Physician Home Loans – FAQs
What are physician home loans?
Physician home loans are a particular type of mortgage loan available exclusively for doctors when they purchase or refinance a home.
How are physician home loans different from conventional mortgages?
Conventional mortgages are available to all who qualify, but physician home loans are only available to fellows, residents or attending physicians.
A conventional mortgage requires a minimum 20% down. Physician home loans have lower initial down payments, 15%, 10%, 5% and some even with 0% down.
There is frequently a limit on how much money you can receive as a gift and use as part of your down payment using a conventional house loan. Physician loans do not generally limit how many dollars you can accept as a gift when purchasing your home.
Private Mortgage Insurance (PMI)
With a conventional mortgage you would need to pay PMI if you did not have a 20% down payment. Doctor loans have no requirement for PMI, no matter how small the down payment.
There is a slight variation from between banks when it comes to regular mortgages. Dr loans have more variation in the rates. Some are higher and others are lower than a regular mortgage.
Student Loan Debt Calculations
For traditional mortgages, your monthly debt for your student loan will be calculated as 1% of your current loan. A Dr. Loan will calculate your student loan debt burden differently. It depends on the phase of repayment.
Conventional mortgage applications require 2 yrs of your tax returns. Physician home loans are more flexible, taking into account your employment contract details.
Typically you need an absolute minimum of 2 paychecks, but with a physician home loan you can qualify on graduation. Close on the purchase of your home up to 2 months before starting to work with your offer letter or employment contract.
Cash Reserve Requirement
3 to 6 months of payments is typical for a conventional home loan. Some physician home loans have no cash requirement, or they can be very small.
Conventional mortgages must follow Fannie Mae or Freddie Mac federal guidelines. Physician home loans are more flexible and vary much more.
What other names are there for physician home loans?
They are often also called:
Doctor Mortgage Loans
Physician Mortgage Loans
Doctor Home Loans
Why consider Physician Home Loans?
The underwriting standards are more flexible with:
Short work or no history
Student loan debts calculated more leniently
Contract or offer letter before starting work
Also there is:
Low down payment (0 to 15%)
No PMI (Private Mortgage Insurance)
Why would doctors decide not to get Physician Home Loans?
Interest rates could be somewhat higher than conventional loan options. Generally that is what happens with lower down payments.
How can a someone qualify for the Physician Home Loans program?
The basic requirements are:
Be a doctor
Have a job
Have a decent credit score
Is every type of doctor eligible?
A surprising list of medical professionals are eligible.
DMD (Doctor of Dental Medicine)
MD (Doctor of Medicine)
OD (Doctor of Optometry)
DPM (Doctor of Podiatric Medicine)
DO (Doctor of Osteopathic Medicine)
DDS (Doctor of Dental Surgery)
Aside from this list, medical professionals such as veterinarians, physician assistants and pharmacists could qualify.
Do Physician Home Loans apply to residents or fellows?
Is it possible to qualify if I am a veterinarian, pharmacist, dentist or lawyer?
Are lenders solving a specific problem by offering physician home loans?
Lenders are aware that doctors have taken longer than is typical to complete their education and training. As a result, the dr home loan offers medical professionals the opportunity to step into home ownership even though:
You may not have saved much for your down payment.
There is potentially a significant student loan balance.
You may not have a long history of employment, but you do have an employment contract.
Why do lenders offer Physician Home Loans?
It is not just that the lenders are grateful because you are going to spend your career helping people. It is not even that they are being nice because they understand about your long hard years of training. The truth is, you are low risk.
Medical professionals have the lowest default rates on mortgages of anyone in the country.
Doctors have the education and training to be high income earners.
Medical professionals do not tend to have issues with job stability that is created by economic factors.
How is it that lenders are able to consider offering these specialized Loans for Physicians? Does it have to do with Portfolio Loans?
Almost all conventional loans end up packaged and then sold off on the secondary market. That is why they must conform to the rigid underwriting guidelines created by both Fannie Mae and Freddie Mac, which are part of the US Federal Government.
Physician home loans belong to a special category of mortgages. These Portfolio Loans are kept by the lender within the institution and their own corporate investment portfolio. The lenders are able to apply their own guidelines to qualify borrowers. Since medical professionals have such low default rates, the loans remove common financial obstacles for new doctors, residents and fellows.
Can I get a Doctor Loan on any property?
As long as you live in the property, yes. It can be a condo, townhouse, co-op, single family home or even a multifamily dwelling, if you live there.
In some situations, a secondary property for vacation or investment will be approved.
Can I get physician loans anywhere in the country?
Yes. There are some limitations in some areas.
Can I use a doctor loan to refinance my current home?
Yes. The loan limits are similar to other physician home loans, and you could even get cash for the equity in your property.
Private Mortgage Insurance
What is PMI?
