Anyone who has ever looked into securing a mortgage knows there are many different types of loans out there. Most people know about your typical 30 or 15 year home loan with a fixed interest rate and a 20% down payment. There are variable interest rate loans which potentially start with a low interest rate but can change after a designated amount of time, usually 3, 5 or 10 years. There are loans that are longer than 30 years or shorter than 15 years. You can also get loans for less than the ideal 20% down payment, but you’ll have to pay Private Mortgage Insurance. There are also loans out there for certain professionals, such as members of the military. There is also one such loan that is not talked about frequently, and that is the Doctor Loan.
The Doctor Loan, also known as a Physician Loan, is a special loan available to MD’s only. There are also similar loans available to other professionals such as optometrists, lawyers, dentists and pharmacists. They are a little harder to find but they have similar characteristics to a Physician Loan. Not many banks offer Physician Loans. Some banks like Bank of America offered them at one point and then stopped. The only bank I’ve seen that has consistently offered Physician Loans is SunTrust. The main advantages of a Physician Loan over a traditional mortgage are:
-Very low down payment requirement. Some loans even allow no down payment (This can be an obvious disadvantage if you’re not careful).
-Don’t factor student loans into credit worthiness. This is huge because doctors can easily come out of school with a student loan balance in the six digits. This can make it troublesome to get approved for a traditional mortgage even though the doctor would easily be able to afford the house.
-No private mortgage insurance. Ever. This is probably the biggest benefit. Most mortgages require PMI payments until you achieve around 20% equity in the property. This is money that goes straight from your pocket to the lender. It is not even tax deductible and it can be hundreds of dollars per month. Not having to pay PMI is a huge advantage.
The principle behind a bank offering physician loans is to obviously make more money and establish a relationship with individuals who make a high, stable income. Because physicians usually have steady high paying jobs, the risk of them not making their payments is pretty low compared to the rest of the population. This is why the bank is willing to offer a no down payment loan with no PMI and overlook student loans. This sounds like a pretty good deal to a fresh out of residency doctor, but they still need to be careful not to buy more house than they can afford.
There are some restrictions on who can qualify for this loan. Most doctor loans I’ve seen are only for those docs who have graduated in the past 10 years. This takes most established older docs out of the picture. Also, these loans just aren’t available in certain states. There is also obviously more documentation needed than a traditional home loan.
A Doctor Loan is a nice financial tool for those who can qualify. But just like any tool, it needs to be used for the right reason or you can risk really hurting yourself financially. It is a good tool for doctors coming out of school who are having trouble qualifying for a mortgage because of high student loan balances. Not having to pay PMI is a nice perk as well. It’s good to know that there are special loan programs out there that actually have pretty good terms for those who can qualify.