Guide to Physician Loan Programs

    Guide to Doctor Mortgages Pennsylvania

    Going to medical school and becoming a physician can mean a high-paying and fulfilling career, but it can leave you with a hefty amount of debt. In 2016, nearly three-quarters of medical school grads had student loans, according to the Association of American Medical Colleges. The median debt amount was $190,000 in 2016.

    3 quarter of medical students have loans

    The medical field offers a relatively stable and steady career path — the number of employed doctors is expected to increase by 15 percent between now and 2026, according to the Bureau of Labor Statistics, and the median pay is more than $200,000. But the initial amount of debt a student doctor takes on can get in the way of other plans, like applying for a mortgage and buying a home.

    To help new doctors who might have lower credit scores, or who might seem like a more significant credit risk because of their med school loans, several banks offer physician mortgage loans. If you’re a recent med school grad who’s hoping to buy a home soon, learn more about doctor mortgages in Pennsylvania and see if they are an option for you.

    What Is a Physician Mortgage Loan?

    A physician mortgage loan recognizes doctors have the potential to earn a lot of money, but also acknowledges many recent med school grads are financially a few years behind other people their age. For that reason, physician loans often have looser down payment requirements and might let you get a mortgage, even if you have a lot of other debt.

    As a doctor, you’re likely to end up earning more than your high school buddy who went on to become an accountant or to work in marketing. But that buddy of yours also ended up needing a lot less schooling, and was able to get a jump-start on being an adult. While you were in student housing, he or she was saving up a down payment and buying a starter home. A physician’s mortgage can let you catch up to your friends and become a homeowner soon after medical school, rather than later.

    Another key thing to know about a doctor’s mortgage is this: It can be a jumbo loan, meaning it can be for an amount over $424,000 in many states — the amount can be even higher if you live in an area with a high cost of living. Since the amount you can borrow as part of a jumbo mortgage program is so great, most jumbo loans have pretty strict terms when it comes to choosing a borrower.

    That’s not the case with a physician’s loan. Though you — as a young doctor fresh out of medical school — might not look like the ideal high-value borrower, banks that offer doctor’s loans are anticipating you’ll be a low-risk borrower. The banks are also expecting you’ll be willing and able to pay slightly higher interest rates, and that you won’t be too put out by paying a few additional fees.

    low risk borrower

    Another thing banks are counting on when they offer doctor’s loans is that in the future, you’ll be able to borrow even more from them, or you’ll turn to that bank for all of your other financial needs.

    Though the specifics and requirements of a doctor’s mortgage program vary from bank to bank, they often include these features:

     

    • Higher-than-average loan amounts — usually up to $1 million, sometimes more.
    • Generous loan-to-value ratios — can be up to 100 percent in some cases, meaning you borrow the full value of your home, rather than making a down payment.
    • Often no private mortgage insurance needed.
    • Will use offer letter as proof of income.
    • Available for primary residences only.
    • Fixed or adjustable interest rates often available.
    • Lower-than-average minimum credit scores — sometimes as low as 680.
    • Occasionally require at least a few months of cash reserves of principal, interest, taxes and insurance (PITI).

     

    What States Offer Doctor Mortgages?  

    You can find a doctor’s mortgage in every state, although not every bank offers the loans in every state. While some national financial institutions operate in every state in the U.S., not all do.

    For example, some banks offer doctor loan programs in just a handful of states, or in some cases, in just one or two states, where those banks have branches. A considerable number of banks offer programs in 20 or so states, while some operate in all 50 states.

    Benefits of Doctor Loan Programs 

    For a doctor who’s just starting out in your career, a physician’s mortgage can offer several benefits. Those benefits include:

    • Little to no down payment — You’ve just spent four years living as a student, plus a few more years living hand-to-mouth as a resident or fellow. You most likely don’t have much saved up, and if you do, you might not want to end up house-rich, but cash-poor. While the exact down payment requirements vary from loan to loan, a few will let you put down as little as 5 percent, while some don’t require a down payment at all.
    • Calculate your debt-to-income ratio using income-based or pay-as-you-earn repayment plans for student loans — If you borrowed a lot for med school, the amount you need to repay each month could push your debt-to-income ratio over the limit for a qualified mortgage: 43 percent. But some programs will use the amount you pay on your loans on an income-based repayment or pay-as-you-earn repayment plan, which caps the loan payment to 10 or 15 percent of your discretionary income. If you have deferred your student loan payments, the lender might not include them at all when calculating your debt-to-income ratio.
    • Usually, no private mortgage insurance (PMI) required — Some mortgage programs let you make a lower down payment, but in return, you’re expected to pay PMI each month, to protect the lender in case you stop paying your loan. One of the drawbacks of PMI is you can’t deduct the amount you pay toward it from your income if you earn over a certain amount. Another drawback is that it adds to the cost of your mortgage. Many physician mortgage programs don’t require PMI.
    • No need for proof of income — While you typically need to provide tax returns or paycheck stubs when getting a conventional mortgage, many physician loan programs will take your offer letter, as long as you will begin your new job within a few months. Some mortgage programs for doctors accept residents, fellows and interns — even though those doctors-in-training earn considerably less than full-fledged physicians.
    • Interest options — Many physician loan programs offer you the option of a fixed-rate mortgage — usually for 15- or 30-year terms. Some also include the possibility of an adjustable-rate mortgage — generally for five- or seven-year terms.
    • Interest rate stays the same whether the loan is “jumbo” or not — Typically, jumbo mortgages charge higher interest rates. That’s not the case with a doctor’s mortgage, although the interest rate might be higher when compared to a conventional mortgage.
    • Accepts lower credit scores — The minimum credit score accepted varies by program and by how much you put down, but some programs will accept scores as low as 680.
    • More flexible cash reserves options — Some doctor’s home loan programs let you count money in retirement accounts as part of your cash reserves, which doesn’t often happen with conventional mortgages.

