Doctors, dentists, podiatrists, veterinarians, pharmacists, and CRNAs have some of the highest student loan balances and may have a harder time qualifying for a mortgage than other professionals. Lenders underwrite loan transactions with student loan disbursements that can keep these highly trained professionals out of the housing market.
The Doctor Loan is designed to help medical professionals obtain a home with a low down payment while avoiding costly Private Mortgage Insurance (PMI). They’ve been around for many years, but with the renewed focus on student loan debt, they’re making a bit of a comeback.
Advantages of using a doctor loan
You can get into the house faster. A physician loan takes into account a new practice, or even an employment contract, during the qualification process. Instead of waiting to operate your new clinic and have two years of bank statements and tax returns, the underwriter takes your employment contract into account when calculating your income. Most physician loan guidelines require that the new position be contractually effective within 60 days of closing, so be sure to review your contract as soon as possible during the loan process.
You can avoid costly PMI. Doctor loans typically do not require PMI for down payments of less than 20%; As do traditional loans. Since PMI is expensive—and not tax deductible—this helps keep payments lower, freeing up cash to pay off other debt (like student loans).
It’s easier to qualify. Typically, when you qualify for a mortgage, all payments (deferred or non-deferred) are included in the debt-to-income ratio. With a physician loan, deferred student loan payments are not included in the overall debt ratios.* For medical professionals early in their careers, this can make a big difference in getting the home they need while still building their practice.
Disadvantages of doctor loan
Danger of getting in over your head. Since you can qualify without your student loan debt counting against you, this can make it difficult to manage overall payments if your practice takes some time to get started. Additionally, those student loan payments will eventually start to come in, and may erode your disposable income.
The risk of buying a home before you’re ready. Just because it’s faster doesn’t always mean it’s better. If you’re a dentist moving on to your “dream job,” buying a home to complete the picture seems like a good idea. But it’s not great if you end up deciding that your job isn’t very dreamy, or that you don’t like the new city you’ve moved to. If you decide to move again, you will likely have to sell your home to buy a new home wherever you land.
At American Pacific Mortgage, we have a full suite of expanded access programs for many types of borrowers. Our Physician Loan Program has loan amounts up to $2 million with no down payment, allowing for a purchase that was previously out of scope. Are you looking to refinance an existing home loan? We’ve got you covered: This program has instructions for both purchase and refinancing transactions.
Our priority is to create experiences that matter to all of our homebuyers and homeowners. It’s our way to say thank you.
*With proof of deferment or tolerance for 12 months.
