The journey to being a physician is a long and arduous one that feels like it takes too long to reach the finish line. However, when you’re eventually at the finish line or about to start your residency, you face the dilemma of making important life decisions, such as where to live when you move to your medical residency location.
Yes, there are available options for renting or sharing an apartment, but most new physicians don’t know that they can buy their own home because there are particular loan programs available to doctors called Physician Mortgage.
The physician mortgage, popularly known as Doctor Loan, is tailored for medical professionals and rarely requires a down payment or paying private mortgage insurance (PMI).
A qualified physician, either working as a medical resident, fellow, attending physician, dentist, podiatrist, optometrist, or veterinarian, is eligible for a doctor loan. Although you need to provide your proof of education or degree certificate.
The physician mortgage usually helps protect a doctor as they need a few years to have a good credit score because of the enormous student loans they have to pay back with interest, and getting a conventional mortgage from a bank will not yield positive results with their current credit score. Here are things you should note with physician mortgages.
Zero Down Payment
When you apply for a physician mortgage loan, you’re immune from making a down payment, or in exceptional cases, it is reduced or capped at a certain percentage. Whereas, when you apply for a conventional mortgage, the least down payment expected from you is 20% of the total purchase for the proposed home. It helps to avoid having to pay PMI.
The PMI is a way to protect your lender from a tremendous loss when you abruptly stop making payment on a loan, especially when you pay less than a 20% down payment. They usually set it at 0.5–1% of your annual loan amount. However, physician mortgages don’t honor any down payment or PMI.
No Loan Limits
Mortgage loans are usually capped at $548,250 for all areas or set at $822,375 in high-cost areas, but a physician mortgage doesn’t have a borrowing cap and provides more flexibility. That means you have access to about a million dollars to buy a new home. That’s why with the folks at physicianbanks.com, you could get higher loans up to $2 million. Having access to that whopping sum of money can be pretty tempting, but you should remember that your student loans won’t pay for themselves, so that should make you cautious.
Because adding another huge loan can further affect your credit score, especially when you need to buy a car or other assets.
Lesser DTI Ratios
When you’re taking a conventional mortgage, a DTI ratio at or below 50% is the standard markup used because a financier wants to be confident that you’re not biting more than you can chew and won’t default on a monthly payment.
But, a physician mortgage has a flexible DTI ratio because it is common knowledge that you have outstanding medical school debts totaling thousands of dollars. That is including car loans, credit card debts, and other expenses, which is why it is 45% or less.
Choice of Primary Residence
The loans you access through physician mortgages can only refinance or buy a primary residence; this means that you have to live in that house for the better part of the year. Also, you can’t use the physician’s mortgage to finance a condo. Every lender kicks against it because they see it as a poor investment for the physician and everyone involved in the deal.
Not to forget, financiers vehemently kick against using the loan to pay for investment property or finance a second home.
When you get a physician mortgage package, you have a deal that puts you in debt, especially when paying your interest. Though financiers will tell you that the physician mortgage interest rate is at par with a conventional mortgage, most doctor loans don’t offer a fixed interest rate.
A physician’s mortgage doesn’t allow you to make a down payment or PMI. So note the policy on the interest rate as your annual repayment plan includes paying a principal, the interest, taxes, and insurance as HOA fees, provided it is active in your home location area. Most of the items mentioned in the repayment plan don’t have a fixed rate, except HOA fees.
As a physician about to begin your career or already at it, you have a huge earning potential. So figuring out how a physician mortgage fits into your career plan is a tremendous step that you need to decide on whether you have the correct information about the loan option and what it entails.