Your Complete Guide to a Doctor Mortgage Loan
You put the time, you earned your white coat, congratulations! You even took the debt to reach your goals, and now you want to purchase a home.
But wait, the bank now wants you to put 20% down on your new home. You don’t have that kind of cash on hand, the time, or patience to save that much while still paying down your loans.
That is okay by us. Sounds like you are the perfect candidate for a doctor mortgage loan. You may even qualify for a zero-down mortgage. If you have never heard of physician mortgage loans, keep reading.
We are going to explain how to recognize a true physician loan so you avoid getting caught by a mortgage broker that does not understand your situation. Brokers are middlemen that navigate between you and a mortgage lender. They have their place in lending for a “normal” home buyer but not for you.
Legitimate physician mortgage loans go through a bank. The easiest way to locate a bank that handles this type of loan is through a service that can help you locate lenders and explain options.
What Makes Physician Loans Special?
Physician loan mortgages are part of a special program available through certain lenders. Those mortgage lenders offer a program designed to attract high-income clients. By being part of this group of consumers, you are able to secure a mortgage with fewer restrictions than conventional mortgages.
Restrictions doctors often encounter include:
- Limited or no down payment
- Relocating or closing before the employment start date
- Higher debt-to-income ratio
Physician banks balance between the numbers and value that you bring to the table. The standard lender doesn’t care about all the hard work it took to get to where your at, and consider your situation, they only what their computer calculations tell them it’s okay to approve you.
Now there are select lenders that realize the financial standing of a doctor is unique. This includes understanding that high debt-to-income ratios do not make you a bad credit risk.
The programs cater to doctors entering the medical field and those well-established physicians. You have a disadvantage when applying for a conventional mortgage because you could lack employment history and have a high debt-to-income ratio. Our specialized Lenders have found doctors have the potential to increase their income over time and are less likely to default on their loans.
How Do Doctor Loans Work?
Doctor mortgage loans are similar to conventional mortgages but are more accommodating to the unique circumstances of doctors and resident doctors. One of the key benefits is the ability to put less than 20% down without having to pay private mortgage insurance (PMI). PMI is insurance lenders require you to pay to provide them with protection if you default on the loan.
Another benefit is the way these lenders look at student loans. When determining doctor loan eligibility they will consider the student loan payment, not the total amount due.
This is valuable because 76% to 89% of medical school graduates have educational debt. The average medical school graduate owes a total of $241,600 in student loans. This is six times higher than the average college graduate.
Many lenders will require two years of tax returns to prove income. A doctor mortgage lender will usually accept a signed employment contract as proof of income. This makes it easier for doctors to obtain a mortgage soon after completing their education.
When learning about the doctor mortgage loan process, questions often arise. For instance, why requests are made for up-to-date documents such as paystubs. Stubs often average out your year-to-date, but may not include recent bonus payments.
Another frequent question is why homeowner’s insurance needs the total loan amount on it. This is because the coverage benefits both the lender and you in the event of a loss.
Doctor Loan Eligibility
While physician loan mortgages are targeted to physicians and resident doctors, other high-income professionals may also qualify. This includes:
If you are in the medical profession, it doesn’t hurt to inquire on whether you may qualify for a physician mortgage.
To obtain a loan you need to maintain a FICO credit score of 700-740. There are circumstances where you may be able to receive a loan with a score as low as 680 if you have 6-12 months of cash reserves. A good way to keep track of your credit rating is using a free service such as Credit Karma that will send you regular updates on your credit activity.
If you are working to increase your credit rating, pay down but do not close your credit cards. Closing credit cards lowers your credit score. Do not borrow additional money and do not apply for loans or credit cards that will result in a hard credit check.
Physician Mortgage Rates
It is important to shop the various lenders offering doctor mortgage loans. This ensures you get the best physician mortgage rates available. Because they are accepting a lower down payment and waiving PMI, some lenders charge higher fees or interest rates than on conventional mortgages.
