6 Benefits of Physician Mortgage Loans After Residency

Physician mortgage loans, also known as doctor loans, offer several benefits for physicians who have recently completed their training as a resident or fellow. Below are the some of the key advantages of physician mortgage loans:

No Private Mortgage Insurance (PMI)

Physician loans provide exclusive benefits for medical professionals, including the absence of a requirement for private mortgage insurance (PMI). PMI is typically required for conventional loans when the down payment is less than 20% of the home’s value. However, physician mortgage loans waive the PMI requirement, regardless of the down payment amount.

Not having to pay for PMI can result in significant savings for physicians. PMI fees add hundreds of dollars to the monthly mortgage payment, but with physician loans, doctors can avoid this additional expense. The money saved from not having to pay for PMI can be used for other financial obligations, such as medical school loans or other expenses related to their profession.

Physician mortgage loans recognize that doctors are low-risk borrowers, despite their high debt levels. These loans are designed to accommodate the unique financial circumstances of physicians, including their potential to have high incomes but limited savings due to student loan debt. By eliminating the PMI requirement, physicians can enjoy lower monthly mortgage payments and have more flexibility in managing their finances.

This feature allows doctors to become homeowners without the burden of additional monthly expenses associated with PMI, making homeownership more accessible and affordable for medical professionals.

Flexible debt-to-income ratio (DTI):

Physicians often graduate with substantial student loan debt, which can result in a high DTI ratio. Some physician loan programs do not count medical school debt towards the DTI if the payments are deferred or in forbearance for a certain period. This flexibility makes it easier for physicians to qualify for a mortgage despite their student loan obligations.

The debt-to-income ratio (DTI) is a critical factor in determining an individual’s eligibility for a loan, credit card, or line of credit, as well as the interest rate they may receive. It compares a person’s monthly debts to their gross monthly income and helps lenders assess their ability to repay the borrowed funds.

To calculate the DTI ratio, one must divide the total monthly debt payments by the gross monthly income.

For example, if a person’s monthly debt payments amount to $2,300 and their gross monthly income is $7,000, the DTI ratio would be calculated as follows: $2,300 / $7,000 = 0.328, or approximately 33%. Lenders have different thresholds for what they consider to be a good DTI ratio.

The Consumer Financial Protection Bureau advises homeowners to maintain a DTI ratio of 36% or less, while renters should aim for a DTI ratio of 15% to 20% or less (excluding rent from the ratio). Mortgage lenders typically prefer to see a DTI ratio of no more than 36%, although this may vary based on the type of mortgage being considered.

Qualified mortgages, which have more stable features and fewer risky elements, generally limit the maximum allowable DTI ratio. Nonqualified mortgages, which do not meet the requirements of qualified mortgages, can be more flexible in terms of DTI ratio but may have other considerations. It’s important to note that some lenders may consider higher DTI ratios under specific circumstances. For example, a borrower with a high DTI ratio may still be eligible for a mortgage if they have significant cash reserves or meet certain credit score and reserve requirements.

Acceptance of residency contracts as proof of employment:

Unlike traditional mortgages, physician mortgage loans may accept residency contracts as verification of employment. This is beneficial for physicians who are about to start their residency and need financing for a home. Acceptance of residency contracts as proof of employment is a significant advantage of physician mortgage loans.

Residency contracts are an essential part of a physician’s career progression. These contracts outline the terms and conditions of their residency program, including the duration, salary, and responsibilities. Since physicians in residency have a guaranteed source of income, some lenders who offer physician mortgage loans accept these contracts as proof of employment.

Accepting residency contracts as proof of employment is beneficial for physicians who are transitioning from medical school to residency. It allows them to secure financing for a home without having a traditional employment history or a significant income track record.

By considering residency contracts, lenders recognize the unique circumstances of physicians in training and provide them with the opportunity to become homeowners early in their careers. It allows them to establish a stable living arrangement and focus on their residency program without the added stress of finding alternative housing options or struggling with the limitations of a traditional mortgage qualification process.

