Whether you are looking for a conventional mortgage or a healthcare professional who qualifies for a Physician Home Loan when starting a home search, the first question is always how much can each borrower be approved for?
Each lender is different and brings its own parameters to answer that question. Borrowers can help themselves by getting the right documents together and considering the main factors lenders consider.
First and foremost is income. This can be a clear answer if a potential borrower takes home a salary, works in a hospital, or has another form of guaranteed income. W-2 or contract income is generally accepted as proof of income. Physicians in a partnership or who are self-employed can be more complicated.
Guaranteed income is always counted by the lender. Variable or irregular income – such as bonuses, incentives, etc., may not count for the lender. Physicians who are just starting a practice or are just out of residency should take note that negotiating a guaranteed income will be easier to satisfy the lender.
Lenders also use gross pay to calculate income.
The next factor is debt. For physicians, med school loans are the largest portion of their debt. With physician loans, lenders will take school loans out of the Debt to Income Ratio. That leaves car notes, credit cards, rent, etc., as the only ratio to be counted. It is this that will determine the approved loan amount.
This ratio is usually set at around 43%, the highest amount a bank will lend against. The ratio is usually determined by the loan program, credit score, down payment, assets, and the overall strength of the application. Lenders add the mortgage payment with current debt to determine the maximum DTI they will lend against. Some even waive student debt when making this calculation.
Doctor mortgage loans offer generous terms in the form of low down payments, waiving of PMI, and other incentives that help garner the approval of larger loan amounts.
Physician mortgage loans typically have high limits. – $1-2 million or more, depending on the lender. Different limits are based on how much is being financed.
An example would be 100% percent financing capped at $1 million or 90% financing up to $2 million. But again, loan limits vary between physician loan lenders.
Banks generally loan money until the mortgage payment is no more than 28% of pre-tax income.
Finding trusted lenders who specialize in physician home loans can be challenging. Not every bank or credit union offers this specific mortgage loan program. However, MD Mortgage Loans can help. They have compiled a list of Physician Mortgage Lenders and Banks by state and qualifications.