     

    Banks That Offer Physician Mortgages in Pennsylvania

    In Pennsylvania, several banks offer physician’s mortgages. The requirements for the home loans vary from bank to bank. Here’s a look at a few options:

    • BB&T — BB&T offers physician’s mortgages to interns, residents and fellows and to licensed doctors who finished their residency, fellowship or internship within the past decade. The loans are available to medical doctors, dentists, optometrists, podiatrists and chiropractors. The maximum loan amount available depends on whether you are a licensed physician or are still in training. Doctors in training — residents, interns and fellows — can borrow up to $850,000, while licensed physicians can borrow up to $1 million. The size of your down payment also depends on where you are in your career and the amount you borrow.
    • Citizen’s Bank — Citizen’s Bank also offers doctor’s loans for up to $1 million, with either up to 89 percent financing — without PMI — or up to 95 percent financing — with PMI. The mortgage program doesn’t include deferred student loan payments when calculating the debt-to-income ratio.
    • Fifth Third — Fifth Third has two physician mortgage programs: one for licensed doctors and one for doctors who are still in training or who are in their first year of practice. The program for residents, interns, fellows and new doctors requires a minimum credit score of 680. The lower the credit score, the higher the down payment. You need to put 5 percent down if your score is 680, but can put nothing down if your score is 700. You’re also eligible to receive a jumbo loan amount if your score is above 700.
    • Fulton Mortgage Company — Fulton Mortgage Company offers loans to physicians of up to $1.5 million with 100 percent financing. If your credit score is 700 or higher, you don’t need to pay PMI. Additionally, you can obtain the loan with an offer letter, and can close on the home 60 days before you begin your job. The mortgages are available for MDs, dentists, vets and pharmacists who completed their training within the past decade.
    • Mortgage Network — Mortgage Network’s physician loan program is more restrictive in some areas and less restrictive in others, compared to other doctor’s mortgages available. It’s only open to MDs, and you need to have six months of cash reserves for PITI. But it accepts applicants with credit scores as low as 680, and it follows Fannie Mae/Freddie Mac’s guidelines for deferred student loans. You can borrow up to $1 million and can obtain up to 95 percent financing with PMI.
    • PNC — PNC’s doctor mortgage program is available to interns, residents, fellows and licensed doctors who completed their training within the past five years. It offers loan amounts up to $1 million, adjustable or fixed interest rates and doesn’t require PMI.

     

    Things to Think About: Other Alternatives to  a Physician’s Mortgage   

    Is a physician’s mortgage the best option for you? That all depends on a few key factors. A doctor’s home loan can seem appealing, because it lets you buy a more expensive home than you would otherwise have access to — and in some cases, makes it possible for you to get a mortgage at all. However, it’s not always the best option.

    Depending on your specific situation, other mortgage programs might be less expensive and offer you a considerable amount of flexibility. For example, if you are a veteran, active service member or the surviving spouse of a person who served in the military, you might qualify for a Veterans Affairs home loan. VA loans don’t require a down payment or PMI. They also often have lower closing costs, and the VA can provide some assistance if you experience difficulty paying your loan in the future.

    other mortgage programs

    VA home loans are only for people who have some connection to the military, though. So if you weren’t married to a service member or didn’t serve yourself, they are completely off-limits.

    It’s also worth considering your plans for the future when deciding whether or not to buy a home or apply for a doctor’s mortgage. Although some programs do make loans available to interns and other doctors-in-training, you need to seriously consider whether buying a home makes sense for you at this stage in your career.

    Depending on the type of medicine you want to practice, it’s very likely you will spend two or three years in a residency program at one hospital, then move on to a fellowship somewhere else or end up practicing somewhere else. If you plan on moving within just a few years, it’s often more cost-effective to rent a home, rather than buy it, especially if you aren’t putting much or any money down. For that reason, it might make sense to postpone buying until you’ve got a job offer as a licensed physician and anticipate remaining in an area and the same position for five or more years.

     

    Do Other Medical Professionals Qualify for Physician’s Loan Programs?

    Generally speaking, physician’s mortgage programs are only available to doctors or people who are in training to become a medical doctor. Some programs do expand the definition of doctor to include optometrists, vets, dentists and podiatrists, but other programs only offer mortgages to people who are MDs. That means, in some cases, doctors who trained to become doctors of osteopathic medicine (DOs) might not qualify for the mortgages, since they aren’t MDs.

    If you are a nurse practitioner or other medical professional — but not an MD or different type of doctor — you might qualify for other mortgage programs to help you buy a home, such as an FHA loan or a VA loan if you served in the military.

    If you’re a physician who’s recently finished a fellowship or residency and are looking to buy a home and begin practicing in York, Penn., contact Century 21 Core Partners today. We know the market in York and the surrounding area, including northern Maryland and south-central Pennsylvania, as no one else does. For expert assistance finding and buying your new home, get in touch today.

     

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