Heavy student loan debt is often cited as a barrier to homeownership for 25- to 34-year-olds. But many mortgage lenders are eager to extend credit to one category of debt-burdened graduates: those coming out of medical school.
Special mortgage products for physicians are designed to meet the needs of doctors just starting out. New doctors typically have heavy student loan debt and very little money saved, given the modest salaries typically paid to residents, said Josh Mettle, who runs the physician home loan division of Citywide Home Loans, which is based in Salt Lake City. “They almost always have a negative net worth when they begin attending,” he said.
Eighty-four percent of graduates from medical school this year reported having student loan debt, and the median amount was $180,000, according to the Association of American Medical Colleges.
But at the same time, Mr. Mettle said, after long periods of “delayed gratification,” these young doctors are also eager to buy their first home.
Physician home loans make it easier for them to qualify. The down payment is typically 10 percent or less, with no private mortgage insurance required. Citywide Home Loans offers 100 percent financing on loans up to $850,000, Mr. Mettle said.
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A doctor loan is a specialized home loan financing program for medical doctors, including residents and fellows, looking to purchase or refinance their primary residence. In most cases, only a minimal down payment is necessary (if at all), Private Mortgage Insurance (PMI) is not required, and a range of fixed and adjustable rate loans are available.
The physician or doctor loan
In general, a physician loan or doctor mortgage is a portfolio loan product. This means that the bank or institution that is making the loan is actually going to keep and service the loan. This enables the bank making and servicing the loan to determine its own underwriting guidelines and risk threshold, resulting in more liberal guidelines for
physicians. However, each bank’s guidelines are different, so you may not qualify for one but may be a perfect match for another. For this reason, it is best to work with a loan officer that specializes in working with physicians and
other health care professionals. As a result, he or she will be much more likely to understand your unique situation and circumstance and help you choose the loan that is right for you.
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“Hi, this is Josh and I want to tell you a little bit about my new book, Why Physician Home Loans Fail — How to Avoid The Landmines for a Flawless Home Purchase.”
“You know, the genesis of this book and really our whole business in physician mortgage loans was a young man who called me from a moving truck. He was relocating from the Midwest and to the University of Utah and he was about to start his residency and he had put all of his eggs into buying a new home. Literally all of his down payment money and everything that they had saved was going toward his new home. They were packed up and relocating the family. He was going to start his job somewhere in the next week or two.”
“On the way, literally in the moving truck, he received a phone call from his mortgage lender. The mortgage lender regretfully informed him that his loan had just been declined by underwriting. He was ruined. He did not know what to do and did not know where to go from there. He pulled his family over for lunch, he gave us a call, we walked through his situation and eventually we were able to find a solution for him.”
“But that incident, that young man and that phone conversation drove me to go deeper into our physician home loan business and it also drove me to realize that there are some physicians out there we are just not going to be able to help with our mortgage products. But I have learned an awful lot on how to navigate a real estate transaction on how physicians should make sure that they insulate themselves from the risks that are commonplace for physicians. Student loans, trying to close on complicated employment contracts, maybe not as much down payment saved because you’ve been going through school for a long time – and all of those complexities bring a higher risk of underwriter decline. And, that’s a really bad thing.”
“So, the book is a navigational tool. It tells you all of the risks depending on where you are in your professional career that are commonplace, it gives you a step by step guide on how to find a Realtor, to find a mortgage professional who can guide you through the process and to make sure that you are working with someone who can help you. I hope that you will take time to read the book and if you’ve got any other questions, feel free to reach out to me and I’d be more than happy to answer them for you.”
Click here to visit our book site.
One of the nice things about the changes over the last decade or so in the publishing industry is that niche books which previously wouldn’t have had a large enough audience (and thus enough profit) for a traditional publisher to publish can now be published. That’s a win for authors and readers alike. Any financial book directed at physicians is by definition a niche book since physicians only make up something like 0.3% of the US population. The book I’m reviewing today, Why Physician Home Loans Fail by WCI advertiser Josh Mettle (that’s his ad above this paragraph so we have an obvious conflict of interest, plus he gave me a great deal on a refinance a couple of years ago), is a niche within a niche. The book is extremely useful for those it is aimed at- doctors who will be buying a home within the next year, especially if they plan to use a “doctor mortgage loan.”
Click here to read the full review.
My first day of work as a loan officer was September 11, 2001. It wasn’t a great day for business. In fact, as you’ll recall, no one was really sure whether they should do any business at all for about a week after that. I worked for a number of years primarily for Citywide Home Loans. After a while, I realized that more and more physicians were coming to me and we really hit it off. They were great clients to work for and we found if we really treated them well, they’d treat us well by referring their friends and colleagues to us. So I did a lot of research into all the various loan programs out there specifically for doctors and started Utah Physician Home Loans on the side and began marketing specifically to doctors.
