As a physician, dentist, or other licensed healthcare professional, buying a home can be a challenge despite being a high-income prospect. A high debt-to-income ratio due to school loans often becomes a roadblock when it comes to obtaining a home mortgage. For this reason, many lenders offer physician mortgage loans that often have fewer qualification requirements, making it easier to secure your home mortgage. But what exactly is a physician mortgage and do doctors get better mortgage rates? Here we take a closer look at this specific financing option and whether or not it is the best choice for you.
Physician mortgage: overview
A physician mortgage is a specific mortgage program offered by lenders that are designed to help high-income clients, such as doctors and dentists, obtain a home mortgage despite challenges that may make obtaining a conventional mortgage difficult. In addition, some lenders offer physician mortgages to other licensed professionals, such as attorneys and accountants. In many cases, these professionals have large school loan debt which contributes to a high debt-to-income ratio, making conventional loans seem out of reach.
Physician mortgages work in the same manner as conventional mortgages. However, the qualifications take into account their unique circumstances. In many cases, physician mortgages offer no down payment, require no private home insurance (PMI), ignore student debt when determining the debt-to-income ratio, and allow for qualification based on contractual income even before you actually start working.
1. Qualification requirements vary by lender
For most physician mortgage loans, the standard requirement is that you are a licensed physician, dentist, or other healthcare professional and that you can show proof of income and employment. Aside from those basic requirements, other qualifications will vary by lender, and not all physician mortgages are created equal. Some may require a down payment while others will not. Some physician mortgages may require you have a specific amount of money in reserve or savings, while others will not.
In addition, when choosing a physician mortgage lender, it is a good idea to go over all of the fine print. Because these are specialized mortgages, there can often be unusual loan requirements, such as maintaining a certain level of malpractice insurance, to qualify and maintain the mortgage. It is a good idea to compare lenders when looking for a physician mortgage and not be afraid to ask specific questions about the requirements.
2. You may or may not need a cosigner
In many cases, physician mortgage loans do not require a cosigner. However, some lenders will require one in cases where you have poor credit or do not have a long employment history. In this case, the cosigner is responsible for your loan balance should you default.
3. You can borrow more than the purchase price
With a physician mortgage, you are often able to finance more than the purchase price of the home for things like repairs or renovation. This allows you to finance 100 percent of the purchase plus additional funding for any necessary repairs, often with no down payment required.
4. Higher interest rates are possible
To offer these higher-risk loans, many lenders make up the risk by charging higher interest rates, often at an adjustable rate, meaning it can go up or down throughout the life of the loan. Many different qualifying factors can affect your interest rate with a physician mortgage, including employment history, credit score, fixed-rate or adjustable-rate loans, debt-to-income ratio, any down payment, and available savings.
5. Some physician mortgages come with prepayment penalties
In some cases, physician mortgages will come with a prepayment penalty, meaning that if you decided to pay off the loan early, you will be charged a fee. Lenders often include this as a way to keep interest rates lower. However, if you plan to pay the mortgage off early, then it is recommended to look for a physician mortgage that does not have a prepayment penalty. Keep in mind that this often means you may have a higher interest rate.
6. You must maintain good credit
To qualify for a physician mortgage, many lenders require a higher credit score of at least 700, however, some lenders will approve loans below that threshold with a higher interest rate. You must maintain a good credit score, especially if you plan to refinance your loan down the road.
7. You can qualify for physicians’ mortgages with student loans
When it comes to considering student loans for a physician mortgage, lenders calculate them a bit differently. Instead of considering the full student loan payment in your debt-to-income ratio (DTI), they instead calculate the student loans through an income-driven repayment plan. This reduced amount reduces your DTI and increases your chance of loan qualification.
8. Loan refinancing is possible
If your physician mortgage does not have a prepayment penalty, refinancing after a few years allows you to take advantage of a physician mortgage while you build credit, grow your employment history, and reduce your debt-to-income ratio. While doing this, you are also gaining value in the home and will be in a better position to qualify for a conventional mortgage with a lower interest rate.
Navigating physicians mortgages
Buying your first home can be an exciting process, but it can also seem difficult to navigate, especially in the world of home mortgages. Finding the right physician mortgage can take time as you compare different lenders and loan options. While these loans offer many benefits, they can have drawbacks and it is important that you choose a loan that works for you. At Hero Home Programs, we understand the huge milestone purchasing your first home can be and we are here to help you navigate the home buying process. Our Home Loans for Healthcare Workers can help you find the right physician mortgage to meet your needs and help you get the keys to your dream home. To learn more, schedule a consultation with us today.