Lending for Doctors: What Is a Physician Loan?

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What Is A Physician Loan

Did you know that, according to Fortunly, the percentage of US homeowners with mortgages is 63%—and that the annual number of homes sold in the US is on average more than 6 million? If you want to become one of these Americans who has a home they’re paying off with a loan, then you’re in good company.

If you’re also a physician, then you’re probably interested in getting a physician loan. You might be asking yourself questions such as:

“What is a physician loan?” “Do doctors get better mortgage rates?” “If there are physician loans out there, then what are the best physician mortgage loans?”

You might find yourself feeling confused about whether you want a physician loan or a conventional one. You might also feel frustrated, considering what a big financial choice this is. That’s why we’ve put together this guide.

Once you know what a physician loan is and how it works, you can decide what type of loan works for you—and finally buy that dream house you’ve always wanted. Read on to learn more.

What Is a Physician Loan?

If you’re asking yourself the question, “What is a physician home loan?” we’ll answer it in this section. Basically, a doctor loan is designed to make the process of getting a home loan easier for you. Usually, you’ll be paying a lower mortgage amount than people who aren’t doctors.

Additionally, you won’t have to pay mortgage insurance. You might not even have to pay a downpayment—and if you do pay one, it’s likely to be lower than what most homeowners pay. Also, when you receive one of these loans, your lender takes your medical career’s chronology and your med school debts into consideration.

In addition to being available to doctors, physician loans can also be available to dentists, depending on the loan program.

Do You Qualify?

If you’re interested in getting a physician mortgage loan, then it’s important to understand who qualifies for physician mortgage loans. Generally speaking, these loans are available to doctors who have D.O or M.D. degrees. Depending on the physician mortgage loan program, doctors who have D.P.M degrees might qualify.

Orthodontists and dentists with D.M.D. or D.D.S degrees might also qualify. You’ll want to look at the different mortgage loan programs to see which ones are most tailored to your degree.

Because it takes a long time for you to become a doctor or dentist, lenders that work with these mortgage programs take that time into consideration. This means that the amount of time you have left to complete your degree and training has an impact on the loan itself.

For this reason, if you’re far in your career—for example, if you’re an attending physician—then the amount of your loan can be higher, making it possible for you to buy a pricier home. However, if you’re early on in your career, this amount will be lower.

So, if you’re a fellow, resident, or intern, you can still be eligible but won’t have as many choices. For this reason, you may consider waiting to get a physician loan. That said, there are still many benefits you’ll get out of getting a physician loan vs. a conventional loan.

Limits on the Loans

There are some limits on the medical professional loans themselves. These loans can only be used for a primary residence, whether you’re buying a new one or refinancing the one you already have. If you want to buy a vacation or second home, you can’t use a physician loan.

However, if you plan on buying a multi-unit property so you can make money as a landlord, you can get a physician loan if you’re living in one of these units, using it as your primary residence.

How Physician Loans Work

If you’re asking yourself the question, “How do physician loans work?” we’ll answer this question in this section. To a large extent, to understand how a physician loan works, it’s useful to compare it to a conventional loan. So, if you’re asking, “Is a physician loan a conventional loan?” you’ll discover from what we cover here that it is different in some ways.

Generally speaking, the big differences are that, with a doctor loan, residency contracts count as verification of employment, flexibility with your debt-to-income ratio, and PMI not being required. Let’s review these in detail now.

Proof of Income and Employment Verification

When you’re getting a conventional loan, you’re required by your lender to provide proof that you’re employed and earning income from your job. Usually, the promise of a job isn’t enough to get the loan you need to buy a new home.

With a physician loan, the situation is different. This is because lenders understand that, while you might still be in school or training now, you will eventually have a job where you’re earning a large amount of money.

So, instead of having to demonstrate that you have a job and an income, a lender that gives physician loans will be happy to take your employment contract before you’ve started your residency as evidence that you have the finances needed to pay off your loan.

Additionally, if you have been working for yourself for two years as an independent contractor or under self-employment, this can count as employment in the eyes of a lender giving a physician loan.

Debt-To-Income Ratio

When a lender is considering a borrower for a conventional loan, they look at the debt-to-income ratio. In simple terms, this is the percentage of your monthly income that would be used for paying off your mortgage payments.

