Though the average first-time homeowner in the U.S. is 34 years old. potential borrowers who work in the medical field have to contend with medical school, residency, and potential fellowships depending on the speciality. The result of this is that most med-students are behind the eight ball when it comes to being a first time home-buyer.
The Physician Mortgage Loan Program helps those in the medical field to qualify for a mortgage loan with zero to little money down and no private mortgage insurance (PMI.) “Qualified borrowers” are usually Licensed Medical Residents, fellows or attending physicians with a signed contract for employment. These doctor programs also offer those who are moving from medical school to residency a chance to own a thome.
In conventional mortgages, debt-to-income (DTI) ratios are important components when it comes to both loan approval and terms.
The DTI is the percentage of gross monthly income that is spent on monthly debt payments. IE it is all of a potential borrower’s monthly debt payments divided by their gross monthly income converted into a percentage.This number is a way that lenders measure a borrower’s ability to manage their monthly payments and therefore their ability to repay the money they borrow.
DTI is a very important number as it is what lenders use to determine who is a credit risk, and it’s used to ascertain what interest rate is offered on a loan should a borrower be approved.
Studies of mortgage loans show that borrowers with higher DTI scores are more likely to have trouble maintaining monthly loan repayments.
DTI is calculated by adding up all monthly debt payments and dividing them by gross monthly income. Gross monthly income is defined by the amount of money earned before taxes and other deductions are taken out. An example of DTI calculation would be a potential borrower who pays $1500 a month for rent and another $100 per month for car note as well as $400 a month for the rest of their debts. Therefore the total monthly debt payment is $2,000. If the gross monthly income is $6,000, then the DTI ratio is 33 percent. This is ideal as 43 percent DTI ratio is normally the highest ratio a borrower can have and still get a conventional Mortgage.
However, when adding payments such as student loans to the monthly debt – this number can skyrocket. As most physicians carry a six-figure med school debt, doctors – especially residents – would be at a disadvantage when it comes to the preferred by conventional lenders, low-DTI.
For this reason, doctor loan programs do not count med school debt into DTI if payments are deferred, in forbearance or being made in a timely manner. The typical doctor loan makes allowances for med school debt and, therefore, these loans are more flexible when it comes to DTI ratios. Student loans do not factor into approval for the Doctor Loan program, opening up the potential of home ownership to medical professionals saddled with large amounts of student debt.
The thinking is that the potential for these professionals to earn high income in the future will allow them to make mortgage payments while also paying off their med student debt.
Additional advantages of a Doctor Home Loan include:
Fixed rate options
Up to 100% financing and no monthly mortgage insurance payments
Higher maximum loan amounts though these are higher for attending physicians rather than for interns, residents and fellows.
Employment contract can be used as evidence of income
It’s important to note also that most participating institutions offer loans to physician borrowers with a credit score higher than 700.
The next important step would be to find a qualified lender to work with. However, not all banks or credit unions offer the doctor mortgage loan program. Since not all financial institutions offer Physician mortgage loans, MD Mortgage Loans can help. These are also not conventional loan products, therefore, the right team with experience and a bank that has a competitive product, is the best fit. Whether a recent graduate, licensed medical professional, or medical resident, MD Mortgage Loans have compiled a list of Physician Mortgage Lenders and Banks by both state and qualifications.
Sorting through industry-leading competitive rates that fit a variety of financing needs is the first step to finding a program that works for the individual and their specific circumstances.