How To Use A Resident Physician Loan
Prospective homeowners who are medical students and residents are given an option that most individuals are not offered: the physician loan. This is an exciting opportunity because it makes it easier for blossoming healthcare professionals to purchase a home with little to no money down, according to White Coat Investor.
Most physician loans accept a contract as evidence of future earnings instead of pay stubs that may not have been earned yet. Furthermore, physician loans do not look at student loans as part of an individual’s debt and they don’t usually require the borrower to purchase mortgage insurance, which can cost anywhere from $50 to $220 per month, depending on the size of the down payment and the length of the loan.
While physician loans are only available to healthcare professionals, they still have additional requirements.
- The borrower must be participating in an approved MD, DDS, DO or DVM residency program, or planning to participate in a residency program within a year.
- They have to be a U.S. citizen or permanent resident that has lived in country for at least two years.
- Additionally, the borrower must have two years of satisfactory credit history and, depending on the person, there may be other requirements that need to be met.
Although this type of loan can be a great alternative to other types of home loans, physician loans also have their disadvantages. Most loans require a 10 or 20 percent down payment and because the physician loan doesn’t, the downside is a higher interest rate and additional fees. James M. Dahle, curator for White Coat Investor, points out a great example:
“Let’s say a similar doctor’s loan is offered at 5.375% (down payment). That might not seem like much, but over 30 years on a $500,000 home, that is a lot of money. With the doctor’s loan, you’ll pay $508,000 in interest. If you put 20% down, you’ll only pay $330,000 in interest because it is a smaller loan and a better rate. Plus, you don’t have to pay the extra $5,675 in fees up front. That money compounded over 30 years at 8% is another $57,000. So the benefit of using a regular old 30 year fixed loan with 20% down could be as much as $235,000 on a $500,000 home.”
This can seem a bit confusing, but the point is that with a physician loan, it is more than likely that a borrower will spend more money over the course of several years than with other types of loans.
However, not many graduates and residents have that type of money to put down right away, which is why the physician loan exists in the first place.
Some have said that it might be better for residents and grad students to rent for the first few years before committing to a mortgage. While they strike good arguments, many 4th year medical students have a burning desire to get into their first home, which can be tough to dissuade.
Not all banks offer the physician loan, but there are plenty that do. On average, it takes roughly 30-45 days to close on a home once the loan is initiated and the buyer has found an available house to their liking.
For more detailed step-by-step information on how to research, compare banks and negotiate to get the best mortgage rates, check out this article from DoctorLoansUSA.com.