With less than a 20% down payment, a borrower will often need to purchase PMI or Private Mortgage Insurance. This insurance protects the lender if there is a default and/or foreclosure. The fees are usually 0.3% – 1.5% of the face value of the loan, every year, paid monthly.
Is there PMI with Physician Loans?
No, there is no PMI added to your monthly mortgage payment. That is one of the ways a doctor loan reduces your monthly payments.
How do doctor home loan qualifications calculate student loans when they are in IBR, Deferment, Forbearance or Full Repayment?
Income Based Repayment (IBR)
With IBR, the lender can use the amount you currently pay monthly. This is usually better than the 1% of the loan total that is typical for conventional mortgages.
In Deferment or Forbearance
When your student loans are in deferment or forbearance, they might not be calculated by the lender at all.
Full repayment works the same way as a conventional mortgage. The hope is that your income is better enough for you to be able to qualify.
Do student loan debts make it difficult to get qualified for mortgages?
It can make it difficult, if you want to be qualified for conventional mortgages. The payments you have been making, or 1 to 2% of the current balance could be used to calculate your debt. This affects your DTI and therefore, your likelihood of securing the mortgage.
Can refinancing a student loan help me to be qualified for Physician home loans?
Maybe. If you refinance your student loans and lower the monthly payment it might make the qualification easier. It depends on the type of repayment you are in. It might not be a good idea to refinance student debt if you want to buy a property right away. Every situation is unique. Before deciding, ask a mortgage specialist at Good to Go Mortgage for advice.
What is Prequalifying?
Prequalifying is a quick, big picture estimate of the terms and rates might be, based on the initial assessment.
- A prequalification is only from a verbal description you give of your financial situation.
- It may or may not even include checking your credit score.
- The results do not guarantee that you will be approved.
- A prequalification will tell you about how much you can borrow so you know what price range to look at when you look at houses.
- Prequalifications for doctor home loans are often done over the phone or online.
- Good to Go Mortgage will provide your prequalification at no charge.
Get a FREE Prequalification for your Doctor Home Loan Today.
What are Pre-Approvals and how are they different from Prequalifications?
Preapprovals are an in-depth analysis of the eligibility to get doctor home loans. This is different from a pequalification because a preapproval will require documentation.
You will first complete an application. The process then continues with:
- Documentation of expenses and your income.
- A credit score is pulled.
- A conditional promise is made for the exact amount of the loan. You can them look at houses in the right price range.
- Your agent, and the sellers of the home you want to buy, will take you seriously.
- The approximate interest rate and monthly payment are calculated for you.
- This is not a commitment to borrow. You are always free to choose until you sign the final paperwork.
What does my credit score have to be for Physician Home Loans?
It varies, depending on the strength of the rest of your application. Some lenders are okay with scores in the high 600s, whereas others need your score to be at least 700.
What if my credit score is lower than that?
You can do things fairly quickly that will improve a credit score. Talk to a representative at Good to go Mortgage to see what options might be available to you.
Closing Costs – The Day You Get Your New Home
What are closing costs?
The end of the process of buying a house is called “closing”. There are costs associated with this process. These are referred to as the “closing costs”. The moment the property title transfers from the seller to you, these costs are payable. The costs vary depending on the type of property, your location, and what type of loan you have.
How much are closing costs?
It depends, but usually it is between 2% and 5% of your property purchase price.
What are included in closing costs?
Any combination of: Application Fees, Appraisals, Escrow Fees, Credit Reports, Flood Determinations, HOA Transfer Fee, Homeowners Insurance, Loan Discount Points, Title Insurance, Origination Fees, Prepaid Interest amounts, Property Taxes, Recording Fee, Property Transfer Tax, and Underwriting Fees.
What does “No Closing Costs” mean?
Usually it means that the fees mentioned above are bundled into your mortgage payments, or you are paying a higher interest rate to cover the costs.
Proof of Employment
What are 1099 forms?
A 1099 is a series of IRS documents completed by Independent contractors.
What are W-2 forms?
Employees receive W-2 forms from their employers to detail their income, for tax purposes.
What is the difference?
The biggest difference is how expenses are handled. It can make a difference to how you qualify for doctor home loans.
Why are conventional lenders asking for 2 years of my tax returns if I have a 1099?
The government mandates that the lenders look at the last 2 years of your taxes because of the way the expenses are handled. The expenses can really affect the next income values, so they average the last 2 years worth of income.
How are Physician Home Loans different when it comes to 1099 income?
Physician home loans are not bound by the Fannie Mae / Freddie Mac strict government guidelines. There is more flexibility with your 1099 income. Qualification is possible without 2 years worth of tax returns.
An employment contract or offer letter is often accepted in lieu, even up to 2 months before you start work.
Contact us at Good to Go Mortgage to answer the questions specific to your situation.