So, are you a broker or a lender?
We are actually a correspondent mortgage lender. We end up funding about 90% of the loans we do and basically serve as a broker on the other 10%.
Why just Utah?
Actually, we also offer doctor’s loans in Arizona, California, and Colorado. Most of the options I can offer are available in all those states, but all of them are available in Utah. Plus I live in Utah so it is easier to focus there. [UPDATE: We now offer physician loans in more than 30 states. Soon to be in all 50.]
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We’ve got tons of great videos, including Am I better off with a higher down payment for a home or should I pay off debt?, How will student loans affect qualifying for a medical professional mortgage? , Why do self-employed or new independent contractors not qualify for a physician mortgage? and many more on our channel.
We began serving physicians, dentists and medical professionals by accident. We were referred to a young physician who had some challenges being approved for conventional financing and we were able to find a solution. We quickly understood that there were some unique challenges having to do with student loans, employment contracts, being an independent contractor, limited down payment – all of these things added to the complexity of being qualified for a conventional mortgage loan. And within a few years we had developed some unique products, solutions, some abilities to handle these issues and to qualify physicians where they are being declined in other places.
It was within a few years that we received a call from a young man who was in a particularly tough spot. He had been pre-approved to purchase a new home and he’d loaded up his family in a U-Haul and they were headed across the country. His wife, 2 kids and a dog were in in the U-Haul when he got a call from his loan officer that unfortunately his loan was declined the day before closing. What happened was that his student loans that had a zero payment because of deferral had finally made its way to the underwriter and when they reviewed that loan the loan was declined. He called us, distraught and he didn’t know where to go from there. We were able to help him, we found a solution to get the family into their home. we found some temporary housing for a couple of weeks. With all hands on deck we got the loan closed.
This was the catalyst for the expansion of our organization. This year marks a milestone for us as we’ll expand to all 50 states. He helped us understand why we exist. We believe in treating all those who seek our help with warmth, empathy and understanding. We exist to treat other people exactly they way we would want to be treated if our roles were reversed. It’s our aim to humanize the mortgage experience and we’d be honored to help you with your next home purchase.
They’ve always been somewhat of a problem, but in January of 2014 they became more of a problem. With the Dodd Frank Act going into legislation there was a rule or provision inside that act called the Ability to Repay. And in this rule it says that a mortgage lender has to prove the borrower’s ability to repay the mortgage or it’s actually illegal and the mortgage company can be fined if they have not proven the borrower’s ability to repay the loan.
So, how does that affect you? If you have student loans, it means that we have to be able to document what type of a payment is going to be tied to those student loans. And what you’re going to find with lenders across the country is that they look at that drastically differently. Some of them will default to 2% of the outstanding student loan balance, so if you have $200,000 in student loans, they are going to qualify you with $4000 a month. Some will try to find what the actual amortized payment will be with some kind of documentation from the servicer of the student loans. And some will allow you to use an income driven repayment.
And that’s where I believe we’re strong is that we take a very liberal stance in how we approach the documentation and how we calculate the student loans allowing you to qualify on an income driven repayment plan therefore allowing you to qualify for more of a loan amount and have a less restrictive debt to income ratio.
It really depends on the price point of home that you’re going to be buying, and it depends where you are in your career.
Generally speaking, we have doctor loan mortgage programs that will go up to 97% financing. That money can be gifted to you – you don’t have to have accumulated that out of your own savings. And that doctor loan will go up to a purchase price of about $430,000.
If you’re looking for a purchase price above and beyond that, say up to about $660,000, we’ll have a loan program that jumps up to at least a 10% down payment. That loan program will require 5% of your own funds, and then 5% can be gifted from a family member.
To directly answer your question on exactly how much down payment you’ll need for your specific situation. We like to start out with a phone call, we call that our compatibility interview where we spend a few minutes finding out a little bit about your situation and then we’ll give you a proposal and give you exactly where your down payment would need to be.
If you have any additional questions, as always, we invite you to reach out to us directly.
The answer is, it really depends. It depends on your exact situation.
If you’re asking a lender to go to a much higher loan to value like let’s say you’re in a situation where you want 97% financing and you don’t want to pay mortgage insurance, then yes, typically you’re going to have a higher interest rate.
If you’re in a situation where you’re putting five, ten percent down, then no, your loan as a physician mortgage should actually be more cost efficient. When you think about a physician loan, we’re either going to be more liberal in the loan guidelines, meaning higher loan to values or higher loan amounts or excluding student loan payments. But with those more liberal guidelines, understand that typically come with a little bit of a higher cost.
Now what I encourage clients to do when we look at a loan is we do a side by side comparison. We look at a physician home loan and the total costs associated – there’s no mortgage insurance so we’re just talking about closing costs and interest rate.
