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Tuesday, April 29, 2014

First time buyer – I’m an intern, what this doctors mortgage thing?


Answer – Well, first of all, congratulations for making it this far in your quest to become a doctor. You’re in the home stretch. And, speaking of homes, there are special programs in many states, including Michigan, that are just for new doctors.

The so-called Doctors Mortgages have some great features, including the possibility for zero down and with no PMI. These mortgage are often balloon loans and do carry a premium in the rate, however the lack of PMI makes up for part of that.

So what’s the how and why of all of this? Well banks, led by Bank of America in this case, figured out  that there is a significant number of new doctors emerging from the medial school process each year. These are people who’ve been head-down and flat out for 6 – 8 years studying and learning how to be doctors. Many of them have not established any regular credit; or, if they have credit cards they may be maxed out. Many of them are already heavily burdened with student loans to help pay for all of that schooling – not exactly what would be considered to be prime risks for mortgages.

BoA looked at that market and said, “You know what; these are high potential earners with historically good records for paying off debts”; so they created a special mortgage program just for new doctors. The states probably got involved because this is a case of discrimination (in a good way) that had to be blessed. The States that jumped on the band wagon like the program because it encourages new doctors to stay I the state. Now there are several banks offering these mortgages in many states.

So what are the programs?

Here are some basic features as outlined on the Web site The White Coat Investor
A doctor’s loan:
  • ·         Is made to a new resident, new attending (7-10 years out of residency or less), or dentist only (although some offer loans to veterinarians, optometrists, podiatrists, and even attorneys)
  • ·         Requires little money down (0-5%)
  • ·         Doesn’t require the borrower to purchase mortgage insurance (PMI)
  • ·         Will accept a contract as evidence of future earnings (instead of paystubs the doctor doesn’t yet have)
  • ·         Requires the physician to open a bank account at the bank from which the mortgage is paid by auto-draft
  • ·         Is designed for townhomes, row houses, and single family homes (not condos)
  • ·         Has the same rate whether loan amount is above or below “jumbo loan” limit ($417,000 in my area)
  • ·         Some programs even allow you to use gift money for a down payment
  • ·         Requires cash reserves equivalent to a few months of Principle, Interest, Taxes, and Insurance (PITI), a reasonably good credit score, and a loan payment to income ratio of no more than 38%
  • ·         Often doesn’t calculate student loans toward the loan to income ratio

You can go to the article on that site for a complete list of states where this program is available.

This isn’t a free-lunch program. You will pay a higher rate to get one of these loans, but it is structured such that you can refinance it once you get over your startup period (and costs) as a new doctor. It looks th other way on some of the debt load that you are already carrying based upon historical data that says you are a good credit risk. While it does cost more in terms on monthly interest you will get part of that back because of the lack of the monthly PMI payments.

There are other programs available to doctors, just like they are to others and you can read about them at The White Collar Investor site, too. You can read more about doctor loans and comparisons with other options at http://www.physicianloan.org/DoctorLoanComparison.html. That site also has great information about who qualifies and other features of the program.


All-in-all, given the problems that a newly minted doctor might have getting a convention mortgage loan; this seems like a good program to check out. I would advise that you go to the sites mentioned in the article and carefully read through them to see if this is for you.

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