A growing number of banks are creating specialized mortgage loan programs specifically for young doctors. These so-called “doctor’s loans” are offered to new residents and attending physicians whose limited assets, debt, and low income might otherwise prevent them from qualifying for standard mortgages.
Many young doctors share the common dream of homeownership. But in the aftermath of medical school, massive student loan debt and meager residency program salaries are significant barriers to achieving their housing goals.
Banking on young doctors’ future earning potential, the new physician loans typically require little to no money down — usually less than 10% — and don’t force borrowers to purchase additional private mortgage insurance. Many offer the option of a 30-year fixed rate or a five- or seven-year adjustable rate.
Betting on Future Income
Physician loans further appeal to young physicians by adjusting borrowers’ debt calculations. Assuming that new doctors’ income will increase significantly as they advance in their careers, these special mortgages generally exclude student loans from participants’ debt-to-income ratios.
Unlike typical mortgage loans that require borrowers to provide current proof of income, most physician lenders allow doctors to show evidence of their projected earnings. Instead of requiring income verification like pay stubs, which new residents are unlikely to have, some brokers will accept employment contracts as proof of expected income.
Fifth Third Bank, one of the growing number of MD mortgage providers, offers flexible income guidelines tailored to the needs of young physicians. The bank will provide loans to doctors who meet a variety of criteria, including those currently in residency or preparing to start residency within 90 days of their closing date; those scheduled to finish a residency/fellowship and under contract to work within 90 days of their closing date; and those who began working with a hospital or physician within the previous 12 months.
This level of flexibility is attractive to doctors who plan to relocate for their first jobs and hope to settle into a new home before starting work.
Other banks and mortgage brokers with doctor’s loan programs include Bank of America, BBVA-Compass, City Wide, SunTrust, and Physician Loans. An interactive state-by-state map on the website physicianloans.com provides lists of lenders operating doctor loan programs in each state.
Watch for High Fees
Despite the many apparent advantages of these specialized loans, critics urge doctors to proceed with caution.
Due to higher interest rates and fees, the costs of physician mortgages are generally greater than conventional mortgage rates. And in order to qualify, some lenders stipulate that borrowers must at minimum open a direct deposit account with their bank, from which their mortgage will be paid.
Banks may also attempt to sell doctors a variety of additional services such as credit cards or investment planning, which some view as an unwelcome marketing ploy.
Ultimately, it’s up to each doctor to research and select the type of mortgage that best suits his or her individual needs.
For those eager to fulfill their homeownership dreams early on in their careers, physician loans can be a great financial resource. But for others, purchasing a home during residency may not be a wise move, given the notable potential of relocation a few years down the road.
Those willing to wait may find that as their debt lessens and income increases, more robust home-buying options will become available to them in the future.