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 (number of hours, visits, etc.) in their contracts or those with contracts shorter than 6 months – 1 year 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:
BBVA
5% down up to $1M, then
10% down up to $1.25M, then
15% down up to $1.5M (cap)
CapitalOne
10% down up to $2.5M
SNB
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
BofA
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 7-10 years 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!
[This updated was originally published in 2017.]
I am a recent grad and shortly after starting practice, refinanced my student loans with DRB. My question is, are refinanced student loan debt still excluded from consideration when applying for physician mortgages even if they are with a private lender now? thanks.
Loans are always considered. It’s just a matter of how they are considered. It usually comes down to what the payments on your actual credit report are (which might be tiny if you’re in an income-driven repayment program.) But every lender treats them slightly differently. So if you’re a resident with a $100 DRB payment, that’s what’s considered. If you’re an attending with a “full DRB payment”, they’re going to look at your payments and take them into consideration.
thanks for the quick response. A lot of the physician mortgage programs advertise that the student loans are not used in calculating debt to income ratio so from what you are saying, that’s not completely true. But in my particular case student loans with a private lender should still be considered student loan debt regardless of who is servicing them.
Yes.
What the lenders mean is that if you owe $400K but have a $100 IBR payment, they only look at the $100 payment.
How many times can a doctor apply for physician mortgages? In other words, can physician mortgages be used to purchase multiple investment properties [obviously, not at the same time]?
They generally can’t be used to purchase investment properties. But if you lived in the property for a few years then moved into your next one while renting that one out, then you could probably do serial physician loans.
I am curious what the reserve requirements are for these loans. We already own two properties with loans pretty much paid off, and have saved 300k for down pmt on our final house (~$2m). I thought there were 15% options without much else needed, but chase just told us for a regular loan we need 2 years of PITI reserves, I.e. Another ~$220k.
Anyone get a md jumbo with low reserve requirements?
Might want to ask that one on the forum to get more eyeballs on it.
Jennifer and other,
Thank you so much for sharing your experiences!
Extremely helpful!!!
Best luck to all of you,
Melanie
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I am new faculty out of fellowship with quite a bit of debt but a good academic appointment. After doing some research we opted to go with Opes for a physician mortgage. While the loan eventually closed, we got a suboptimal interest rate (~5.4%) and felt like customer service was just poor overall. Communication was difficult and we never really knew who our loan officer was (the person we worked with early in the process handed us off to someone else and didn’t tell us that). Our title company and realtor felt that communication was poor with Opes as well. Two major issues: 1. Opes failed to deliver our final loan disclosure 3 days before the scheduled close date for unclear reasons and our close had to be delayed. This was very inconvenient and caused disarray with my hospital onboarding. 2. Opes had trouble verifying my employment which needed to be done 10 days before close. While they had my physician contract I had not started work yet and one of their loan officers kept emailing HR at the hospital and HR kept telling her I was not in the system and that she needed to contact the department administrator. That never happened before she went on vacation. Fast forward to 48 hours before close, 5pm California time, 7pm Central time and Opes is leaving voicemails with several of my future physician colleagues and department chairs to verify that I was actually employed there. Very embarrassing.
Despite all of this, there was no lender credit for our troubles and the loan officer who said he would follow up with us about our issues never did. They were very interested in knowing how I learned of their company and when I told them “online” they seemed less concerned. Unprofessional. Avoid Opes Advisors for physician mortgages if you can.
Thanks for these comments, very helpful.
The physician construction loans have similar qualifications and terms to the physician mortgage loans but the down payment may be higher.
I used BBVA for my physician loan, and I can confidently say I will never use them again, nor recommend them to any other physician looking to obtain a mortgage loan. Their communication with us regarding the status of our loan was almost non-existent. The one time I did reach Mike Wagner(the “VP” of mortgage” he was very rude. He has a secretary but she did not return one of my phone calls. When it finally came time to close, someone else from BBVA called to ask when I’d be opening a checking account. Turns out the rate I was given came with the stipulation that we open a checking account with them, otherwise our rate would be 0.25% higher. We only went through with them because we would have lost the house we wanted otherwise. If you are looking for a physician loan, I would stay away from Mike Wagner unless you want the process drawn out for 6 weeks.
Thanks for your feedback. Sorry to hear about your experience. If someone else runs into similar customer service issues, please shoot me an email as early in the process as possible. I can often get issues like this cleared up very quickly simply because collectively The White Coat Investor Community refers a lot of business to these companies.
I’d certainly open a checking account for a 0.25% reduction in rate. Usually requirements like those are made pretty clear earlier in the process.
Getting a mortgage is never a fun, wrinkle-free experience, but it’s nice to minimize the hassle and worry as much as possible.
Interesting. We bought our condo about 2 years ago. We really wanted to get a physician loan to avoid the PMI but the most annoying loophole in the world – that my husband was in a different state for a year of fellowship – meant that no one would give one to us. My income wasn’t enough on its own and everyone refused to include him in the calculations. We’re in a super HCOL area in NY, so buying was 100% a strategy move because we would have had to spend $2000-2500 a month to get a decent 1 or 2 bedroom with a parking spot. We knew it would pay off and fully intend to rent it out for several years before selling even if we move ourselves, but it wouldn’t be worth the effort if we had to wait a year for him to live with me. Depending on where I get a job and when we have kids, we easily could end up living here for 5 or 6 years, but 3 is the bare minimum.
Right now we’re 30 and 32. I’m now a third year fellow and he just finished his first year as an attending. Through the last few years, we still maxed out our 401ks, started a backdoor roth last year, HSA accounts, and are now starting to invest additional money as well as start a future child college savings fund. My husband is starting to get matching this year, so all told, between pre and post tax money and matching, we’re approaching 100k of investments each year since he became an attending. We both moonlight quite a lot (I’m very lucky, as a fellow, to have a home call moonlighting opportunity that essentially means I can easily make an extra 3-5k a month, usually while I’m sleeping in my own bed, and am on track to make 60k extra this year.)
After a whole bunch of struggling (we really, really didn’t want to borrow money for a down payment from our parents) we got our foot in the door with 5% down to the dollar at 3.875% 2 years ago. Yes, we had to pay a little bit of PMI, but set a hard limit of 2 years to increase our equity and refinance. While my husband was away, we rented out the second bedroom to rotating med students, and made about 5x what we’ve paid in 2 years of PMI from that – essentially subsidizing the original closing costs.
It’s been just over 2 years. My husband has been an attending for one year, we’ve continued saving and investing (there’s no deprivation here, trust me, we spend far more money than we should on travel and fancy NYC food, but neither of us have any interest in designer clothes or fancy cars) and over the past month have paid down the mortgage to 20%, and I’m about to pull the trigger on refinancing with a local credit union on a 15 year mortgage at 2.875%/0 points. This should effectively save about $200,000 of interest. We put about $30,000 into renovations, we’ll be living here for at least one more year, and hopefully 2-3 more years, and will continue to rent it out after that. Since it’s a 15 year loan, rent won’t completely cover the monthly cost of having the place, but at the point we decide to sell a few years down the road, it will pay off because our stupid housing bubble = constant appreciation. We can’t put a real price on the fact that we lived here rather than it being an investment property from the get go, so we’re very pleased with how it’s turning out.
Anyone here know of any lenders willing to do physician land loans?
Thank you!