(Editor's comment: this guest post is provided by Colin Nabity of LeverageRx, a comparison site and online financial help desk for doctors, dentists and other medical professionals. Full disclaimer: LeverageRx is a sponsor of Future Proof, MD)
Healthcare professionals transitioning from training to practice most often find themselves with high student loan debt and minimal savings to purchase a home. In the view of a traditional mortgage lender, the high debt ratio would preclude you from qualifying for a conventional mortgage loan. However, many lenders offer special loan programs for healthcare professionals and trainees, often referred to as “Doctor Loans”.
Why special treatment for doctors?
Mortgage lenders are eager to provide this program to you for the following reasons:
- Doctors, dentists and other medical professionals have relatively low default rates despite the average amount of student loan debt.
- What bank doesn’t want to have high income earning clients? The opportunity to cross-sell other profitable banking products (investments, insurance, etc) is a major incentive to lenders.
- Lenders want to tap into your network to find other clients with high income potential just like you.
It is important to note that there are pros and cons to leveraging the doctor loan program to purchase a home, which we have outlined below:
- There is typically little down payment required, if any (0-5% depending on your career status and lender)
- Doctor loans don’t require Private Mortgage Insurance (PMI), which can be thousands of dollars annually and is not tax deductible for most high income earners.
- Student loan debt isn’t a factor in the underwriting criteria (woo hoo!)
- Doctor Loans can be typically funded up to 60 days prior to the start date of your employment contract.
- Money can be allocated to paying down student loans instead of a larger down payment on a home if desired.
- Typically available only to trainees and health professionals early in their career (no more than 5-10 years out of training).
- Usually come with higher upfront fees and interest rates than conventional mortgage loans.
- Some lenders may require you to open a checking, savings or other account through their bank to qualify.
- If you put no money down, you’ll immediately be upside down in your mortgage as commissions are typically 6% to sell your home through a realtor. Not relevant realistically as you are unlikely to default.
Whether you should buy a home or rent is a big decision in its own right. But if you are eager to purchase a home but low on cash, a doctor loan is worth considering. Just be sure to do your homework and comparison shop to get the best terms for yourself. When you’re talking hundreds of thousands of dollars, even an interest rate difference of 1% can make a big impact.