restrictive than the other two banks we’ve discussed. For one thing, they only offer this loan to certain medical professionals – nurses and dentists won’t qualify.
In order to get a U.S. Bank physician loan, you have to have a credit score of 710. And unlike the other two lenders we’ve discussed, you will have to have a down payment of at least 5 percent to purchase a home that costs up to $548,000.
If you want to buy a home that costs up to $1.25 million, you’ll need 10 percent, and if you want a home that’s $2 million or above, you’ll need at least 20 percent.
4. Citizens Bank
Like U.S. Bank, Citizen Bank’s physician mortgage program is something of a mixed bag. On one hand, you can buy condos and even build a new construction home with this loan. You can also borrow up to $1.5 million, and their down payment requirements are much lower than those of U.S. Bank.
However, you can only get up to 95 percent financing on a loan of any size up to $850,000. If you want to buy a home that costs up to $1 million, you’ll need to have an 11 percent down payment. And if you want to buy a $1.5 million home, you’ll have to put 15 percent down, and you may still have PMI.
5. Loan Depot
LoanDepot offers a fairly strong physician loan program for new doctors. In order to qualify, you’ll need to have a contract for a job working as a doctor that starts within two months of your closing date. You’ll also need a credit score of at least 700, and if you don’t have a down payment, you’ll have to get a variable rate loan.
If you want to buy a home with a fixed rate loan, you’ll need at least a 5 percent down payment. The good news is that this down payment will also allow you to purchase a home up to $1.5 million in value. If you want to buy a home that costs up to $2 million, you’ll need a 10 percent down payment, but you won’t have to pay PMI.
SoFi (or Social Finance if you want to be formal) doesn’t have a specific “physician loan” program. Instead, they offer what they call a “jumbo loan” that has low down payment requirements and no PMI. You can get a large loan with a 10 percent down payment, and you can choose between a fixed- and variable-rate loan.
Unfortunately, since this is not specifically a physician loan, it doesn’t waive the same requirements. In order to get a SoFi loan, you do have to show pay stubs, rather than a contract proving your employment. If you choose to get a loan with no down payment, you may also wind up having to pay PMI.
Cadence’s physician loan program is a bit more inclusive than some of the others on this list since it’s classified as an “Early Professionals” loan. Cadence offers this program to high-earning professionals such as professors and engineers, in addition to medical professionals. You can choose between fixed- and variable-rate loans with this program.
Cadence does have somewhat lower loan caps than some of the other programs we’ve discussed, with their maximum sitting at only $1 million. That being said, you can get this loan with 100 percent financing, no PMI, and no origination fee. You can also get a “One-Time Close” loan for up to $2 million if you plan to build your new home.
Find the Best Physician Mortgage Loans
If you’ve just gotten out of med school, you may be wondering how you’re going to afford to qualify for a mortgage. A physician loan is designed to help new doctors buy homes without the normal loan qualification restrictions. The best programs offer low down payments, no PMI, and available fixed-rate loans.
If you’d like to learn more about physician mortgage loans, check out the rest of our site at Dr. Home Finance. We offer custom-made physician mortgages that allow you to buy sooner with zero down. Get started with us today and get more purchasing power to buy the home of your dreams.