By: Shannon Patterson, CPR, CMSR
Kolbe Certified™ Consultant
Director of Practice Opportunities
You just finished orthodontic residency. You have borrowed hundreds of thousands of dollars to pay for your education and you are about to move to start your new career. Can you afford to buy a home when you get there?
Many of you have borrowed more for school than you will earn in your first two years of your employment but you are about to start a career that promises job security and a high salary, so can you afford to buy a home? What are your options? One option I recently heard about is a “physician mortgage loan” and I want to share this information with young doctors who are starting their careers but also have a desire to have some equity in a home.
What is a physician mortgage loan?
A physician or “doctor” mortgage is a special loan program that a lender puts in place to attract high-income clients by allowing health care professionals such as doctors and dentists to secure a mortgage with fewer restrictions than a conventional mortgage. The physician loan program is a low to no down payment mortgage designed for physicians, dentists, and other eligible medical professionals. The program is a great home financing option for doctors because they offer jumbo loan balances and relaxed debt-to-income ratios without private mortgage insurance (PMI). PMI is typically required for loans where the down payment amount is less than 20%. Physician home loans are also known as doctor loans, doctor home loans, and doctor mortgage loans.
Does an orthodontist qualify for physician loans?
Yes, all physician loan programs are available to medical doctors with M.D. or D.O. degrees and some are available to dentists and orthodontists with D.D.S. or D.M.D. degrees. Lenders and banks realize that becoming a doctor or dentist is a long process, so the lending criteria can vary depending on how far along the borrower is in training or career development. Physician mortgage loans are primarily for doctors purchasing their first home or refinancing a primary residence. They are not intended for purchasing a second or vacation homes.
How does a physician mortgage loan work?
Physician loans differ from conventional mortgages in three ways: They don’t require PMI, which traditional loans do require. On large loan amounts, the PMI can add hundreds of dollars to the monthly payment, a physician loan frees up that money so it can go toward other expenses including student debt. Physician loans are also more flexible with debt-to-income ratios and they accept residency contracts as verification of employment.
Debt-to-income ratio: When lenders review a mortgage application, typically they scrutinize the borrower’s debt-to-income (DTI) ratio, which is the percentage of monthly income that goes toward paying off debts. Applicants with a high DTI are flagged riskier than applicants with a low DTI. We are all well aware that orthodontists, especially early in their careers, will have a high DTI ratio due to education debt in the six-figures, making it difficult to qualify for a mortgage. However, some physician loan programs do not count medical/dental school debt if the payments are deferred or in forbearance for a certain period, this reduces the DTI making it easier to qualify for a loan.
What do you need to qualify for a physician loan?
You will need employment verification and proof of income. Mortgage lenders typically require borrowers to prove that they’re working and earning income. Typically, loan applicants that are about to be hired but have not actually worked do not qualify for a loan. However, physician mortgage loans are the exception. Lenders will allow the borrower to show an employment agreement as proof of employment even before their job begins and some lenders will even lend to borrowers that work as independent contractors.
How do you find a physician loan?
When getting any type of mortgage, it is always best to shop around, starting with the bank or credit union with which you already have a relationship. Unfortunately, many lenders tend to keep this program secret and the information is not easy to find, below is a list of Physician lenders who extend their programs to Dentists (DMD/DDS):
Bank of Nashville (AL, FL, GA, SC, TN, NC, and MS)
Bank of America (All 50 states)
Regions Bank (TX, IA, MO, AR, LA, IL, IN, KY, TN, MS, AL, GA, FL, VA, NC, and SC)
SunTrust Bank (AL, AR, DE, FL, GA, MD, MS, NC, SC, TN, VA, WV, and DC parts of NJ and PA)
Lake Michigan Credit Union (Michigan Only)
BBVA/Compass Bank (AL, AR, AZ, CA, CO, FL, GA, ID, KS, LA, MA, NM, NV, OK, OR, PA, RI, TN, TX, VA, and WA)
Horizon Bank (MI, IN, and IL)