Understanding Physician Mortgage Loans
Medical school typically requires investing four years of your life to education. But before starting your own practice or becoming a licensed medical professional, you have another three to seven years to spend as a medical resident. By the time you’re ready to start your career and buy a home, there’s one major problem—debt.
The exorbitant cost of med school can prevent you from qualifying for a conventional loan and leave you wondering where you’re going to live. Continue reading this article to learn what a physician mortgage loan is and if one can help you in your dream of purchasing a home.
What Is a Physician Home Loan?
A physician mortgage loan is a type of loan some mortgage lenders or loan programs offer to doctors, dentists, and other high-income medical specialists. Because newly certified medical professionals often have substantial student debt or personal loan amounts, no job, lower credit scores, or less than ideal debt-to-income ratios, conventional mortgages are a challenge.
Lending institutions offering physician personal loans consider these circumstances and make some concessions to their typical practices. A physician home loan offers attractive rates and terms to such individuals. That’s because lenders understand their earning potential, minimized risk of default, and the long-term value they offer.
How Does a Physician Mortgage Loan Differ From Conventional Loans?
Though often similar, some key differences make physician home loans far more appealing to a doctor’s circumstances. With a conventional mortgage, a homebuyer is required to pay private mortgage insurance (PMI) if not putting at least 20% down. A physician loan requires no downpayment to avoid paying PMI.
PMI varies based on insurance rates, but you can assume it’ll vary from half to one percent of your total loan amount yearly. Eliminating the cost of PMI can save you hundreds of dollars on your monthly payment. You can use that money to pay back student loans more quickly.
Though loan terms are typically the same, another noteworthy difference is mortgage rates. With little or no down payment required and the elimination of PMI payments, higher interest rates are likely. The good news is that the rates are just slightly above a conventional mortgage, by about .125% to .25%. If you have an excellent credit score or lower debt than expected, you may be able to find a lender that offers matching interest rates.
Additional Differences Between a Physician Home Loan and Standard Loan
- Debt considerations: Conventional loans focus on an applicant’s overall debt. Physician mortgage loans factor in your student loan’s monthly payment amount rather than the overall student loan total.
- Proof of employment: When applying for a standard home loan, you must provide pay stubs and tax information to prove income. A physician personal loan allows for a signed employment contract as proof of income. This is true for doctors and medical professionals that haven’t started working yet. Many lenders allow doctors to close on their loans from 30 to 90 days before employment begins.
- Loan limits: Because your salary as a doctor exceeds a typical salary, you have access to higher loan amounts than those applying for conventional mortgages. For planning purposes, expect a lender to offer 95% to 100% of the amount for a home up to $1 million and up to 90% on a loan of $2 million.
- Credit report: As you start your medical career, there’s a strong chance your credit score may not meet the standards of a typical mortgage loan. But physician mortgage loans are more flexible and can be extended to scores as low as 680. Lenders offer their best rates to borrowers with credit scores of 760 or higher.
What Are the Drawbacks of a Physician Home Loan?
Though less than a half percent higher than conventional loans in most circumstances, the higher interest rates of a physician mortgage loan are a disadvantage. Depending on the sale price of your home, .25% percent can significantly impact your monthly payments.
Suppose you took out a $500,000 physician loan for 30 years at 4.5%. Compared to a conventional loan for the same amount at 4.25%, you end up paying $25,500 more over the life of the loan.
Depending on the lender, your physician home loan may be offered at a variable interest rate. Over the life of a mortgage, variable rates usually increase with time. That results in you paying even more interest monthly and over the long haul. As with a conventional loan, you can choose to refinance a physician mortgage loan, but that process includes additional costs like application and origination fees.
Based on the lender, you may not be able to take out a physician mortgage loan on some types of residences. If you’re considering a physician home loan for a condo, rental property, secondary home, or vacation home, you may have limited or no options.
The higher loan amounts provided by physician loans can also tempt medical professionals into buying more home than they need or can truly afford. Just because you can take a larger loan doesn’t mean you should. It’s critical that you take the time to figure out the loan amount that helps you land the home you want while allowing you to maintain an enjoyable lifestyle without constant budget concerns.
Key Physician Mortgage Loan Takeaways
To recap, a physician home loan:
- Helps doctors beginning their careers to purchase a home with no money down and avoid PMI payments.
- Does not require proof of employment, only a signed contract.
- Offers higher loan amounts but also requires better credit scores.
Considering a Physician Home Loan? Turn to the Experts at Physician’s Resource Services
While you dedicate your time to helping the well-being of patients, Physician’s Resource Services is here to provide the support that ensures your financial health. Through our extensive connections we can connect you with a professional to help you through the unique stages of the physician mortgage loan process and as always we are here for any insurance, tax, financial planning, and investment management needs you have.
Reach out today to schedule your consultation and take the next step in becoming a homeowner.
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