The we may compare that with how an FHA loan would look or a conventional loan would look. Those loans are typically going to have mortgage insurance, interest rate and then closing costs. We compare those two and do a total cost analysis so you can see the differences. So, it depends where you are and what situation fits best for you.
On average, I would say that you are going to pay about 1/8, maybe 1/4 percent more for a physician home mortgage loan that has very specific underwriting guidelines, more liberal underwriting guidelines that will help you get approved. As always, if you have more questions about that, I invite you to contact us directly.
The answer is yes. That’s one of the biggest advantages of working with a physician loan vs. a conventional or an FHA or a more traditional loan product.
Typically, underwriting guidelines are going to state that they want to see 30 days worth of paycheck stubs. So what that means to you is you would have to start your employment, wait two weeks before you got your first paycheck stub, then wait an additional two weeks before you got your second paycheck stub.
So typically you’re 30 to 45 days after you’ve started your new employment before you can qualify for a doctor home loan. That’s particularly troubling when you are relocating a family across the country. It means you are putting yourself into temporary housing or living with family for a while and then moving again for a second time.
The solution we have for you as a resident is that we will allow you to use your employment contract. And sometimes we don’t even get a signed employment contract until after you close, sometimes we just have an offer letter and then we’ll get the employment contract once you show up. But we’ll use the offer letter or employment contract – we’ll use that income to qualify you.
We can allow you to close 30 days prior to the start of that employment contract. So, yes, we can allow you to close before you start your job, and yes, you will only have to move once!
That’s all negotiable. What you should know is in a slow moving market, oftentimes buyers are able to ask the seller to cover their closing costs. That’s just pretty much par for the course.
When you see more of a fast moving market where there’s very low inventory and the sellers kind of rule the roost, then oftentimes they are going to not pay your closing costs and you’ll have to pay them yourself.
How do you pay them? There are a couple of different ways you can do that. You can do that in cash in addition to you down payment or you can actually roll it into your interest rate.
We’ve got several solutions there, where you say, “I’m probably only going to be in this house for 3 – 5 years” so maybe if we increase the interest rate an eighth or a quarter percent, which typically is only going to kick up your payment between twenty five and fifty dollars a month, then you don’t have to come to closing with the additional money.
We have solutions, we’re more than happy to walk you through those depending on your specific situation. Don’t let closing costs for your physician mortgage scare you, they are something we have a solution for.
It’s on the mind of most residents we talk to. What you should know as a resident, whether you are coming out of med school or you’re a transferring resident, there’s a lot of change going on. In that student loans may be changing, income is definitely changing, new job, and you’re relocating your family, and student loans are probably moving in and out of income based repayment and deferment and all of that adds complexity to the loan process.
So, two thing I would suggest. Number one, make sure you are working with someone who is an expert and understand physicians and physician lending.
So I would just ask them:
– How many physicians have you worked with in the last year?
– How many residents have you worked with and closed in the last year?
– Could I speak to any of them?
You’re going to understand right away if they are an expert.
Then I would check their testimonials. If they are actively working with physicians, there should be a number of past clients that you are able to speak with.
I think once you’ve done those two things, you’ve established they’re an expert, you’ve viewed some of their testimonials, you’re going to know right away if you’re dealing with someone who’ll do a great job for you or someone who may need a little more experience before they do your physician mortgage loan.
Are there Physician Home Loans available with less than 20% down, and with less than 20% down? The answer is yes. Mortgage insurance is typical in any transaction where you put less than 20% down. The only transactions I am aware of that don’t fit that rule are some specific physician programs we have available which are available with as little as 10% down.
Now some other advantages with that program in addition to having less than 20% down, no mortgage insurance – they’ll actually allow you to go to higher loan to values, what’s called Jumbo price ranges, and the underwriting guidelines are conditioned or are suited just for the unique situations for physicians. Which can be coming into a new contract, not having a two year established job history, all kinds of additional benefits and underwriting latitude that they will allow for a physician that they won’t allow for an everyday Joe off the street.
If you have questions about Physician Loans or loans with mortgage insurance, it would certainly be my pleasure to answer those for you, I’d invite you to reach out to me at any time.
The answer is absolutely. So many of our clients have so many years in training and in school and have accumulated student loans. Oftentimes those student loans are at a higher interest rate than what your mortgage could be, especially after you calculate tax deductibility. So limited down payment is always one of the topics that we like to cover with clients. And whether it’s a gifted down payment, whether you take a short term loan from a 401k, or whether you’ve scraped together a down payment that is as little as 3% – we have solutions that will allow you to get into your home, have great tax efficiency, avoid mortgage insurance and if needed, absolutely you have the ability to use gifted funds for down payment. The flexibility you’ll find with a medical professional loan is much more than what you’ll find with a conventional loan. And we encourage you to reach out to us, through our site or give us a call. We’re here, we’re anxious to hear from you and we look forward to advising you on your next home purchase.
