Are you a medical practitioner and you’re looking for a loan? have you heard of physician mortgage loans? maybe you have or not. The good news is we have comprehensive information about the physician mortgage loan and would be useful to you. Read through to access it
This guide will help you understand if a physician mortgage loan, or doctor loan, is the right type of loan when you purchase your home. By the end, you will learn:
The medical field offers a relatively stable and steady career path — the number of employed doctors is expected to increase by 15 percent between now and 2026, according to the Bureau of Labor Statistics, and the median pay is more than $200,000.
But the initial amount of debt a student doctor takes on can get in the way of other plans, like applying for a mortgage and buying a home.
To help new doctors who might have lower credit scores, or who might seem like a more significant credit risk because of their med school loans, several banks offer physician mortgage loans.
If you’re a recent med school grad who’s hoping to buy a home soon, learn more about doctor mortgages in Pennsylvania and see if they are an option for you.
What is a Physician Mortgage Loan?
In a simple word, a physician mortgage loan is an exclusive type of low down-payment home financing designed to meet the unique financial needs of physicians, dentists, and other eligible medical professionals.
Also known as physician loans and doctor home loans, they are often considered jumbo mortgages because they allow higher loan balances than conventional and FHA loans.
Physician mortgage loans do not require private mortgage insurance (PMI) and are more accommodating of borrowers with high student loan debt and minimal income history.
You can qualify for a physician mortgage if you are a medical resident or a licensed medical doctor. You can also qualify if you are a doctor of optometry, osteopathy, ophthalmology, podiatry, dental medicine or dental science.
How to Get a Physician Mortgage Loan
Here are a few steps to take as you seek out mortgage financing:
- Know your credit score. Before you begin the process, know your credit score. The higher your score, the better the terms you can obtain. Knowing this information will make it easier to compare the rates and terms of several lenders.
- Seek referrals. Like most medical professionals, your practice relies heavily on referrals. When people are making an important decision such as choosing a doctor, they ask people they trust.
- The same goes for mortgage lenders. A good place to start is by asking your medical colleagues who have recently purchased a home. Your real estate agent should also know the top mortgage lenders in your area. Family and friends can also be a good source.
- Investigate your options. Talk to your mortgage lender or broker about different options. Even if you have substandard credit, are just starting your practice, and have a mountain of student debt, you may have several mortgage options. Look for lenders who can offer a variety of mortgage options.
- Research and compare companies and rates. An Internet search of mortgage companies can help you compare lender rates. Find which lenders have the most favorable loan provisions and even read reviews of other borrowers.
- 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. A mortgage broker works with several lenders and finds the best deals. They also negotiate lower rates for their clients.
Who is Eligible for a Physician Mortgage Loan?
The answer depends on the lender. One thing to keep in mind is that not all lenders operate in all states. Depending on where you live, you may only have a few options.
Lenders may also limit their loans based on:
- Your area of practice. Lenders specify the medical designations that qualify for their physician loan program. For example, a lender may make its physician loan available to MDs, DOs, DDSs, DMDs, ODs, DPMs, and DVMs.
- Your experience. Some lenders will not lend to residents. On the flip side, others will not offer a special physician loan if you’ve been practicing at least 10 years.
- Your credit score. A few lenders stipulate a minimum credit score to qualify for a physician loan.
Qualifying for a Physician Mortgage Loan
Although lenders make so many allowances for physicians, you still need a credit score of 700 or more to obtain a doctor mortgage loan. Borrowers with scores higher than 750, will pay the least amount in interest.
With those scores, you can qualify for the lowest PMI rates for non-doctor loans also.
Check your credit report for any lapses, such as missed payments or debts gone to collection, and try to clean up your credit to get the best terms and interest rates. If your credit score is below 700, wait until it is higher to apply for a loan.
The DTI ratio also matters because debt utilization is a very significant aspect of credit score calculation. Student loans aren’t considered.
However, issues like a high credit card balance or an outstanding car loan won’t be overlooked, even if your salary is high.
If you’re self-employed, the conditions will be slightly different. You have to present proof of income for two years and a consistent or increasing income. You should also have a strong credit profile and a low DTI ratio.
What to Consider Before Applying for Any Mortgage Loan
Before applying for any Mortgage loan, there are 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 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.
So now that I’ve explained why physician mortgages are different and why they appeal to many young docs, it’s time to take a look at mortgage expenses.
Many people focus on the monthly payments when considering buying a home, but there are several costs that make up your total mortgage expenses:
- Interest – The cost of interest is based on the interest rate, loan balance, and loan repayment term
- Closing costs – A one-time, out-of-pocket expense paid at closing, wrapped into the loan balance or wrapped into the loan in the form of a higher interest rate
- PMI – The monthly fee typically paid until reaching 20% equity
The first thing you need to know about physician mortgage loans is that many lenders are willing to lower their fees, especially when they know it’s competitive. On many occasions, our clients get offered discounts once the lenders realize they’re talking to multiple lenders. If you want to get the best deal, make sure it’s clear to the lender that you’re talking with multiple competitors and it’s not a sure shot for them.
Rates and Costs – An Example
Let’s assume you’re a physician considering a $500,000 home. You have fantastic credit but no cash for a down payment.
What are your options for 0% down payment mortgages with no PMI? Here are the most popular with some example rates. These are not actual rates and are examples only:
- Physician Mortgage Loans: 30 yr fixed rate – 4.75%
- Physician Mortgage Loans: 7/1 ARM – 3.75%
- Conventional 80/20:
– First mortgage (80%) – 30 yr fixed – 4.25%
– Second mortgage (20%) – Interest-only HELOC (prime + .5%)
- VA Mortgage (must be military): 30 yr fixed rate – 4.25%
Who Offers Physician Mortgage Loans?
There’s a growing list of lenders offering physician mortgage loans, some of them are:
Lastly, 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.
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