Getting through medical school is a long and arduous process. Then it’s followed by a few years of residency, maybe even an internship or fellowship. By the time these students emerge on the other end as full-fledged doctors, most of them have a lot of debt and not much in the savings account. That means getting a reasonable mortgage can be difficult, if not impossible. Luckily, there are special mortgage products specifically for doctors. Because these are relatively new, not all physicians understand them. Here’s what you need to know about physician loans:
- Why are there special loans for physicians?
As a strategy for attracting soon-to-be affluent clients, banks offer doctors a way to get a mortgage loan – something they couldn’t get otherwise, with so much debt and no employment history. In fact, the Association of American Medical Colleges reports that the average medical student graduates with over $183,000 of debt. But doctors have among the lowest default rates of any demographic, meaning lending them money is usually a pretty safe bet.
- What are the perks of physician loans?
One of the nice things about a physician loan is that you are required to invest only a small amount of money as a down payment. This means anywhere from zero to five percent of the total purchase – a far lower rate than most people are expected to pay upfront.Another benefit is that student loans are not included when calculating debt-to-income ratio. This makes a huge difference for recent graduates who are still deep in debt.
- How can the banks trust the money will be paid back?
With physician loans, banks will accept your residency or employment contract as proof of what your future income will look like. This is in contrast to conventional mortgages, which take into account your past income to calculate whether you’ll be able to afford the minimum monthly payments. As most physicians do not have much prior employment history to speak of, this is a big plus.
- Do doctors still need good credit to qualify?
As with all loans, physicians do still need a good credit score to get the best rates. If you’re a couple years away from buying a house, start cleaning up your credit score now. Avoid making late payments or opening new credit card accounts, and focus on paying all bills on time and in full. Aim for a credit score of 700 or above.
- Do all banks in all areas offer physician loans?
Not all banks are allowed to offer physician loans in all states. Rates and terms may even vary depending on the city in question. But do keep in mind that Bank of America and Capitol One are two national banks that are permitted to offer physician loans in all 50 states.
For many doctors, a physician loan could help them purchase a home during or shortly after residency, which is helpful for those looking to settle down or start a family.