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A physician or doctor loan is designed to help healthcare professionals navigate an easier path to securing a mortgage, avoiding conventional and jumbo mortgage guidelines.
Some of the many benefits of a physician loan include no private mortgage insurance (PMI), little to no down payment, larger loan amounts, student loan debt is often omitted, lower interest rates, relaxed underwriting guidelines, and the ability to purchase before you start your job. With a job contract, most lenders allow loans 60-120 days before the start date.
Physicians with high credit scores have a shallow risk of default on residential mortgages even with higher debt, higher ratios, limited assets, and/or purchase a home with little to no money down. Because of this, lenders can offer many advantages with a physician loan versus a conventional mortgage, first and foremost being the ability to purchase a home earlier. With a physician loan, there is usually a smaller down payment, no private mortgage insurance (PMI), flexibility around job start dates, and the benefit of negating student debt from your debt-to-income ratio (DTI).
Private mortgage insurance (PMI) protects your lender in case you stop making payments on a loan. You are often required to have PMI with a conventional loan where you put a down payment of 20% or less when buying your home. The cost for PMI is based on insurance rates, but PMI typically comes in at 0.5% – 1% of your loan amount per year. That could really add up on those monthly payments! With a physician loan, lenders don’t require the PMI, even without a down payment, because of the job security and understanding of your unique circumstances. Talk about a huge benefit to securing a physician loan!
DTI, or debt-to-income ratio, basically calculates how much money you owe versus how much income you earn. Simply add up all your debts, and divide that by your income. When applying for a conventional loan, lenders require your DTI to be lower than 50% to ensure you can handle those monthly mortgage payments. The higher your DTI, the riskier you are to the lender. Because medical professionals such as doctors or residents often have so much debt from school, physician loans waive these requirements. Although lenders will still look at various debts, educational expenses are expected and do not count against you.
All physician loan programs are available to doctors to Doctors of Osteopathic Medicine (D.O.) and Doctors of Medicine (M.D.). In addition, many lenders include opportunities to Doctors of Dental Surgery (D.D.S), Doctors of Medicine in Dentistry (D.M.D), and Doctors of Podiatric Medicine (D.P.M). Because lenders understand the unique nature of medical professionals working in fellowships, internships, or residency, physician loan benefits include the ability to show an upcoming employment contract to confirm pending income instead of a current job.
Physician loans can only be used to buy or refinance a primary residence, so you must live at home most of the year. Often lenders won’t approve loans for second residences or investment properties.