Physicians coming out of medical school and residency are in a unique situation financially. They aren’t making much money yet, they’re usually saddled with a ton of debt, and they have very high earning potential. Normally, it would be challenging for them to secure a mortgage loan because of their current debt-to-income ratio.
That’s where the physician mortgage loan comes in.
Physician Mortgage Loan – The Basics
Doctors, dentists and other qualifying medical professionals are eligible for physician mortgage loans. Depending on the bank you choose, there can be a fairly broad range of eligible professionals, including optometrists, veterinarians and podiatrists.
How are these loans different from regular home loans? For starters, a physician mortgage loan does not require much money down. It’s typically 10% or less, and does not require private mortgage insurance.
Another hurdle for most homebuyers is that they have to show proof of their income. A doctor fresh out of medical school won’t have that proof. Instead, they can offer a contract to show what they will be earning.
Here are some other characteristics of a physician mortgage loan:
- They are typically capped at $750,000-$1 million depending on the bank. This will vary by company and location.
- Can be fixed-rate or adjustable-rate mortgages
- Jumbo loans, which are above $417,000 in most parts of the country (you can check your area here) have the same rates as non-jumbo loans
Only certain banks offer physician mortgage loans. You will need to do some shopping around to see which will suit your needs best. Some of these include Fifth Third Bank, Bank of America and Regions Bank. Additionally, each bank will have their own set of qualifications for this type of loan.
Should You Get a Physician Mortgage Loan?
It’s important to consider the near future when you’re thinking about a physician mortgage loan. If you are a resident or a fellow, there’s a good chance you will be in a different location within the next five years. It might be better to rent if you won’t be in the house for at least five years. That’s because it usually takes five years or more to build enough equity on a home to break even in a sale.
If you’re certain that you want a house, it’s usually better to go with a standard mortgage with 20% down, if you can. That means you’ll have a smaller loan balance, and the rates are typically lower than they are on a physician mortgage loan.
A physician mortgage loan is a fine option if a 20% down payment is not possible to you. Just be aware that it’s probably the more risky choice in the long run.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.