By Dr. Jennifer Curtin, Guest Writer
Coming out of residency and landing a job in a region of California where rent for a one-bedroom apartment costs a cool $3,000/month, I decided to look into buying. With a mountain of student loan debt, minimal savings, and only a new job contract to show a potential lender, I knew my only shot at being approved for a mortgage loan was through a physician loan program. And thus my foray into physician mortgage loans began.
Shopping for a Physician Mortgage Loan
Physician mortgage loans were designed by banks to capitalize on cash-poor new attending physicians, dentists, lawyers, and other traditionally high earners who may not qualify for a typical mortgage loan because of their educational debt. Typically, physician loans have a 0-15% down payment, no prepayment penalties, no mortgage insurance requirement, and a relatively small increase in interest rates over standard mortgage loans.
Credit score requirements vary between lenders. Additionally, physician loans can use one's salary as stated in an employment contract, in some cases up to 3 months before the employment start date, as proof of income.
The exceptions to this reduced proof of income requirement are physicians hired as independent contractors with no guaranteed minimum income or equivalent (# of hours, visits, etc.) in their contracts or those with contracts shorter than 6mos-1yr in duration. These folks must have 2 years of tax returns at their attending-level income to qualify for a physician mortgage loan. (Supposedly BBVA requires just 1 year of tax returns.) So if you fit in either of the exception categories, consider obtaining a pre-qualification from your loan underwriter before entering into escrow on the word of your broker alone.
Not every bank offering physician loans offers them in every state. Also, not every standard mortgage broker may be aware of their bank's physician loan program, so save yourself the angst and just call the physician lender reps serving your state directly.
Surprisingly, the required down payment percentages and the physician loan maximums vary A LOT between lenders. Below are the breakdowns for the lenders I contacted offering physician mortgages in CA:
5% down up to $1M, then
10% down up to $1.25M, then
15% down up to $1.5M (cap)
10% down up to 2.5m
0% down up to $417,000, then
5% down up to $1,250,000, then
10% down up to $1,750,000, then
15% down up to $2,250,000
5% down up to $1M, then
10% down up to $1.5M (cap)
The house I was considering buying was a fixer-upper, so not only did I need a mortgage loan, I needed a construction loan to cover the cost of renovations. It turns out several lenders offer physician construction loans. The physician construction loans have similar qualifications and terms to the physician mortgage loans but the down payment may be higher. Additionally, physician mortgages can be used for the purchase of a second home, though some lenders will require the physician to be less than 7-10y out of training to pursue this.
All in all, physician loan programs can be a great option for a new attending looking to purchase (and/or renovate) a home, but be aware of the significant variation in offerings between lenders and the unique qualifications & exceptions for physician loans that may not be typical with standard mortgages.
Key Lessons Learned from Pursuing Physician Mortgage Loan
- Physician mortgage loan down payment requirements and maximums vary greatly by lender, so shop around.
- 1099 contractors with no guaranteed minimum salary or with contracts less than a year in duration need 1-2 years of tax returns to qualify for physician mortgage loans.
- The buck stops with the loan underwriters, not the mortgage brokers, so when in doubt, obtain a pre-qualification from the underwriter before jumping into escrow.
- Physician mortgages can be used for a 2nd home.
- There are similarly structured physician construction loans available to cover costs of renovations on a home.
What do you think? Have you purchased a home using a physician mortgage? What was your experience like? How many different lenders did you look at? Comment below!