Higher loan amounts:

One of the notable advantages of physician loan programs is that they often offer higher maximum loan amounts for attending physicians compared to interns, residents, and fellows. This feature allows physicians to borrow more money for purchasing a home and accommodates their higher income potential as they progress in their medical careers.

Physician loan programs recognize that the financial circumstances of attending physicians differ from those in earlier stages of their medical training. Attending physicians typically have higher earning potential and a more established financial profile. Therefore, these loan programs offer higher maximum loan amounts to accommodate their increased income and borrowing capacity.

By offering higher loan amounts, physician loan programs enable attending physicians to access the necessary funds to purchase a home that aligns with their financial goals and requirements. This can be particularly beneficial for physicians who may have specific housing needs or wish to invest in properties that suit their long-term plans.

The higher loan amounts available through physician loan programs can provide attending physicians with greater flexibility and options when it comes to buying a home. They can choose properties that meet their desired criteria, whether it’s a larger home, a property in a desirable location, or one that aligns with their lifestyle and future plans.

It’s important to note that the specific maximum loan amounts offered by physician loan programs may vary depending on the lender and individual borrower qualifications. Therefore, it’s advisable for physicians to explore different lenders and loan options to find the program that best suits their needs and financial goals.

Higher loan limits:

Physician mortgage loans are designed to provide doctors and medical professionals with more flexibility when it comes to purchasing homes, including higher loan limits. These loans often have loan limits that exceed $1MM or even higher, depending on the lender.

The higher loan limits offered by physician mortgage loans allow physicians to purchase more expensive homes without requiring a significant down payment. In many cases, these loans offer up to 100 percent financing, meaning physicians can secure a mortgage without making a down payment. This is particularly beneficial for doctors who may have limited savings due to high levels of student loan debt accumulated during their medical education.

Physician loan lenders understand the financial circumstances of doctors, including their potential to have high incomes but also substantial student loan debt. By providing higher loan limits, these lenders enable physicians to buy homes that align with their desired lifestyle and professional status.

The specific loan-size limits for physician mortgage loans can vary based on the lender and the financing structure. For example, a 100-percent financed loan might have a capped loan size at $MM, while a 90-percent financed loan could allow for a loan size of up to $2MM. These variations depend on the specific terms and conditions set by each lender.

Having higher loan limits means physicians have more options when it comes to choosing a home, especially in areas with higher property values. They can select a home that meets their needs and aspirations without being limited by strict loan size restrictions. By providing greater flexibility in loan sizes, physician mortgage loans enable doctors to find homes that align with their professional and personal goals.

No or low down payment requirement: 

Physician mortgage loans offer a significant advantage to doctors and medical professionals by providing the option for no or low down payment requirements. This feature is particularly beneficial for physicians who may not have accumulated substantial savings after completing their medical training, considering the high cost of medical education and the burden of student loan debt. 

With physician mortgage loans, doctors can secure financing for their home purchase without having to make a traditional down payment. Some lenders offer 100% financing, meaning physicians can borrow the full purchase price of the home without requiring any upfront payment. This is a significant advantage, as it allows doctors to become homeowners earlier in their careers and avoid the need to wait until they have saved a substantial down payment. 

By eliminating the down payment requirement, physician mortgage loans make it easier for doctors to achieve their homeownership goals and establish a stable living situation. 

Summary

Physician mortgage loans recognize the unique financial circumstances of doctors, including their potential to have high incomes but limited savings due to student loan debt. These loans provide doctors with the opportunity to secure a mortgage without a significant upfront financial burden, enabling them to focus on their medical careers and establish a stable home for themselves and their families.

It’s important to note that while physician mortgage loans provide numerous advantages, it’s essential for physicians to evaluate their individual financial situations and compare loan options from different lenders to ensure they make an informed decision. To check your physician mortgage loan options and get connected with a lender, start here.