What Is a Physicians Home Loan?
As you’re approaching your medical residency, you may be eager to finally purchase a home and have a great sense of stability than you experienced during medical school. However, student loan debt can make it difficult to secure a conventional home loan. You don’t make a lot of money now, but you know that your income will grow steadily as your career continues. So, what can you do?
Your current situation is exactly why a physicians home loan, also called doctor loans, exist. Many years ago Bank of America saw the potential for an untapped market consisting of individuals with the potential for “future wealth”. You may not be particularly wealthy entering your residency, but physicians are ideal for lenders as they typically take out big loans early on in their career and almost always pay them off. This makes you a part of a valuable market for banks and lenders as they consider you a high future earner.
What Is a Physicians Home Loan?
Essentially, a physicians home loan is a loan agreement specifically crafted to cater to the needs of doctors in all stages of their careers. Banks understand that despite having a lot of student debt and not much income, as a practicing doctor you’ll be in a position to pay off your student debt and your mortgage down the road. There’s much less up front cost with a physician’s loan, especially since there often is little to no down payment.
Because of this, they offer much more flexibility and you’re more likely to be approved than if you were to seek a conventional home loan. Some other benefits include the fact that you don’t have to purchase mortgage insurance, which means that more of your monthly payment will go towards principal. Most banks will accept a signed contract as proof of income, so you don’t have to have actually started your new job yet. Some banks will even leave your student loan debt out of the equation when considering your debt to income ratio.
Think Long Term
With all of these benefits, a physician’s loan can seem like the perfect solution for your mortgage needs. However, it’s important to consider that banks are not charities, and so they will obviously be getting something out of the arrangement. Some requirements may not be bothersome, such as having to be a member of the bank. Others can be more costly, since physician’s loans often have the highest interest rates and will cost you more in the long run. So you’ll need to decide which is more important; paying less upfront now or paying more in the long run. If you plan to refinance in the future or pay more than the minimum payment once other debts are paid off, it may not matter that the interest rate is higher.
It’s also important to consider your future before making any long term decisions. Depending on where you are in your residency or fellowship, you may not even be living in the same town 3-5 years down the road. It can also be tempting to buy more house than you really need or can afford since the bank is providing you with the funds so willingly.
Once you’ve decided that owning a home is the right decision for your future, you’ll have to begin the long process of actually finding or building your dream home. Securing financing is just one step of the process, but if you could make it through medical school you can make it through anything.