Generally speaking, lenders aren’t interested in someone whose debt-to-income ratio is high. After all, this can be a risk to lenders, since the borrower may end up being late with mortgage payments or defaulting on their loan.

If doctors didn’t have physician loans available to them, then lenders preferring lower debt-to-income ratios, or DTIs, wouldn’t usually give loans to doctors who are still working on their career. After all, if you’re in your residency or internship, you aren’t making much money. This would mean that your DTI would be quite high.

With a physician loan, however, your DTI is calculated differently than with a traditional loan. Many of the lenders in these programs will not count your med school debt when coming up with the final figure. This is often the case if your debt is in forbearance or deferred. By reducing the DTI this way, it’s easier for you to get a loan.

Private Mortgage Insurance Not Required

If you’re applying for a conventional loan, then you’re usually required to get private mortgage insurance (PMI) for any loan that has a lower than 20% down payment. However, when you’re applying for a physician loan, you aren’t required to get PMI. This is the case even if the down payment is less than 20%.

This is because lenders understand that your money might be tight, depending on where you are in your medical career. By not making PMI required—which would drive your monthly costs up—they make it possible for you to get a mortgage while also affording everything else you need.

Whether you’re looking at Fairway physician loans or another loan provided by a different lender, getting a physician loan will help you make ends meet while becoming a doctor.

Advantages

In addition to the advantages that come with the physician loan as compared to a conventional loan, there are additional advantages to getting this type of loan. These advantages include that it’s easier for you to qualify if you have debt and that you can buy a home sooner. Let’s review these in detail.

It’s Easier to Qualify, No Matter What Your Debt Is

Given that you might have high student loans from attending medical school, you might be worried about being able to get a loan. However, when you’re applying for a doctor loan, lenders are more open to you having debt from medical school. As long as you plan on paying your debt later when you’re making money as a doctor, this shouldn’t be an issue.

This is because of the DTI flexibility mentioned earlier in this article. Lenders understand that your situation is different than that of people in most careers, and for this reason, are more flexible.

You Can Get a Home Sooner

If you’re training to be a doctor, then you understand the importance of being patient. After all, you have to spend years working on your career before you start seeing your own patients. When you’re applying for a physician loan, lenders are aware of the fact that things take a long time in your industry.

That’s why they make it easier for you to get a home sooner. Even if you don’t have a job yet, they’ll give you a loan a few months before you start working. As long as you have a work contract available, you can get your loan sooner, which means you’ll get your home sooner.

Keep in mind, however, that some work contracts will be seen as more reliable than others. For this reason, when you apply for your doctor loan, we recommend you submit your work contract as early as possible. That way, you can avoid any unpleasant surprises.

Disadvantages

Even though there are many advantages to getting a physician loan, there are some disadvantages. These are that you might rush into the decision too quickly, or that you might have issues later on with your payments. Let’s review these in detail so you’re aware of the risks.

Making the Decision Too Fast

Because physician mortgage loans offer so many benefits, it can be easy to see this as a great opportunity to buy a home. And while it is, you may be rushing into the decision. Especially if you’re taking on a new job without having visited the city or town where you’ll be based, you may end up buying a home with your work contract only to regret it later.

To avoid this problem, think about your decision carefully. Research the area where you’ll buy a home. You can always take your time by waiting a year to get a loan.

Financial Problems

Because a doctor loan seems like such a great deal, you might not be aware of its long-term financial impact on your life. In addition to the mortgage payments, you should also think about other costs such as closing costs. When you finally start paying off your medical school debt, you’ll also be paying this on top of your mortgage payments.

To avoid this problem, we recommend you budget carefully. Consider not only the money you’re making now but also future earnings and expenditures. You will also want to calculate mortgage payments.

Do You Need More Information?

Do you need more information, now that you know what a physician loan is and how it works? Maybe you want to figure out what loan amount is best for you to apply for, or you’re looking for the perfect home to return to after you’ve been working at your office or at the hospital.

Whatever you need to know, we’re here to give you the answers you need. At Fairway Independent Mortgage Corporation, we’re experts when it comes to mortgages and loans. To learn more about how we can help you, contact us here.