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Are Physician Loans a Good Idea?

doc-house

Recent graduates of professional school are in a unique position.  They usually have high amounts of debt and low savings. Not a good recipe to buy a home.  Almost everybody with high debt and low savings will get denied for a traditional mortgage.

But one thing almost all professional school grads have is high potential income. So a number of banks offer Physician Loans (also called Doctor Loans) geared towards new professionals.  Most of these loans are geared towards MD’s.  But other health professionals, such as optometrists, can take advantage of them also.

Nuts and Bolts

I wrote about Doctor Loans in a previous post, but since I’m now a few years into having one, I wanted to revisit the subject.  Here are the key aspects of a Doctor Loan:

Pros

  • Requires little to no down payment
  • Doesn’t require Private Mortgage Insurance (PMI)
  • Doesn’t factor in student loan debt, which is usually high for professionals
  • Will accept a job offer or contract as proof of earnings

Cons

  • Available only to new grads, usually a maximum of 5-10 years out of residency or school
  • Can have higher fees and interest rates than conventional loans
  • Certain types of homes may be restricted
  • Some banks might require the customer open a checking or savings account with the bank

It’s also important to know why banks would offer a Doctor Loan.  Lenders are looking for customers who will make their payments on time and have a good relationship with the bank for years to come.  Professionals usually have high income potential, so banks want them as customers for life.  They will offer premium checking accounts and preferred rates for customers with mortgages.

My Take on Physician Loans

Now that we have the pros and cons out of the way, let me give you my opinion of the Doctor Loan.  I decided to use the Doctor Loan because we wanted a house after renting for a couple of years but didn’t have the 20% down payment needed for a conventional loan.  By not having at least 20% for a down payment I would have to pay Private Mortgage Insurance (PMI).  This is just an extra monthly payment to the bank that would not even be tax deductible in our case.

After finally finding a bank that offered Doctor Loans for optometrists, I went thorough the usual ton of paperwork required for a mortgage.  I’ve heard some horror stories from others who went through the mortgage application process, but luckily it went pretty smoothly for us.

I ended up selecting a no down payment Adjustable Rate Mortgage (ARM).  While this sounds scary on paper, I believe it was the best decision for us.  Doctor Loan interest rates are usually a little higher than conventional loans. Going with an ARM allowed me to get a rate in line with the average 30-year fixed at that time.

The interest rate on my ARM doesn’t increase until after 10 years, which is a few years longer than we plan to live in the house before selling.  Even if we end up living there a little longer than 10 years, we can still handle the maximum possible payments so it shouldn’t be an issue.

Our plan is to build up enough equity in the house to eventually get a conventional loan on our next home.  The Doctor Loan allowed us to take advantage of low current rates and have an affordable payment.  I don’t regret going with the Doctor Loan, but if we had waited a few more years to build up enough of a down payment for a conventional loan, we might have scored a lower interest rate.

No Free Lunch

Not paying PMI and not having to fork over a large down payment sounds like a good deal, but the advantages of that can be erased if you decide to sell too early or you have to settle for a high interest rate.

So are Physician Loans for everyone?  Absolutely not.  Homes are expensive (taxes, maintenance, homeowners association fees etc).  If you rush into a purchase too fast and aren’t ready for the upfront costs, then a Doctor Loan is probably not a good option.  You would be better off learning the basics of home ownership while building up enough of a down payment for a conventional loan.

Mortgage lenders essentially work like see saws.  They can offer low down payment and no PMI, but will have to increase the interest rate.  If you want a lower interest rate, you should be able to offer a good down payment and maybe even pre-pay some of the interest.

There really is no one right answer.  Deciding if a Doctor Loan is right for you depends on your income potential and how long you decide to live in the house, among other things.  Run the numbers and ask those who have been through the mortgage process to see if it would be a good option for you.

If you need some more information, here is a great overview about student loans from Ricardo at Doctor Loan USA.

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The One Service That Finally Let Me Cut Cable

Pittsburgh Steelers v Tennessee Titans

Change is tough.  Changing something I’ve been used to my entire life is especially tough.  For me, that something was cable TV.

Having “background TV” on has always been a normal thing growing up.  Though probably not the best thing to grow up around, it was what we grew up around nonetheless.  After I got married and moved out on my own, it was just assumed we would sign up for a cable package.

After all, how else would I watch basketball and football?  And how else would we be able to DVR our favorite TV shows?

It turns out that there are now tons of ways to do this.  I’ve actually previously written about the benefits of cutting cable a couple of years ago.  Despite the obvious financial and anti-commercialism benefits cutting cable would provide, I just couldn’t bring myself to do it.

My main hangup was how I was going to watch sports.  If I can’t get NFL network, ESPN or any local channels I would have to invade people’s homes who did have cable.  That’s not a way to live life.

But I’m happy to say that I did finally cut the cord a couple of months ago.  And with great results.  We’re saving money every month and only watching those things we want to.  And it was a specific service that helped me finally take the plunge.

Playstation Vue FTW

There was always a video game system in my house growing up.  It all started with the original 8-bit Nintendo, then Super Nintendo, Nintendo 64, Gamecube and then the Playstations.

I currently have a Playstation 3 but I honestly haven’t used it to play a video game in years.  Being a full time doctor, husband and father will do that to you.  And I wouldn’t have it any other way.

But the PS3 is still being extensively used to watch shows on Netflix and Amazon Video.  We watch almost all of our TV shows on these two services.

And now the PS3 being used a lot more because my 3 year old son ended up downloading a free trial of Playstation Vue.  And it changed everything.

I heard of Vue from ads here and there but never really thought anything of it.  But as I dug into it more I realized it will solve my biggest hurdle in cutting cable: watching sports.  I particularly love watching NFL football and NBA basketball.  The main channels I watched on cable were ESPN, ESPN2, NFL Network, TNT, TBS and local channels for live games.

And guess what.  Playstation Vue has them all!  For $35/month I could get all these channels along with a bunch of other great ones (Comedy Central, CNN and MSNBC to name a few) streaming on my PS3.

And that’s exactly what I did.  This made cutting cable really easy and a no brainer.  Even with the Playstation Vue monthly price I’m saving a healthy amount per month from what I was paying before.  And I don’t have to pay for the DVR and the laundry list of TV related taxes.

Not Missing Anything

Between Netflix, Amazon Video and Playstation Vue, we don’t miss our cable package at all.  We get more shows than we could ever watch with Netflix and Amazon, and I get my fill of sports with the Playstation Vue options.

Since the channels are streaming there is the occasional hiccup like with any Internet connection, but that is a once a week occurrence.  The TV watching experience is almost identical as with a traditional cable package, and it will only get better as Internet reliability improves over time.

And because of certain broadcast rules, some channels are not allowed to show commercials during breaks.  This is actually an added blessing since we won’t be influenced by a barrage of ads and it actually forces us to talk to each other during commercial breaks.

In short, we don’t miss our former cable package in the least.

Actual Savings

$150.43= Old monthly cable bill (includes TV, Internet, home phone, DVR rental and various random taxes)

$72.59= New monthly cable bill (includes faster Internet, home phone and no random taxes)

$34.99= Monthly payment for Playstation Vue

$42.85= Money saved per month.  And our lives are actually a little better because of the faster internet and fewer commercials.

I could say I can’t believe we waited this long to cut the cord, but there were not many good options available to watch sports until recently.

But with services like Playstation Vue, Sling TV and even a good old fashioned antenna depending on where you live, you can still get your favorite channels and then some.

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