Home Loans for Physicians – How Big of a House Can I Afford?
“How much home can I afford?” is one of the most frequently asked questions by potential homebuyers while using Home Loans for Physicians.
The key to understanding your potential home buying power is having a sense of your personal debt ratio. The debt ratio, also known as the debt-to-income ratio or DTI,
DTI is a mathematical calculation that determines how much debt a person can carry and the maximum amount of money he or she can borrow. a more comprehensive look at your finances, budget, and financial goals when starting the home-buying process.
Let’s start by looking at DTI.
Lenders determine the maximum DTI for their loan products. For example, a medical professional home loan company may allow a DTI with up to 50% debt, while another company might only allow 45%. This means that the first thing a buyer should ask a loan specialist is “What is the maximum debt ratio you allow?”
The simplest way to think about DTI is that it is a simple ratio with all monthly debt payments divided by the overall monthly income including car loans and leases, credit cards, and personal loans, as well as court-mandated monthly alimony and child support., utilities, children’s education, life, and subscriptions like dollar shave club are not counted as debt.
Your TOTAL home payment, aka your PITI or Principle, Interest, Taxes, and Homeowner’s Insurance, is also included. The best bet is to ask your loan officer or real estate agent to help you figure out what your PITI might be.
Understandably, many graduating medical students and residents are concerned with how Home Loans for Physicians are taken into account for purchasing a home when students are in deferment, forbearance, or a unique payment plan.
This is one of the crucial reasons why a physician’s mortgage evaluates student loans in a different way than a standard mortgage. A traditional mortgage only considers the full monthly student loan payment for DTI unless you present evidence that you are on a modified repayment plan for the next 12 months.
Because medical students are typically not able to offer this evidence, it is critical to always ask your loan officer how student loans are handled for their physician mortgage products.
There are strict requirements that shape what lenders consider your monthly income. Income recorded on a W2 or 1099 is included, but no-guaranteed pay, including commissions, bonuses, and commissions, must have been earned for at least two years in order to be counted.
For example, an ER doctor who is hired as an independent contractor and receives a guaranteed $250,000 annually based on contracted shifts may count that income.
However, additional hours worked, moonlighting, or bonuses would not be counted if the doctor does not show a two-year history of receiving them. As a result, the ER doctor can qualify for a home based on a $250,000 salary and not a $300,000 total salary.
Rental income comes up frequently when discussing what can be included in DTI income. There are a few rules to be aware of using Home Loans for Physicians.
Rental income must be reported on your tax returns for two years to be included. Even if you have an agreement in place to rent out your current home once you move out, you will not be able to include the expected rental income in your new home.
In addition, an underwriter typically only accounts for 75% or less of the rent to account for vacancy/turnover.
To determine the loan amount using the debt ratio you calculated, you must first determine the maximum monthly payment for housing expenses. Using an interest rate of 7 percent over 360 months, you can calculate the amount of money you would need for a $430,000 mortgage.
For example, with a monthly Principal and Interest of $2,000, you would need a $430,000 loan. A mortgage calculator or your loan officer can determine the amount you may borrow.
But buying a home is not just about DTI, it’s also about how the purchase will impact your lifestyle. You might qualify for a $2000 mortgage or a $430,000 loan, but that doesn’t mean you should borrow that amount.
It’s foolish to use a lender’s 50% debt-to-income ratio as a benchmark for purchasing a home. With a 50% DTI, you have little room for anything besides basic living expenses. So how do you determine how much you should borrow, then? That’s a good question for another day.
We are not a lending company. We help you find the best Home Loans for Physicians on the market.
You can find doctor loans through an online tool like Dr. HomeFinance that compares multiple lenders for you. Simply select which state you are looking at living in and see how much of a house you can afford from the best physician mortgage lenders.