This is a very common question we get from residents. How do I qualify for a physician mortgage loan if I’m going into Income Based Repayment? (IBR)
The most typical situation we see is residents coming out of med school, they’re in that “no man’s land.” They’re in that period between where they’ve graduated med school, they’ve got about a six month period before their repayment begins and at that point they’re going to apply for income based repayment.
Lenders really struggle with approving new residents during that period, because they don’t have a means to identify what your payment is going to be. Because you haven’t actually started repayment.
What’s different about the way we underwrite and advise clients is we will actually walk you through a process in that we can qualify off your income based repayment amount before you even enter into income based repayments.
Where most lenders will have a real challenge with that “no man’s land”, we’re able to guide you through the process and make it seamless.
We’ve done it for countless residents and even new fellows that are starting income based repayment and we’d be happy to advise you on how to get through that process as well. If you have any more specific questions about income based repayment, feel free to contact us. We’d be happy to help you.
The answer is, yes and yes. Many times we’ll see residents who have been in med school and have no income to report and have not filed taxes at all. That is not a problem for us.
What we are going to ask you to provide is simply a copy of your transcripts and eventually we’ll need your original transcripts to prove that you’ve been in school. And then we’re going to underwrite and calculate your income based off your employment contract or offer letter. So, not a problem for us at all.
It is something that is unique to a physician loan product and most lenders would struggle with but you should know we have a solution there for you and that would allow you to close prior to starting your employment contract.
It really is quite incredible, but you can have not filed taxes for two years, you can have hundreds of thousands of dollars in student loans and can close you before you ever start the first day of your employment contract.
When it comes to home loans for physicians this is a very unique solution that we have in store for our resident clients. So, if you have any additional questions, feel free to shoot us an email or give us a call.
Of course PIA is for pain in the *** and that is a question we actually got from a medical chat room. We go in there frequently to understand the challenges that medical professionals are running into when they are getting home mortgages.
And that’s a question that comes up all the time – how big of a pain is this going to be? Where we think we bring a unique perspective and an advantage to you is our deeper understanding of those challenges that you’re going to have. Those challenges surrounding student loans, new employment contracts, transferring across the country and the timing on the closing of your new home. And through our experience and deeper understanding, we’re able to bring down that PIA factor substantially.
However, understand that we are in the age after the mortgage meltdown and 2006 it was the glory days, if you could fog a mirror and you knew how to sign your name you could probably get a million dollar mortgage. That’s not today.
There’s definitely more questions being asked, there’s more due diligence, which is good for our real estate market. It’s actually good for the state of our economy, but it’s a little more work.
Our deeper understanding of the physician mortgage process is going to make it much less painful, but you are going to have more questions and probably more detailed examination by underwriting to all the financial affairs. Basically all that means is a little more documentation.
Again, for residents, this is the most difficult thing for qualifying for a physician home loan, because you are in that “no man’s land” in between where you’ve graduated med school, and where you are starting your residency and you’ve got these student loans that are deferred out for 6 months.
You don’t even have to worry about this thing for 6 months. But, to a mortgage underwriter, they’ve got to think through that.
You will find that we are good at guiding you through that process. Whether you’re going to go for an additional deferral or whether you’re going to enter into income based repayment, we have a solution for you.
We can tell you exactly what the process is and what paperwork needs to be filed so that we perfectly fit our underwriting guidelines and you don’t have a problem qualifying. I know there’s a lot of challenges out there surrounding this issue and there’s a lot of questions.
What I think you should know is we have a solution in store for you. We have a income based repayment program that works for you.
We’ll walk you through the process. We’ve done it dozens, if not hundreds of times before for relocating residents and new residents so there is a solution there for you.
Josh and Shan talk about the differences between short sales and foreclosures, the need for a real estate agent, and what your credit score needs to be in order to buy a home.
terrain for testing products.”
A recent story in The Salt Lake Tribune noted the significant growth that could soon occur in the state’s aerospace and high-tech manufacturing industry. Three companies already doing business in Utah could soon expand their investment and employment substantially to take advantage of solid demand for their products and a business-friendly Utah economy.
Josh is on ABC 4 news talking about how a government shut down would slow the real estate market.
I had a blast at the 1st Mud Run MS Utah and helped raise money for a great cause – the National MS Society:
“Mud Run MS is a 10k course with a series of boot camp style obstacles, most of which contain water and mud! 100% of the money raised by participants will benefit the National MS Society:
I was one of approximately 350 runners that rallied together to get dirty for a good cause and combined we raised$50,000 for multiple sclerosis research and local programs and services for people impacted by the disease. It was an fabulous time and reminded me what incredible power people have when united and focused on a goal.
Thanks to the great support I received from so many of you that supported me (you know who you are). What a great time and a great cause. Thank you so much!