Is a physician loan right for you? Check out the requirements, details, and how to apply.
Student loan debt can put owning a home out of reach for many first-time buyers, and this is especially true for physicians, dentists, and veterinarians who often spend seven or more years in university before they begin earning any income. But these doctors are now finding a path to homeownership by obtaining a physician home mortgage.
Doctors fresh out of medical school often carry a large share of the nation’s $1.7 trillion student debt load. According to the Association of American Medical Colleges, 73% of all medical school graduates have student loans, with the average medical school debt for graduates amounting to $203,062.
Banks such as Fifth Third recognize the unique circumstances of medical professionals and offer a physician’s home mortgage that is structured to account for the credit challenges doctors face when applying for a conventional loan.
Student debt can seem daunting to many recent doctor graduates and contributes to added stress when they need to make major life decisions such as buying a home. But their significant future earnings potential can help overcome their student debt as an impediment to getting a mortgage. Although salaries can vary widely depending on the specialty and location, the average salary for a doctor in the U.S. is $183,608, according to Glassdoor.
Eligibility for a physician mortgage is fairly straightforward. These loans are available to both new graduates from medical school and established physicians who have earned the following degrees: medical doctor, doctor of osteopathy, doctor of podiatric medicine, doctor of dental medicine, doctor of dental surgery, doctor of veterinary medicine and doctor of optometry.
Physicians can use the loans to buy a house or one-unit property or refinance a home they already own. Although these specialty loans aren’t specifically for first-time home buyers, many new medical school graduates use them to purchase their first house. Physician mortgages are not available for the purchase of a second home or an investment property.
Physician Mortgages vs. Conventional Loans
Physician mortgages work in a similar way to conventional mortgages, while at the same time offering greater flexibility in the underwriting and loan terms. Effectively, physician mortgages remove some of the big obstacles of financing or refinancing a home that physicians bump into with a conventional mortgage, such as high debt levels and lack of a strong job and income history.
High levels of debt can be a significant hurdle for physicians trying to secure a conventional mortgage. For example, one metric lenders use to qualify borrowers is the debt-to-income (DTI) ratio, which measures monthly income against the amount of money you spend on a monthly basis. Typically, lenders like a borrower to have a DTI that is 50% or lower, which can be a difficult benchmark to meet for some recent medical school graduates. Physician mortgages are more flexible on the DTI and take other factors into consideration, such as future earning potential and credit worthiness.
A standard requirement of a conventional mortgage application is showing a strong employment and income history. A new physician mortgage loan allows borrowers to obtain a mortgage with only an employment contract, which is valuable to physicians who are moving their families to a new city.
The requirement is that the borrower needs to begin their job within 90 days of the close on the purchase of their home.
Loans for New and Established Doctors
Fifth Third Bank offers two separate physician loan programs, with its New Doctor Loan Program and the Established Doctor and Dentist Loan Program.
- New Doctor Loan Program: This program is ideal for licensed interns, residents, or fellows who are currently in medical residency or scheduled to begin residency within 90 days of closing on a new home, or those who have completed residency within the last 12 months and have started working for a hospital, dental, veterinary, or physician group.
- Established Doctor Loan Program: This program is best suited for licensed medical professionals (non-residents/interns/fellows) who have been employed with a hospital, dental center, physician or dental group for at least 12 months, or have been self-employed as a medical doctor, dentist, or veterinarian for at least one year.
Common features of the two loan programs include:
- The ability to finance up to $750,000 with no down payment requirement when purchasing or refinancing a home. New doctors can borrow up to $1 million, while established doctors qualify for up to $2 million with a 10% down payment.
- No private mortgage insurance (PMI) requirement even if the down payment is below the 20% threshold that is common in a conventional home mortgage. This can save doctors several hundred dollars a month.
- Borrowers can choose between fixed- and adjustable-rate mortgage (ARM) loan options.
- Both the New Doctor and Established Doctor loans can also be structured with refinance options available.
Weighing the Pros and Cons
While a physician mortgage can ease the purchase of a home for a newly graduated doctor, it’s important to make sure the payments will fit within their overall budget. They should work with their lender to understand whether their budget fully accounts for some of the hidden costs of homeownership and that they have arrived at a realistic price target for their home and mortgage.
To find out more information on whether the physician mortgage is right for you, connect with a Fifth Third mortgage loan specialist.