Physician Mortgage 101
Dr Home Finance- Welcome to our video series
You’ve worked for years to make it through medical school and become a doctor. Now that your residency or fellowship is coming to an end, you’re ready to buy a nice home in your city so that you can settle down. Unfortunately, medical school is expensive and your savings account has less money in it than you hoped it would when you decided that it was time to settle down.
Medical doctors, nurse practitioners, and veterinarians alike may qualify for a loan that is only available for those with a doctorate (and a job in the medical field). There are several benefits that make the doctor loan a better option for you than a traditional home loan.
Continue reading to learn how you might benefit from a physician loan mortgage in your first years as a doctor.
What is PMI and do I need to pay it?
No Need for Mortgage Insurance
Despite the low down payment option for a doctor mortgage loan, you don’t have to worry about dishing out a ton of money to pay for private mortgage insurance. The mortgage insurance premium is waived for physicians who take out a doctor loan. This can save you thousands of dollars along the way.
Mortgage insurance is meant to protect lenders from non-payment of the mortgage, especially for borrowers who don’t put 20% down on their home loan. Doctors, however, aren’t as likely to default on these payments because they will have the funds to pay them. Other borrowers are six times more likely to default than those repaying loans for physicians.
When buying a home you will need to budget money into four different buckets. What are they and why?
Lower Interest Rates
Because some physician mortgage rates are generally dependent on a doctor’s financial situation, you might be wondering how you can get a decent rate on your loan without an abundance of money in your savings account. You might not even have a job in the medical field yet. If you’ve been working as an intern, a resident, or a fellow and you have a contract for employment with that hospital, you may be eligible for a doctor loan.
While physician loan interest rates might be lower now, it’s important to note that interest rates can increase over the life of the loan. Thankfully, there are options to refinance and get better interest rates when you’ve made payments on time.
Some lenders charge a prepayment penalty if you pay off your loan early, physician loan lenders do not.
Relaxed Financial Requirements
You have to have more than a doctorate to qualify for a doctor loan. You have to have proof of your employment and income in the medical field. Traditional loans require paystubs before they consider giving you a home loan that shows your employment history from the last few years.
So, how do you prove this when you haven’t yet landed your first job as a doctor? With the doctor loan, you can get a home loan with the promise of an employment contract once your internship, residency, or fellowship ends. This makes the entire process more affordable for doctors just getting started in their careers.
Low or No Down Payment
Doctors less than a decade out of medical school are likely to be strapped for cash. After all, saving money is difficult if you are keeping on top of your student loan payments, paying rent, and taking the boards on an intern, resident, fellow, or attending physician’s salary.
Thankfully, physician loans give physicians the option to close on a house without having to pay a penny upfront. This is great for home buyers trying to get into a new home as soon as possible. It allows them to do so without having to save hundreds of thousands of dollars for their down payment first.
Higher Debt-to-Income Ratio
The debt-to-income ratio of a doctor can make it impossible to get a loan that has lower interest rates. This means that traditional lenders may deny your application, even if you have a good credit score and/or provide a down payment.
The lenders of physician mortgage loans are more likely to allow a higher DTI ratio because they understand that new doctors have a ton of student debt. Traditional lenders, however, don’t care if the debt is related to copious student loans because they still see the elevated DTI as a risk that they don’t want to take.
Why do physician mortgage lenders overlook the physician’s current financial situation? Doctors are safe prospects! Lenders know that medical practitioners have a higher earning potential over the life of their loan.
Relationship with Your Lender
Lenders are always looking for people with a higher income earning potential to do business with. Offering loans with relaxed financial requirements, lower interest rates, and low down payments are just a few of the things that they will do to develop these relationships with their clients.
A physician loan is a great place to start building a relationship for future loans that you might be interested in taking out in the future.
Physician Loan Mortgage
Doctor Home Finance has been helping doctors close on their dream homes with a physician loan mortgage for more than 10 years. We understand that new doctors might have a lot of student debt and other issues that might prevent them from getting loan approval. We also understand that you might want to get into your new home before you start the new job.
The doctor mortgage loan makes this possible. We look forward to helping you close on your dream home as soon as possible with the best physician loans!