Doctors earn good money, but it’s hard for them to get a home loan. This is because of how lenders look at debt. To get a mortgage, you need to have a certain debt-to-income ratio (DTI), usually between 45% and 50% for regular loans.
Doctors often have a lot of student loans. According to October 2023 data from the Association of American Medical Colleges, 84% of medical school graduates owe at least $100,000. More than half owe over $200,000. This high debt pushes their DTI above what most loan programs allow, making it tough to buy a house. But some lenders offer a special option called physician mortgage loans.
What Are Physician Mortgage Loans?
Physician mortgage loans are home loans made just for doctors and people in the medical field. These loans are different from regular home loans because they understand the financial challenges doctors face. For example, they might allow higher DTIs or look at student loans differently when figuring out your DTI. They may also let you make a smaller down payment or even no down payment at all and skip private mortgage insurance (PMI). They can also use other ways to check your income and job status, which is great for new doctors who don’t have regular pay stubs yet.
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Pros and Cons of Physician Loans
Physician loans have many benefits for doctors who want to buy a home. First, they make it easier for doctors with high student loan payments to get a mortgage. They usually require smaller down payments and don’t have PMI, which can save you $30 to $70 per month for every $100,000 you borrow.
Some physician loans even offer larger loan amounts. For instance, Fifth Third Bank offers physician loans up to $2 million. However, the downside is that these loans often have higher interest rates because they have easier requirements and don’t need a large down payment. Also, not every lender offers these loans, so you might need to look around to find one. Plus, they are usually only for buying your main home, not a second home or investment property.
Who Qualifies for Physician Mortgage Loans?
Despite the name, physician loans are not just for doctors. Many healthcare professionals can qualify. This includes:
- Dentists
- Veterinarians
- Podiatrists
- Dental surgeons
- Osteopathic doctors
- Ophthalmologists
People with Medical Doctor (MD) and Doctor of Science (DS) degrees can also apply. You can even apply if you are still a medical resident or doing your fellowship. Lenders usually need an employment contract that shows your current and future income.
Physician Loan Mortgage Rates
Rates on physician loans are often higher than on regular mortgages because they have low or no down payment requirements. This means the lender takes on more risk if you don’t pay. Also, these loans are not standardized like regular loans, so lenders might not be able to sell them easily after closing. This makes them riskier for lenders, who might charge higher interest rates.
The rates on doctor loans are usually adjustable, meaning they can go up or down over time. Lenders often limit how much your rate can increase at each adjustment and over the life of the loan. It’s important to know these limits before you get the loan. You should plan for possible rate increases or have an emergency fund just in case. But remember, adjustable-rate loans can also go down if market rates drop, which could lower your payments.
Alternatives to Physician Home Loans
If you can’t get a physician mortgage, there are other types of home loans you can consider:
- FHA loans: These need at least a 3.5% down payment and you must pay an upfront and annual mortgage insurance premium. The DTI limit is usually 43% to 45%, but it can go higher with some factors like a big down payment or lots of savings.
- VA loans: If you are in the military, a veteran, or a spouse of one, a VA loan is a good option. It requires no down payment, and the DTI limit is 41%.
- Conventional loans: These are another option. You can make a down payment as low as 3%, but you will need to pay PMI. The DTI limit is between 45% and 50%.
If you don’t know which loan to choose, talking to a mortgage broker can help. They can look around for mortgages for you and get paid a commission by the lender you choose.
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Conclusion
Physician mortgage loans are special home loans made for doctors and other medical professionals. They understand the unique financial challenges doctors face, especially with high student loans. These loans have benefits like lower down payments and no PMI, but they also come with higher interest rates and might be harder to find. If you can’t get a physician loan, other options like FHA, VA, and conventional loans are available. Talking to a mortgage broker can help you find the best loan for your situation.