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 exciting to think about building your dream life: owning a home, settling down, and starting a career you’ve worked very hard for.
While owning a home early in your career, with little saved up, seems like a far-fetched concept, it may be more attainable than you think. Physician loans are designed with the chronology of a medical career in mind – so, buying a house during residency might be a sensible next step in your financial journey.
Physician mortgages make homeownership more accessible for resident physicians earlier than conventional mortgage loans. 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 loan is a mortgage tailored to fit the financing needs of resident physicians. 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.
Physician Loan vs. Conventional Loan
A physician mortgage is similar to a traditional mortgage loan but there are a few key differentiators: the debt-to-income ratio is more flexible, no down payment is necessary to purchase the home, 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?
The southeast is home to some of the top medical schools in the country. SouthState is proud to offer physician loans to medical professionals across our six-state footprint. 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 today.