Don’t let this discourage you. By shopping around you will likely find a mortgage lender that provides physician loan interest rate and fee schedule.
Mortgage rates change daily. Know your options by requesting a free and accurate rate quote from physician mortgage lenders in your state.
How Many Times Can I Use the Doctor Mortgage Loan Option?
The beauty of physician loans is you may use them as many times as you want. There are some banks that will not provide a doctor’s mortgage after you are more than 10 years out of school or residency. This does not apply to all lenders, and DrHomeFinance.com can help you find a lender that will meet your needs.
You may have more than one doctor mortgage loan at one time. This is usually available on owner-occupied homes, not investment properties.
Most physician loans offer the option for refinancing with no early repayment penalties. This gives you the ability to refinance into a lower rate conventional mortgage after a few years. Refinancing is a wise decision if:
- Your income increases
- Your debt-to-income ratio goes down
- Your credit score goes up
- You have paid your mortgage down resulting in a loan to value of 20% or more
- Home value appreciation of more than 20%
Reach out to our lenders at any time about the refinancing options they offer.
Key Advantages of a Doctor Mortgage Loan
The main advantages of a doctor mortgage loan are:
- Little or no down payment—you can receive 90% to 100% financing depending on your credit score, property location, and amount of loan
- No private mortgage insurance (PMI) requirement
- High loan limit—you can expect loans of 95% to 100% up to $1 million and up to 90% for a $2 million loan
- Special consideration for student loans
- You can close on your mortgage 30-90 days before you begin working
As a doctor, the banks will give you a higher physician loan amount than with a conventional mortgage.
Let’s look at two examples:
Example one- You currently have a $400,000 annual pre-tax income.
If you want to purchase a $1 million house on a 30-year fixed mortgage with a 3.5% interest rate, your monthly principal and interest payment will be $4,490.45. Assuming $1500 in property taxes and insurance per month, your total payment would be $5,990.45. That is an 18% housing expense ratio, which is considered financially responsible by many financial advisors.
Example two- You currently have a $200,000 annual pre-tax income
If you are looking to purchase a home at 700k. Your monthly payment is $3143.31 principle an interest. Assuming $1,000 in property taxes and insurance, your monthly payment would be 4143.31. With your monthly income at 16,666.67. This is a 25% housing ratio, This is still considered responsible but starts to get toward the top of what is recommended.
***Property taxes and insurance vary state to state and city to city. Be sure to research this part of your mortgage payment. It will impact what is affordable for you and your family.**
The recommendation is to keep your mortgage less than two times your gross income. How much house you can get in comparison to your income depends on the area you live in.
Consider Before You Sign
Use a service that allows you to compare 2-3 different lenders. Look at the interest rates and terms of the mortgage. Check the ability to refinance without penalties.
How long do you plan to be in your current location? The recommendation is to stay in a home for 5-7 years.
This allows you to recover your closing costs before you sell or refinance. If you are only going to be there for a year or two, purchasing a home may not be an ideal choice.
You also need to consider the size of the home you are purchasing. Many homeowners overbuy and end up with more house than they need or can comfortably afford. There is no point in purchasing a large home if you can’t afford to furnish it with furniture and window treatments.
Finding a Physician Loan Mortgage Lender
When dealing with a finance service specializing in loans for physicians, you will receive high-quality recommendations with the lowest interest rates. The goal is to help you find the right loan program for you.
You can locate the best physician loans in your state using a loan locator tool. Simply click on your state to see banks offering physician loans. You may then review each lender’s profile. If interested, request an online quote.
Doctor Mortgage Loan Shopping Made Easy
Doctors new to the field have busy schedules and lack the time to run from bank to bank comparing mortgage options. Let DrHomeFinance.com do the work for you.
We are a doctor mortgage loan specialist. We do not offer loans or mortgages directly. We connect residents and physicians with lenders at national banks throughout the country.
We assist you in locating the best national bank mortgage lender for you. We make it easy to get doctor mortgage loan quotes from three lenders with no hard credit pull.
Get a quote today while shopping for your dream home.