If you’re a student in medical school, a resident or a medically qualified doctor, you must know the definition of Physicians Mortgage Loan, also known as Doctor Loans. Why? Because, sooner or later, you will want to settle down and after all the years spent in school, you will realize that you haven’t managed to save money for a down payment and consequently you don’t qualify for a conventional mortgage.
Moreover, most medical students have student loans, so with a conventional mortgage, they would far surpass the ideal debt-to-income ratio which is usually between 36 and 43%. Normally, they would be considered high-risk borrowers. However, physicians and dentists have very high incomes from the beginning of their carrier, high enough to cover the monthly payments and to make a decent living. In fact, very few doctors default on their mortgages because they can find a new job very fast. Nevertheless, being aware of their high income, they might be tempted to buy very expensive properties since the upper limit is $750,000 (for this kind of loan), ending up over-indebted. So, physicians mortgage loans should be approached with care, trying to maintain a DTI of 50% at most.
Another very important aspect of this type of loan is the fact that it requires no down payment. Yes! Doctor loans offer 100% financing for a house, although there will be closing costs of 1-2% of the purchase price. And on top of that, no employment history is needed. It’s enough to have an employment contract which states that you’ll start working in the next 90 days. Conventional mortgages not only require at least two payslips but also a 20% down payment.
As you probably know, conventional loans also demand private mortgage insurance (PMI) if the down payment is below 20%. With Physicians Mortgage Loans, PMI is not necessary. Good credit scores are still important - 700 or above, though some lenders may accept a credit score as low as 680. One more positive fact about doctor home loans is that lenders don’t take into consideration the student debt when calculating the debt-to-income ratio.
Physicians Mortgage Loans may be the solution for medical professionals who don’t intend to move anytime soon and who are fed up of paying rent. They may buy a single-family home, a townhome or a condo. But with so many derogations and relaxed rules, these loans don’t come cheap, the average annual interest rate being 5.375% - a lot higher than for conventional home loans. The good news is that refinancing is possible after a while and the doctor home loan can be converted into a conventional mortgage.
If you’re a doctor moving to the USA, you cannot apply for such a loan as it is intended only for US citizens. You may try to apply for a loan after 18 or 24 months. Use that time to build your creditworthiness and find more about the different types of loans available for home buyers.