Picture this: You finally finished residency and were offered a full-time job at the hospital you currently work for. Now that you will be making the big bucks, it’s time to fulfill the dreams you had of owning your own home!
It’s difficult to qualify for a conventional mortgage. Luckily, you can apply for a physician home loan instead.
Keep reading to learn the pros and cons of this type of mortgage.
Physician Home Loan Pros
When you opt for a physician home loan, you get an abundance of benefits. The key advantages you can expect are below.
Little to No Down Payment
For a conventional mortgage, you have to put down at least 20% of the total purchase price to avoid Private Mortgage Insurance (PMI). PMI is tacked on by lenders to lessen their risk of loaning you money.
With a doctor home loan, you avoid PMI altogether even if you don’t pay a 20% down payment. A lot of physician mortgages require no down payment at all.
Even if your loan doesn’t require a down payment, put money down if you can to decrease your total monthly payment and interest amount.
Flexible Loan Limits
Conventional home loan options have loan limits depending on the area you want to buy a home in. Physician mortgages don’t have the same borrowing limit.
This means you have more flexibility on where to live and what kind of home to buy. However, just because you can borrow more money doesn’t always mean you should.
Physician Home Loan Cons
Because physicians have a high debt-to-income ratio early on in their careers, they don’t have a lot of loan options to choose from.
Although physician mortgages are usually the only option, it’s still important to be aware of the drawbacks of a doctor’s home loan.
High-Interest Rates
With a conventional home loan, you have the option of a fixed mortgage. A physician home loan is likely to come with a variable interest rate.
Variable rates might increase depending on the market so you could end up paying more money throughout the life of the loan. In the future, you can refinance your loan for a lower interest rate.
Because of the high debt-to-income ratio physicians have, interest rates are typically always higher with a physician mortgage loan.
Limits on Residence Types
There are different physician home loan lenders in the country that might put limitations in place on primary residence types.
Lenders might not allow the following residency types as your primary residence:
- Condo
- Vacation home
- Rental property
This means you can only use a doctor’s home loan on a house or defined residence type. It’s important to research different lenders to find out which loan is best for your needs.
What Home Loan Is Right for You?
When it comes to taking out a mortgage, doctors don’t always have a lot of options if they have a high debt-to-income ratio.
In a lot of cases, the physician home loan is the only option but it does come with a lot of benefits. You avoid PMI, large down payments, and you have flexible loan limits.
The drawbacks are that you deal with high-interest rates and have limits on residence types.
Research your options thoroughly and don’t forget to come back for more articles like this on our blog!
Also published on Medium.
