As the name suggests, a physician mortgage loan is a special type of mortgage product available to doctors. The loans don’t have as many restrictions compared to what typical borrowers face with a conventional loan. Physicians with good credit will find that a physician home loan can make it faster and easier to buy a home with little to no money down and avoid private mortgage insurance.
Biggest Benefit of a Physician Mortgage Loan
The biggest advantage of a physician mortgage loan is that a doctor can present an offer letter as proof of future income. Even if you haven’t started your position as a full-time physician you can still qualify. A present copy of your transcript, if you’re still in training, can also work sometimes. The loans are based on future earnings, so they really help out physicians finishing up residency, or who have recently graduated from medical school.
Zero Down Payment Advantage
Physician mortgage loans come with a lot of advantages, but one of the most attractive aspects is the zero down payment benefit. For many looking to buy a home, coming up with a 20% downpayment is the biggest hurdle. For most, a mortgage product with a 0% down payment would come with massive fees and strict requirements, but not physician mortgage loans.
Do Physician Mortgage Loans have Private Mortgage Insurance (PMI)?
For everyone else that tries to buy a home with less than 20%, they will need to add private mortgage insurance. Annual PMIs can cost between .3% and 1.2% of a mortgage. Borrowers need to pay this amount until they pay off the first 20% of their loan – something that typically takes years to achieve.
Physician mortgage loans have no PMI, even if they put down 0%. This equals a large amount of savings considering the rates with traditional mortgage insurance and the average cost of a new home in 2020.
Debt to Income Ratio Advantage
Another big advantage of a physician mortgage loan is that it does not consider your student loans as a factor. In a traditional lending situation, you would factor in the full payment on your student loans, and after doing so you probably wouldn’t qualify for a mortgage. Debt to income (DTI) is important because it’s the primary tool lenders use to determine creditworthiness. In most cases, lenders require a DT of 43% or less.
Exempt From Loan Caps
If all of the above wasn’t enough, physician mortgages are exempt from a cap on how much they can borrow. Most borrowers have limits on how much of a loan they can take out. There can also be additional fees to borrowers if they go above the limit for jumbo loans. In 2019, the jumbo loan limit was $484,350. Considering the cost of a new home in many major cities in 2020, this exemption is a big advantage for physicians.
