Physician loans are now available to medical professionals in Dallas Texas and surrounding cities!
A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate. They follow fairly conservative guidelines for:
Borrower credit scores.
Minimum down payments.
At times, new residents or fellows may have outstanding student loans which are counted while calculating the debt-to-income ratios even if these loans are deferred, they usually do not qualify for conventional loans.
In addition, since they may have not have money saved up for down payment (usually 10-20%), getting conventional loans becomes a bit difficult.
Did you know? A few years ago, some banks realized that although some physicians (residents, fellows, attending) do not have large current incomes, their income jumps significantly once they graduate and start working. In addition, the chances of them defaulting are very low (0.2%-much lower than a standard borrower) and they’ll soon need someplace to do their banking and investing too. As a reference, every year 18,000 new doctors graduate from medical school and about the same number graduate from residency. So banks started offering “portfolio loan” products to physicians with some great benefits like up to 100% financing with very low down payment requirements. And that started a new chapter in the saga of physician or doctor loans. Bank of America was a pioneer in this space and today a number of banks offer doctor loans or physician loans.
A portfolio loan means that the bank or institution that is making the loan is actually going to keep and service the loan. This enables the bank making and servicing the loan to determine its own underwriting guidelines and risk threshold, resulting in more liberal guidelines for physicians when compared to conventional loans that have to follow FHA guidelines. However, each bank’s guidelines are different so you may not qualify for one but may be a perfect match for another.
For this reason, it is best to work with a mortgage broker that specializes in working with physicians and other healthcare professionals. As a result, he or she will be much more likely to understand the unique situations and circumstances physicians face and help you choose the loan that is right for you.
There are several benefits of a physician home loan over a conventional loan including:
Higher Chance of Approval: When some “outside of the box” factor makes you ineligible for conventional financing, a physician home loan might be your only option. More often residents, fellows and new in practice physicians are approved with physician home loans and declined for a conventional loan because they just don’t fit the guidelines due to student loans, time on the job and/or the amount of down payment required.
Low Down Payment: The physician home loan will finance 90-100% percent loan to value depending on the bank making the loan, where the property is located, and the loan amount you are seeking.
No Private Mortgage Insurance (PMI) Required: Most lenders feel that borrowers who make low down payments (and therefore have little equity in the property) are more likely to default on a mortgage loan. As a result, they generally require you to purchase Private Mortgage Insurance (PMI) if you are borrowing more than 80 percent of the value of the home you are purchasing (your down payment is less than 20 percent of the purchase price). PMI guarantees that your lender will be paid if you default on your mortgage. Since you are a physician and the odds of you defaulting on your loan is very low, this is not required. Typically the doctor mortgage is going to save you .5% to 1% in annual PMI, but you will pay .25% to .5% higher rate for this loan type. Essentially the bank making the physician mortgage loan is willing to underwrite the loan with more liberal guidelines, but for taking on that added risk that conventional guidelines do not allow, they charge a slightly higher rate.
Student Loan(s) are Not Counted Against Your Debt to Income Ratio: This is a significant difference between a physician home loan and a conventional loan, particularly for someone transitioning out of residency, fellowship or are “new in practice” where student loans might be deferred or in IBR (Income Based Repayment). Conventional underwriting guidelines do not allow you to exclude payments for any deferred, income based or loans in forbearance. In any case, where the current payment is zero, conventional guidelines require underwriting to count that debt against your monthly debt to income ratio at 2% of the outstanding balance. So if you are a resident, with $150,000 in deferred student loans, conventional guidelines require that your monthly student loan repayment be calculated at $3,000, which can significantly impact the home that you ultimately buy. Physician home loans will typically allow you to exclude or use an IBR payment to qualify.
Higher Loan Limits: Since physician home loan lenders do not sell the loans to Fannie Mae and Freddie Mac, they are not going to have the conventional loan limits. The loan limits will vary by where you are in the country and by the institution that is making the physician loan. Generally, you will be able to borrow a higher amount with less money down using a doctor loan than you could under a conventional loan.
Ability to Close Before Starting Work: Most conventional mortgage lenders will require that you provide two paystubs before you close on your new home. A physician home loan will allow you to close prior to starting work. Some physician home loans will allow you to close as far as 90 days in advance of the start date of your new job and qualify you based on your employment contract or offer letter. For clients with families, this is a tremendous benefit and can save you the time and trouble of having to move twice.
Flexibility In Terms of Proof of Income: Conventional underwriting guidelines typically require two years’ worth of tax returns for proof of income if you are self-employed or an Independent Contractor (paid on a 1099 and not a W-2). This situation is very common for Dermatologists and, as such, these physicians may have to wait until they have two full years’ tax returns, which is often nearly three years on the job before they can obtain conventional financing. A physician home loan will allow a self-employed physician to qualify with as little as a six-month history of income, enabling you to buy a home almost two years earlier with a physician loan than you could with a conventional loan.
Multiple Mortgage Types Available: Most banks offer both Fixed and Adjustable Rate Mortgage (ARM)* loans with different interest rates and down payment requirements. Some banks offer 30, 20 and 15 year fixed loans as well as a 5 and 7 year ARM.
Flexibility in Terms of cash sources: Most banks will allow you to use gift money for a down payment, for required reserves, or for closing costs. They usually require letters from the people gifting the money to track source of money.
**Specializing in Physicians mortgage loan education/financing for Doctors and Dentists, including Medical Residents relocating from California, Florida, Louisiana, Oklahoma, and other states from medical school to Texas. Working with the right Lender and Realtor who are familiar with the program is of upmost importance. Please reach out for additional information.