What You Need to Know About Physician Mortgage Loans

Article Note: This is a guest post from LendEDU. The views in this article may or may not reflect the views of Ten Talents Financial Planning, LLC or Kaleb Paddock, CFP®. Please consult with your tax advisor or financial planner before making significant financial decisions. Yes, buying a home is a significant financial decision. 🙂

What You Need to Know About Physician Mortgage Loans

Going to medical school is expensive, so many physicians are left with substantial student loan payments after they graduate. And because doctors have to work through a long residency process with a lower income than their normal salary will eventually be, some doctors have difficulty coming up with down payments to buy the type of home they could easily afford based on their projected earnings.

Lenders have recognized the unique financial situation that doctors find themselves in and, as a result, some lenders offer physician mortgage loans.

Physician home loans have different eligibility requirements than most conventional mortgages. They can be easier for doctors to qualify for because they specifically cater to the needs of physicians.

How Do Physician Mortgage Loans Work?

Physician mortgage loans, also referred to as doctor mortgage loans, can make it possible for you to get into a home more quickly if you’re a doctor and can allow you to get a loan at a better rate and with a better term than you otherwise might be eligible for.

Physician mortgage loans are loans designed specifically to accommodate the unique financial situation of medical professionals. The loans allow you to buy a home even if you have a lot of educational debt.

Why Lenders Offer Physician Mortgage Loans

While other lenders might disqualify you because of your high student loan balance, lenders offering physician mortgage loans recognize that student loans are a part of life for doctors.

Lenders offering physician mortgage loans recognize that doctors are typically low-risk borrowers not just because they make a lot of money but also because there’s always demand for qualified doctors.

Since these mortgage lenders feel physicians present less risk compared with the average homebuyer, lenders can afford to be more generous about which doctors qualify and what is required in terms of down payment and debt-to-income ratio.

Eligibility Requirements for Doctor Mortgage Loans

With physician mortgage loans, student loans may not be counted in your debt-to-income ratio if you have deferred payments, or the lender may have other policies that allow you to qualify despite substantial educational loans.

Many physician mortgage loans also allow for low or no down payments, because new doctors may not have access to a lot of cash when they first leave their residency, but they’ll soon be making more.

However, lenders do still have some qualifying requirements you’ll have to meet to obtain a physician home loan. Typically, for example, you will need all of the following to be able to obtain this type of loan to buy a first home:

  • Proof you have a medical degree and are a licensed physician
  • Proof of current employment or a signed offer of employment showing you’ll be starting work as a doctor within a short time period
  • A credit score of around 700 or higher
  • Limited debt aside from your student loans

Most physician loan lenders do not count your student loans at all when looking at your debt-to-income ratio, or the amount of debt you have relative to your income.

Your DTI is an important metric because conventional lenders won’t give you a loan if your monthly debt payments are more than 43% of your income. Other lenders do consider loan payments but will calculate your DTI based on the amount you pay under an income-driven repayment plan.

Whatever approach mortgage lenders take, the key is that all physician mortgage loan lenders are willing to overlook the fact that doctors have such high student loan balances when deciding whether to grant them financing.

Read full article here: What You Need to Know About Physician Mortgage Loans.

You can learn more about Ten Talents and Kaleb, a financial planner based in Parker, CO, here. Kaleb can be reached at (303) 961-4397 or kaleb@tentalentsfp.com.

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  1. Chris Acker, CLU, ChFC on July 23, 2019 at 1:29 pm

    Doctors definitely have unique financial needs and this mortgage issue is just another example. Remember that income-based repayment plans are typically only offered for federal educational loans so that if a physician refinances with a private lender, they would forfeit that option.

    Thanks for posting this information.

    • Kaleb Paddock on July 23, 2019 at 1:38 pm

      Thanks Chris! Yes, great point about the income-based repayment. Also important to note that not all federal loans qualify for the Public Service Loan Forgiveness (PSLF) route.

      For example, FFEL loans are not eligible for PSLF and you have to consolidate your FFEL loans to Direct Loans, and then they are on the right path for PSLF. A rude surprise awaits those who don’t get these details exposed early.

      Hope you and Carol are having a fun Summer!

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