Doctor or Physician loans are mortgage programs that allow for faster and easier home ownership for medical professionals.
One of the main advantages a Physician loan offers to potential home buyers is the absence, in most cases, of Private Mortgage Insurance (PMI). This can save potential borrowers up to 1% annually – this translates, as an example, to $10,000 savings a year on a one million dollar mortgage.
What is private mortgage insurance (PMI)?
PMI is a type of insurance policy designed to protect lenders in the case a borrower fails to make payments or default on their loans. Therefore, unlike homeowners insurance, mortgage insurance protects lenders rather than borrowers.
On average, if a borrower defaults, lenders typically lose around 20% of the total purchase price of the home. Borrowers who put down 20% up front, make up for a lender’s potential loss. PMI is required by most lenders on conventional loans with less than 20% down to cover this potential loss.
PMI fees also vary and depend on credit score, mortgage product and terms. In general, PMI is around 0.5-1.5% of the loan amount per year. For example on a $250,000 loan, PMI typically costs around an extra $100 to 315 per month on top of the note. This extra premium borrowers pay on top of their normal mortgage payment is not returnable.
PMI is also no longer deductible. Up until 2017, PMI was tax-deductible if a married taxpayer’s adjusted gross income was less than $110,000 per year.
In the event of death, heirs of a homeowner receive no monetary compensation. The lending institution is the sole beneficiary of the policy and proceeds are paid directly to them.
Normally, borrowers who put down less than 20% of the sale price of the home pay PMI until the total equity of the home reaches 20% which can take years.
Additionally, cancelling PMI is very difficult. Most lenders require a letter requesting the PMI be canceled while also requiring a formal appraisal of the home before cancellation.
Many lenders also require PMI for a designated period – even if buyers have met the 20% threshold.
However, with the physician mortgage loan program, potential borrowers are mostly able to avoid having to carry PMI – even with putting zero to 5 percent down initially. Borrowers can obtain 95% to 100% of the home purchase price with no PMI required from the right lender and depending on their qualifications.
MD Mortgage Loans have compiled a list of Physician Mortgage institutions by both state and qualifications. This helps finding a qualified lender to work with easier and attuned to each individual situation.
Finding the right lender is crucial to the home buying process and not all banks or credit unions offer Physician mortgage loans.
MD Mortgage Loans help physicians find lenders that meet their individual needs with industry-leading competitive rates.