After years of medical training, many young physicians are eager to celebrate their new career with the purchase of their first home. Not to be left out, many mid- to late0career physicians may also be looking to buy a new primary or secondary home. Physician home loans are a mortgage product that can be of help in these situations. So, I’ve asked Josh Mettle of NEO Home Loans, one of our key resources, to help me with this guide for physician home loans!
An important note before we begin
Selenid and I bought a home out of training using a physician loan product. It helped us a great deal. The reason it helped us so much, however, is because we used the product in the right way.
We set criteria for the home we were looking for, both financial and otherwise, and stuck to them. We bought the home intentionally and made sure it fit within out financial plan. And lastly, we were moving to my hometown knowing the chances of us being there a long time are very good.
So, that is why I bought a home right out of training despite the more generalizable advice being to rent as I go into in this post.
I also remain a big fan of minimizing debt and becoming debt free as we approach retirement.
The Wrong Way for Doctors to Think About Debt
The upshot here is that physician home loans are great products when used the right way!
Why do physician home loans exist?
Unfortunately, the high amount of debt and low savings often means buying a home in their early career is out of reach for many physicians. Not only do most banks typically require a large down payment, they also need proof of past income – both of which are impossible to produce for a physician fresh out of training – and challenging for even other physicians.
As Josh describes, the physician home loan was born to overcome these challenges that many new physicians face:
- Significant personal,
- Student loan indebtedness,
- Limited down payment availability, and in many instances
- Desire to close on a new home before starting a higher paying position
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Physician home loans allow doctors and other medical professionals to secure home financing with fewer restrictions than conventional loans. Physician home loans are designed specifically to accommodate the unique financial situations of medical professionals.
But what exactly is a physician home loan, and how does it differ from a conventional loan?
Josh at NEO Home Loans and I have gathered all the unique features of these loan programs for you so you can be fully informed as you begin your home buying process.
Check out my webinar with Josh Mettle from NEO Home Loans about buying a home in a period of high inflation!
Physician home loans vs. Conventional mortgages
A physician home loan is a mortgage offered to physicians, dentists, and other medical professionals. They’re even available for residents!
A physician home loan differs from a regular mortgage loan in a few keys ways:
- You can put little or no money down
- No private mortgage insurance (PMI)
- Less proof of income is needed
- Ability to qualify for higher loan amounts
As a physician, you have a high debt-to-income ratio. Even if you earn a high salary early in your career, it’s likely that your total debt outweighs your annual income.
The DTI ratio is an important factor when it comes to getting a home loan. Unfortunately, most early-career doctors have an unfavorable DTI and, thus, are unable to get approved.
In some cases, a physician home loan is the only way for young doctors to buy homes. Without them, many physicians would never be able to secure a mortgage.
Physician home loans are also a type of “jumbo” loan. These loans allow for higher balances than FHA or conventional loans, which enable you to buy a bigger and more expensive homes.
Benefits of physician home loans
Physician home loans have several unique benefits.
Let’s go over a few of the key benefits you can expect when searching for a physician home loan that meets your needs.
No Private Mortgage Insurance (PMI)
Perhaps the most notorious feature of a physician home loan is the option to avoid private mortgage insurance. With conventional loans, PMI is required on homes financed with less than a 20% down payment. This insurance protects the lender should you fail to make your payments and can range from .1% to 3% of the loan amount depending on the amount financed and your credit score.
Choosing a physician home loan program allows you to greatly reduce or exclude mortgage insurance altogether and potentially save hundreds of dollars every month.
Better Financing Options
Another benefit of a physician home loan is the ability to qualify for higher loan amounts with less money down. At NEO Home Loans, we have unique financing options specifically for physicians and medical professionals, including:
– 100% financing up to $1M
– 95% financing up to $1.25M
– 90% financing up to $2M
Ability to Qualify with Future Income
Rather than requiring pay stubs to prove their income, doctors applying for physician home loans only need to submit their employment contracts to prove their income instead of current pay stubs as would be the case for a conventional loan. Physician home loan programs also allow for loan closings up to 90 days prior to the future employment start date.
Ability to Qualify with Deferred or Income-Driven Student Loan Payments
Physician home loans also take a different approach when calculating debt-to-income ratios. Typical guidelines would require applying a 1% student loan payment to your monthly liabilities regardless of what the credit report shows.
Many physician mortgage lenders differ in how they calculate these payments. At NEO, we are able to qualify physicians based on income-based payments. This can significantly decrease the debt-to-income ratio and allow for qualification when other payment structures could not. We are also able to completely exclude deferred student loans that are in deferment for physicians.
Programs available for other healthcare professionals
While most lending institutions offer these specialized physician home loans strictly for physicians, NEO applies similar underwriting programs to other professionals:
- Registered Nurses (RN)
- Certified Registered Nurse Anesthetists (CRNA)
- Physician Assistants (PA)
- Doctors of Physical Therapy (DPT)
- Doctors of Medicine in Dentistry (DMD)
- Doctors of Dental Surgery (DDS)
- Doctors of Veterinary Medicine (DVM)
- Lawyers (JD)
- Certified Public Accountants (CPA)
- and several other professional designations
Is a physician home loan right for you?
As a young doctor, it’s easy to look at your peers’ lives and think that you’ve fallen behind. While you’re getting excited about your first day at work, they may have already purchased a home.
With a physician home loan, you can own your own home without having to save for a 20% down payment. And, you can probably get a bigger loan than most other people.
For many doctors, a physician home loan is the best way for you to purchase a house. However, it is important to note that just because you are a physician or other medical professional that does not mean a physician loan is the best option for you.
You have a unique situation, and there are many loan options available to you
As a medical professional you have more options than most and it’s important to review a total cost analysis – a report that compares all of your home loan options so you can make the best homebuying decisions.
If you would like to learn more about physician home loan programs from Josh and his team at NEO Home Loans, you can schedule a consultation with them here. They will answer all of your questions and create a detailed loan comparison so you can create a solution that is best suited to fit your needs!
On related notes:
- Physician home loans will generally not apply for investment properties. If you are looking to finance a rental, here are the 7 simple steps
- Here is my strategy for becoming debt free
- If you are wondering which is better, paying off debt or investing, this post offers my take
And lastly, if you would like to learn more about physician home loans, the NEO Home Loans site is a great resource!
What do you think? Have you used a physician home loan? Did you use another loan product? Or did you just not buy a house? Let us know in the comments below!