You should have known by now that physician mortgage loans are tailored to suit the financial needs of medical practitioners but you must have been searching in the wrong places all along. It’s never too late to know the solution via this comprehensive review.
Physician Mortgage Loans Review
Physician mortgage loans are private mortgages that arrive with more generous terms and looser qualifying requirements than most conventional loans.
These doctor mortgage loans are geared toward medical experts who have a harder time qualifying for a typical mortgage due to their considerable college and med school debt and limited savings.
How Do Physician Loans Work?
Physician mortgage loans usually do not need a down payment; lenders can offer up to 100 percent financing.
This home loan for medics also has high limits, typically $1 million or more depending on the mortgage lender.
The physician loan’s mortgage limit can differ based on how much you’re financing.
For instance, the size of a 100-percent financed loan could be capped at $1 million, while a 90-percent financed one could go up to $2 million.
Most physician loan lenders permit you to have a higher debt-to-income (DTI) ratio, as well, because they know that new doctors have sizable student loans.
Pros and Cons of Physician Loans
1. No down payment is needed. Most physician loan lenders deliver as much as 100 percent financing for as much as a $1 million loan.
2. No mortgage insurance is needed. Physician loans don’t demand PMI, even if you have no down payment.
3. Higher DTI ratio. You can qualify with a DTI of up to 50 percent so long as you can demonstrate that you can afford the payments.
4. Looser credit, employment, and revenue standards. You can often borrow right out of school so long as you have a signed offer letter and start working within a few months.
1. Varying rates. Physician loans usually aren’t presented with a fixed interest rate (although some lenders do have them).
2. Only for primary homes. You can’t utilize the loan to buy a second home or investment property.
3. Risk of overleveraging. “If, for example, you purchase a $500,000 house but the value declines if the market corrects, you still owe that $500,000,” says Storhmeier.
4. Condos or townhomes are not eligible. Many lenders will only deliver loans for detached single-family homes.
Who Qualifies for Physician Home Loans?
Physician mortgages are often presented to doctors with specific degrees. Here are some of the most common:
- Medical Doctors (M.D.) and Doctors of Osteopathic Medicine (D.O.)
- Doctors of Dental Medicine (D.M.D.) and Doctors of Dental Surgery (D.D.S.)
- Medical Doctors of Podiatric Medicine (D.P.M.)
- Doctors of Veterinary Medicine (D.V.M.)
Along with these, there are also unique loan programs available with some lenders for physician’s assistants, nurses and nurse practitioners, and physical and occupational therapists.
Lenders may also modify their loans based on your area of practice, your experience, and your credit score. A few lenders specify a minimum credit score to qualify for a physician loan.
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Alternatives to Physician Mortgage Loans
A physician loan isn’t the only option available to doctors. If you qualify, you could get another low- or no-down payment loan, such as a:
1. Conventional loan – As low as 3 percent or 5 percent down with PMI
2. FHA loan – As low as 3.5 percent down with at least a 580 credit score and FHA loan insurance
3. VA loan – Available to eligible servicemembers and veterans for no money down and with no mortgage insurance
4. 80/10/10 piggyback loan – Two loans for 90-percent financing (80 percent on the first loan and 10 percent on the second), plus a 10 percent down payment
How to Get a Physician Mortgage Loan
Here are a few steps to take as you seek out mortgage financing:
1. Know your credit score. Before you begin the process, know your credit score.
2. Seek referrals. Like most medical professionals, your practice relies heavily on referrals.
3. The same goes for mortgage lenders. A good place to start is by asking your medical colleagues who have recently purchased a home.
4. Investigate your options. Talk to your mortgage lender or broker about different options.
5. Research and compare companies and rates. Find which lenders have the most favorable loan provisions and even read reviews of other borrowers.
6. Decide whether to use a mortgage broker. Rather than you taking the time to find the best deal, you can work with a mortgage broker.
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What to Consider Before Applying for Any Mortgage Loan
Before applying for any Mortgage loan, there are a few important things you need to consider and this is what we’ll be treating below.
1. Pre-qualification and Pre-approval
As soon as you begin searching for houses, contact a lender to do a pre-qualification and a pre-approval.
Pre-qualification is a free checking of your income and expenses, employment status, and credit by the lender.
Pre-approval is a more thorough verification of all these and usually involves some paperwork.
Pre-qualification gives you an idea of the loan structure and your borrowing power. Pre-approval is useful in gauging any potential issues and establishing that you are a serious buyer.
After you find a house you like, you can choose a final mortgage lender.
2. Choosing Lenders
Get quotes from multiple lenders so that you can compare closing costs and interest rates, and negotiate a good deal. Check their reputation.
For example, not all lenders who have access to physician mortgage programs have adequate experience working with doctors.
The lender you choose must be able to understand your circumstances and guide you.
Some lenders are too slow in moving from contract to close, whereas the sellers in the real estate market are really fast.
The property you wanted might be sold to someone else because your lender was too slow to process the loan.
In summary, depending on your specific situation, other mortgage programs might be less expensive and offer you a considerable amount of flexibility.
For example, if you are a veteran, active service member, or the surviving spouse of a person who served in the military, you might qualify for a Veterans Affairs home loan.
VA loans don’t require a down payment or PMI. They also often have lower closing costs, and the VA can provide some assistance if you experience difficulty paying your loan in the future.