Mortgages for Physicians

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Heavy student loan debt is often cited as a barrier to homeownership for 25- to 34-year-olds. But many mortgage lenders are eager to extend credit to one category of debt-burdened graduates: those coming out of medical school.

Special mortgage products for physicians are designed to meet the needs of doctors just starting out. New doctors typically have heavy student loan debt and very little money saved, given the modest salaries typically paid to residents. They almost always have a negative net worth when they begin attending.

Eighty-four percent of graduates from medical school this year reported having student loan debt, and the median amount was $180,000, according to the Association of American Medical Colleges.

But at the same time, after long periods of “delayed gratification,” these young doctors are also eager to buy their first home.

Physician home loans make it easier for them to qualify. The down payment is typically 10 percent or less, with no private mortgage insurance required.

Lenders make adjustments to their debt calculations to account for the doctor’s future earning potential. Most physician mortgage lenders would not count the student loan debt if they’re in a residency. They know their income’s going to jump dramatically when they get out.

Once doctors are out of residency, that debt is a factor. But if they enrolled in a federal pay-as-you-earn or income-based repayment program for student loans, which caps monthly payments at 10 to 15 percent of discretionary income, then that lower monthly payment is figured in. Physician loans generally require only an employment contract as proof of income rather than pay stubs, which is helpful for doctors who are relocating for their first job and want to be all moved in before they start.

Physician loans are usually offered with the option of a 30-year fixed rate, or a five- or seven-year adjustable rate.

Citing Sources: [HSH.com, NYTimes.com, and whitecoatinvestor.com]: [June, 15 2016]

Can You Qualify for a Home Loan with Student Loan Debt?

Almost every day, I am asked about student loans. Most of us have it. Most of us have A LOT of it! And most of us have a hard time qualifying for a conventional home loan as a result of it.

According to the most recent number I’ve seen, medical students graduate with an average of $183,000 in student loan debt (Association of American Medical Colleges, 2015). This means that there are many of you who see this number and think, “I wish I only had that amount!”

Depending on what stage you’re at in your career, you might be in one of three phases of debt repayment:

  • Deferment / Forbearance:  Deferment and forbearance are typically considered the same to lenders. Even though you’re not currently paying off these loans, banks know that they will affect you some day. So, they typically take 1% of the full loan amount and add that to your monthly debt burden.
  • Income Based Repayment (IBR):  Banks know that your payments will increase as you get paid more, so they typically still like to use that same 1% amount of your loan in calculating your monthly debt payments.
  • Full Repayment: Simple, they use the exact amount of your payments in calculating your monthly debt payments.

While nearly impossible to qualify for a home loan using conventional metrics, young physicians may be able to qualify with a physician loan provider because of the alternative way such lenders handle repayment of student loans:

  • Deferment / Forbearance: They may not count these loans at all towards your monthly debt payment.
  • Income Based Repayment (IBR): They may use the exact current amount you are paying. This is typically much better than using 1% of the total loan amount.
  • Full Repayment: Same as with a conventional loan, but hopefully your income has increased by this point to safely qualify.

If you’re a physician searching for a home loan, please don’t hesitate to contact me for assistance.

Peter Kim, M.D

Founder & Director

Curbside Real Estate

Email: peter@curbsidere.com

Call: 323-515-9507

 

Have more questions? Want to know more? Visit our FAQ or get your free copy of our eBook, “The Quick Guide to Physician Home Loans.”

Is a Physician Home Loan Right for You?

If you’re a physician who has been unable to qualify for a conventional loan and you answer “yes” to the following three questions, a physician home loan may be right for you:

  1. Do you have a significant amount of student loan debt?
  2. Due to a limited work history and/or being paid on a 1099 (vs. a W-2), do you have less than two years’ worth of tax returns?
  3. Do you have little money saved up for a down payment?

Physician home loans are special portfolio loans* designed to remove some of the common obstacles that incoming and existing residents, fellows and new doctors face when trying to qualify for conventional loan products. Banks which offer physician home loans have realized that physicians make good loan candidates because:

  1. They have an extremely low default rate;
  2. They have high future or current earning power; and,
  3. They typically have jobs that are less affected by swings in the economy.

There are several benefits to physician home loans, including:

  1. Lower down payments (just 5 – 10% of the purchase price)
  2. No PMI (private mortgage insurance)
  3. Competitive rates
  4. Flexible with student loan debt

Not all banks offer physician home loans and each bank’s guidelines are different, so you may not qualify for one but may be just right for another. As an expert in physician home loans, we are here to help you find a loan product that is perfect for you. We have already pre-negotiated exclusive discounts with our network lenders for all our physician clients.

* A portfolio loan is a loan that a lender keeps within their own institution and own investment portfolio. These lenders are therefore able to use more flexible guidelines in qualifying people (such as physicians) for these loans. The vast majority of conventional loans are packaged and sold on a secondary market. Therefore, they have to conform to certain rigid guidelines, particularly those created by Fannie Mae / Freddie Mac, Federal Government institutions.

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Have more questions? Want to know more? Visit our FAQ or get your free copy of our eBook, “The Quick Guide to Physician Home Loans.”