Buying a home may seem impossible when you have piles of student loans staring you in the face. Even with a doctor’s salary, covering the cost of the student loans plus a mortgage is a lot. Luckily, lenders have mortgage loans for physicians to help you address this situation.
Keep reading to learn more about mortgage loans for physicians.
What are Physician Mortgage Loans?
Physician mortgage loans, or loans specifically for doctors, have special terms that only apply to doctors. In other words, anyone in a different profession cannot secure this type of loan. Doctor mortgage loans come from alternative lenders or portfolio lenders. You won’t find them at your big name banks that offer only Fannie Mae, Freddie Mac, FHA, VA, and USDA loans. Instead, you’ll find them at smaller lenders that keep the loans they write on their own books.
Physician mortgage loans can have many different faces. It depends on the lender and your needs. Some lenders can tailor a loan to meet your needs. For example, some lenders require a small down payment of 5% to 10%, while other lenders allow 100% loan-to-value loans (no down payment).
Figure out what you need and then tell that to lenders when you shop around. If you know you don’t have the reserves to put down on a home just yet, be upfront with lenders. Let them know that you need a 100% LTV loan. This will help them figure out the right terms for the loan. Don’t assume a lender will say ‘no;’ you have to ask.
Qualifying for Mortgage Loans for Physicians
Because mortgage loans for physicians come from many different lenders, we don’t have a definitive guide of how to qualify. Instead, we know what lenders look for in general, but make sure to ask your lender about the specific details it requires.
The general guidelines include:
- Good credit score – A credit score over 700 is best, but some lenders may allow a credit score as low as 680 if you look around.
- Good debt ratio – Your debt-to-income ratio (not including student loans) should be less than 45%. This means your current debts should take up less than 45% of your gross monthly income.
- Proof of deferred student loans – If you pay your student loans currently, the payments become a part of your debt ratio. The physician mortgage loan program doesn’t include deferred student loan payments in the DTI, though, which can help you get approved.
- Have a medical degree – You must have graduated medical school and have a degree in order to qualify for most doctor loan programs.
- Proof of a job – You must provide proof that you have a job. If you aren’t working as a doctor yet, you’ll need proof that you will start working within the next 60-90 days.
Why Lenders Offer Physician Loans
It may seem odd that lenders would go out their way to help doctors that already have more loans than they can handle, but they have good reason. Most doctors make a great living eventually. When they first start out in their career, the income may be less than optimal and when you combine that with a lot of student loans, it can seem unbearable. But fast forward a year or two and most doctors can successfully pay their loans down, stay on top of their mortgage payments, and have plenty of disposable income, which is why lenders give doctors this special treatment.
In generals, doctors don’t pose a high risk of default. Thanks to a high-paying career, doctors can keep up with their payments and even pay their loans off early in some cases. Lenders worry much more about borrowers in other professions that don’t have high job security or the ability to advance as doctors do.
Should you Consider a Physician Loan?
Not every doctor should get a physician loan, as crazy as that sounds. You should think of your future and where you see yourself first, especially if you opt for a 100% loan. Here’s why.
Borrowing 100% of the purchase price of a home means that you have no equity in the home. If you move in the next two to three years, you still won’t have much equity as it takes several years to pay your principal down to a point that you actually have decent equity. If you move within the next couple of years, you won’t have money to put down on the next home, at least from the equity of your current home. Unless you have money saved up from your increased income, you may find yourself in the same boat in your next home.
If you plan to stay put in the home, though, the physician loan may help. Sure, it takes a while to build up equity, but if you are in the home for the next 20 to 30 years, it won’t matter to you. Of course, you have other options aside from just a 0% down payment loan – you just have to ask lenders what options they can provide you.
Choosing a physician loan is a personal decision. It’s definitely an attractive option for doctors who have a large amount of student loans that don’t see themselves becoming a homeowner within the next few years. As is the case with any loan, make sure you understand the loan’s terms well. Ask the lender about the rates, fees, and terms. Think of your future as well, so that you know what to expect when you sell and need the equity for a down payment.