Doctor Mortgages for Philadelphia Physicians: What Are The Best Options?
This post is sponsored by our partners at Approved Mortgage Group in Philadelphia. We do not receive any commissions or compensation if you use Approved Mortgage Group. We encourage you to find the best possible lender for your needs.
If you are a new resident or attending in Philadelphia, you may be looking to buy a home. New doctors and dentists can have a hard time buying homes because they often have very high debt-to-income (DTI) ratios. In addition, low residency salaries may make it hard for a borrower to secure a home loan.
For example, first-year medical residents at the University of Pennsylvania and Temple University make less than $60,000, and there isn’t much salary growth until they secure positions as attendings. Additionally, the average medical school student graduates with $190,694 of student loan debt (as of 2018). That’s a DTI of 317% during residency, which is far out of bounds of what most mortgage lenders want to see.
On top of that, med and dental school graduates don’t have many opportunities to save during their years of schooling and may graduate without much in the bank. Having no cash available for down payments leaves borrowers vulnerable to expensive mortgage insurance and higher interest rates. It may even make it impossible to qualify for a mortgage all together.
The good news is that there is a special program just for doctors that can help you buy a loan with as little as 0% down and a super competitive interest rate.
A Doctor Mortgage Loan Is Designed For Young Medical Professionals
Doctor loans are designed for recent medical and dental school graduates and residents who are looking for an affordable home loan that takes into account the unique student debt situation of newly minted medical professionals.
The Main Benefit of a Doctor Loan Is Its Exclusion of Student Debt in Debt-To-Income Calculations
Doctor loans will exclude prior student debt (that’s currently deferred) in the underwriting process to effectively lower a doctor’s debt-to-income ratio that is usually too high to qualify for conventional affordable mortgages.
Doctor Loans Do Not Require Private Mortgage Insurance (PMI)
Doctor loans offer 0% or very small down payment requirements and are exempt from private mortgage insurance (PMI). For normal borrowers with conventional loans, PMI is usually around $70 - $100 per month and is charged to borrowers who have less than 20% equity in their home. Not having to pay PMI can save you over $1000 per year.
Doctor Loans Are Restricted to Young Medical Professionals With Good Credit
Doctor loans are restricted to medical professionals in the early stages of their careers. It’s up to the underwriter to make this determination, but it usually applies to recent graduates and residents.
These loans are also restricted to those with a good credit score (>720), who are borrowing at least $300,000, and have a maximum debt-to-income ratio of 41% - not including student loans.
Lenders Offer Doctor Loans Because Doctor’s Have Less Credit Risk Than The Average Person
Doctors are known to have very low default rates - some reports say less than 0.2% - and thus are exceptionally low risks for lenders. Doctor mortgage loans are designed with this in mind: they reconcile large debt-to-income ratios with characteristically low default rates and provide a much needed service to young medical professionals.
There Are Plenty of Options For Doctor Loans in Philadelphia
Several of our physician clients have happily worked with:
Greg Roth | AMG Team Senior Loan Officer | Approved Mortgage Group
1214 N Front Street | Philadelphia, PA 19122
Direct: 239-565-1075 | firstname.lastname@example.org
NMLS #1172844 | Company NMLS #790396
“We offer the Doctor loan because Philadelphia is a major health care city. We have a booming real estate market with lots of resident doctors coming here to practice medicine that would not otherwise be able to know the benefits of home ownership. Helping out these doctors at such early stages in their careers often creates clients for life which is the model we strive for with all our customers.”
-Greg Roth, Approved Mortgage Group
Other options for doctor loans can be found on White Coat Investor.
Several lenders do not offer doctor loans at all. These lenders usually don’t see the value in lending to physicians and think that the traditional red flags like high DTI ratios are enough to discourage them from offering these loans.
There Are Downsides of Doctor Loans
There May Be Better Options: There may be better options like Federal Housing Authority (FHA), Veterans Affairs (VA), and similar loan programs that also offer very low down payments with lower interest rates.
Be Careful Not To Buy Too Much House: The minimum down payment requirements create a risk that you may buy more house than you need. Buying too much house can subject you to higher property taxes, unused rooms, high maintenance costs, and, worst of all, monthly payments that make up a large portion of your monthly income. In general, aim to spend no more than 30% of your income (before taxes) on housing every month or you may find yourself with bills you can’t afford.
You Can End Up Underwater: You may end up underwater if you put 0% or very little down on the doctor mortgage, meaning that the principal owed on your loan ends up being more than the value of the home. And since it usually costs between 6-10% of your home in transaction fees to sell it, you may be effectively underwater right away!
Buy Cash Or Get Conventional If You Are Able: If you have the cash, a conventional mortgage with 20% down is your best option. You’ll get a more affordable interest rate and will have better cash flow over the life of the loan.
Tip from Greg at Approved Mortgage: “The only time a conventional mortgage would be better is if the buyer had at least 20% they wanted to put down to avoid Mortgage Insurance and get a slightly lower interest rate than the doctor loan. The doctor loan would be better for anything less than a 20% down payment as there would be no monthly mortgage insurance on a doctor loan.”
When should you refinance?
If you got a doctor loan as a resident, refinance once you become an attending. Your significantly higher income will get you a much lower interest rate.
Otherwise, refinancing is best done when you have built up the home’s equity and you have a chance to secure a lower interest rate. A good time to refinance may be when you transition from a resident to attending and have more savings. You may even be relocating and looking to convert your home into a rental property.
A few important FAQs:
Can foreign physicians utilize the doctor loan program?
Select lenders, like those working with The Doctor Mortgage Alliance, sometimes offer doctor loans to resident aliens, H-1B visa holders, and other non-citizens with permanent resident status. These individuals are usually required to pay a higher downpayment of 10-15%.
Can DOs utilize doctor loan programs in addition to MDs?
Yep! Doctor loans apply both to DOs and MDs and usually also extend to Doctors of Dental Science (DDS) and Doctors of Dental Medicine (DMD).
What about veterinarians?
While it isn’t as common, some lenders do offer doctor loan products to those with a Doctor of Veterinary Medicine (DVM). Huntington Bank, Flagstar Bank, and Fulton Mortgage Company are all examples of available lenders.
What about chiropractors?
Same case here! Doctor loans for Chiropractors aren’t as common, but you can find lenders who provide them. Chemical Bank, NBT Bank, and First United Bank are all examples.
Can I use a doctor loan for investment properties?
Doctor loans are usually restricted to the purchase of a primary home (one that you live in), but some lenders in select states allow their use for second homes and investment properties. You can always buy a new home later and turn your original home that you purchased with a doctor loan into an investment or rental property.
Can I get a doctor loan when I am a more senior physician, later in my career?
Very few lenders will give doctor loans to physicians in the later stages of their careers, but they still exist! For example, BMO Harris provides financing for physicians who have been practicing for over 10 years, but those loans are limited to 90% financing.
Greg at Approved Mortgage: “The function of the doctor loan is to help those saddled with a tremendous amount of student debt that are still on the low end of their future earning potential. It is not offered to Doctors further in their careers as creditors believe they should already be financially stable and capable of putting down a down payment and covering all their debts with their higher income levels.”