You’ve graduated medical school and are well on your way to becoming a medical professional.
The only thing left in your transition from student-doctor to practicing physician is your residency training. It’s exhilarating to think about building your dream life: owning a home, settling down, and starting a career you’ve worked very hard for. Owning a home early in your career, with little saved up, is not as far-fetched as you may think. In fact, there are mortgage loans specifically designed with the chronology of a medical career in mind. This type of loan is called a physician loan, and they were created to make homeownership accessible for doctors earlier than conventional mortgage loans.
With the help of SouthState mortgage banker, John Chandler, we’ve put together a quick overview on physician loans: what they are, how they differ from other loans, and who can qualify for one.
What is a physician loan?
A physician’s loan is a mortgage loan tailored to fit the needs of doctors. These loans allow qualified physicians to purchase a home with no down payment, lower closing costs, and no private mortgage insurance (PMI), which is typically required when a down payment is less than 20%. Additionally, the debt-to-income ratio is more flexible with physician loans than traditional mortgages.
Although many financial institutions offer physician loans, the loan program might vary between lenders. Some lenders might offer 100% financing with a fixed rate, while others might only offer adjustable-rate-mortgages (ARMs) and only finance a portion of the loan. However, one circumstance that remains consistent is that lenders are making decisions based off your earning potential – making physician’s loans a great lending option for recent graduates and student-doctors in residency.
How do physician loans differ from other loans?
Physician loans are similar to traditional mortgage loans, but they have a few key differentiators: the debt-to-income ratio is more flexible, there is no down payment and private mortgage insurance is not required.
Flexible DTI ratio requirements
Usually, to qualify for a conventional mortgage, you’re required to prove your debt-to-income (DTI) ratio is 43% or lower. Financial institutions require this to avoid the risk of lending money without repayment. Most medical students accumulate student debt, making a DTI of 43% or less unrealistic early in their career. However, physician loans are designed to combat scenarios like this. While any existing auto loans and credit card debt will still be examined, physician loans ensure medical school debt does not prevent someone from qualifying for a mortgage.
No down payment
A down payment is arguably the biggest obstacle standing between consumers and homeownership. With down payments typically ranging from 3% – 20%, it’s easy to see how it could take a buyer years to save. Being able to buy a home without a large down payment is a major advantage to a physician loan.
No Private Mortgage Insurance
Private mortgage insurance (PMI) is a special type of insurance you’re typically required to pay until you’ve reached 20% equity in your home, either by a hefty down payment or through regular monthly payments. Since physician’s loans do not require borrowers to pay mortgage insurance, they can save a buyer hundreds of dollars a month to help pay down other high-interest debt.
Who qualifies for a physician loan?
Medical Doctors (MD) and Doctor of Osteopathic Medicine (DO), including those currently in residency, are candidates for all physician loan programs. Other doctors like Dentists, Orthodontists, and Veterinarians may also qualify in some physician loan programs, but their eligibility varies by lender.
Compare Your Options
While physician loans are certainly a great option for doctors to consider, there are plenty of options out there and it’s worth taking the time to explore each one. Talking with a SouthState mortgage banker and weighing out all of your options will ensure you get the best loan for your unique needs. If it’s your first home, a banker can also help you understand how mortgages work
and talk to you about down payment strategies. Contact an experienced mortgage banker
or step into one of our convenient locations