Physician mortgages are loans designed for new or soon-to-be physicians who might struggle to qualify for other home loan programs due to their student loan debt, despite potential future income. Here are five things to know about physician mortgage loans, according to a July 29 report from U.S. News & World Report:
1) These loans are a type of nonconforming loan, unlike government-backed loans or conventional loans bound to Fannie Mae or Freddie Mac standards.
2) Physician mortgage loans often allow for 100% or close to 100% financing and allow the borrower to close on a new home up to 90 days before employment begins. They also accept offer letters as proof of income.
3) Student loans are excluded from the formula that physician loan lenders use to figure out debt-to-income ratio.
4) Qualifications for these loans vary from lender to lender, but the following degrees qualify for most physician mortgage loans: MD, DO, DDS, DMD, PharmD and Doctor of Veterinary Medicine.
5) Some lenders require borrowers to defer their student loans in order to not include them in the debt-to-income calculation. Loans that are deferred can continue to accrue interest, which could cost physicians more.
6) There might be a smaller or no down payment. Because these loans are designed for those fresh out of medical school, some lenders require no money down.
7) No private mortgage insurance. Most physician mortgage loan lenders do not charge PMI because of high confidence in the borrowing physician's future ability to pay.
8) Higher interest rate. Because borrowers aren't being charged a PMI and down payments are typically lower or nonexistent, interest rates might not be as competitive as other types of loans.
9) Interest rates might also be adjustable. This can carry some risk, as rates could become more expensive after an initial fixed-rate period.
10) These loans are still rare. According to Shawn Fehily, regional manager of Novus Home Mortgage in Dallas, there aren't many lenders specializing in physician mortgage loans.