Never have there been so many options for physicians seeking a mortgage. Banks have come out of the woodworks to offer doctor or physician mortgages as they are so often called. In a nutshell, these loans make it easier for doctors to qualify for mortgage financing.
How does a physician mortgage make it easier to qualify?
As compared to a conventional mortgage or a jumbo mortgage, the physician mortgage has more malleable underwriting guidelines.
Generally speaking, most doctor mortgages will allow you to:
- Put zero to 5% down without any monthly private mortgage insurance (this can save you thousands upon thousands over the 5 to 10 years you own your home).
- Close up to 90 days before the start of your new employment contract. If you have a job ending in Texas, a new job starting in Utah and you want to close on a new home before you start your new job, you will need to use your employment agreement or offer letter to qualify. No bank anywhere will allow you to use your current Texas employment income to qualify for a primary residence in Utah. The doctor mortgage allows you to close before you start your new job, making your families transition that much easier.
- Finance jumbo loan amounts (over $453,100) with less than 20% down payment. For many physicians that are behind the eight ball in saving for retirement or have significant student loan debt from medical school, this can spare some much needed capital for investment in other areas.
- Doctors who own their practice, working as independent contractors or in a partnership being paid a K-1, all fall under self-employed borrowers and require two years tax returns for conventional and most jumbo loans. A physician mortgage lender will typically have more flexibility in approving these types of clients with less than two year history. In some cases, a physician mortgage lender can approve a client based on their employment contract, if there is a guaranteed base, before their first day on the job as an independent contractor.
Where are the landmines with a physician mortgage?
One of the biggest mistakes I see doctors making when searching for a mortgage is in assuming they will qualify. There are so many physician mortgage options out there, it can become confusing and I see far too many physician clients making the decision on a mortgage lender based on interest rate quote alone, without regard to if they will qualify for that program.
The fact that you are a doctor does not mean you will qualify for a doctor mortgage. The letters MD behind your name is not a de facto pre-approval letter for a physician mortgage.
We receive an unfortunate amount of business from clients whom did their mortgage searching by asking for mortgage interest rates alone. Once they’ve found a home and deliver their documents, they are declined by the underwriter with real estate deposits on the line and only weeks left to close.
This can be avoided by asking better questions and by verifying the resume and reputation of your physician mortgage lender.
Understand that not all mortgage loan officers and banks have adequate experience working with doctors; many out there today have access to a physician mortgage program but do not have sufficient experience to help you avoid the landmines.
Does the lender you are considering have positive physician mortgage client reviews? A lot can be learned by doing a Google search for the bank’s mortgage reviews or by asking the loan officer for past physician clients that you could contact for references.
As I write this article in May of 2018, I’m currently working with five clients that did not do sufficient research on the mortgage lender they chose and have been declined weeks into their real estate purchase agreement. Here is an email I received this morning from a physician mortgage client in Las Vegas:
I was promised a home loan from the other company that pre-approved me in the first place before I was referred to you. I was advised to go back to them after we ran into that hard stop with the co-signer. And even after I explained to them what you had told me about needing a co-signer it took them a week to figure out the exact same thing and tell me no, I need a co-signer. All along the way they were very confident they would have no problem getting my loan through. And now I’m back to where I started with less time.
I’m never buying a house again, this process is making me lose my hair. Very frustrating.
Regardless, I want this house, my realtor is going to request an extension on the days.
I felt like you had a better sense of the details of what is needed here, and the other company really burned me this past week.
If you’re still interested in handling this loan my partner will co-sign.
Speed is another major challenge for most physician mortgage lenders – most are simply too slow to compete in today’s crazily competitive seller’s market.
Many of my clients are seeing multiple offers on the properties they offer on and the speed at which you can close is a major advantage or hurdle for you as a buyer depending on how fast your mortgage lender can move from contract to close.
This can vary widely by state and even the city in which you are buying in, but if you want to be extremely competitive, you need to be able to close your loan in seventeen days or less. You need to be able to complete with cash offers in many instances.
I’m hearing clients tell me that many banks are quoting thirty to forty days to close and as such, it is hard for clients to get their offers accepted in this market.
One of the things we do to help clients is guarantee that we can close their loan in seventeen days or less and in some cases we will even guarantee their earnest money so they can make an offer without any financing contingency in the purchase agreement. This makes a clear statement to the seller that you are legitimately pre-approved and can perform quickly.
The good news is there are solutions to these challenges and you can protect yourself if you take the time to do a little more due diligence before deciding on a physician mortgage lender.
- Choose a physician mortgage loan officer who can educate and truly guide you. This person should be able to diagnose and challenges that may arise, should be asking enough intelligent questions to really understand your situation and predict any potential landmines up front. If you don’t get feeling your loan officer is asking the tough questions and really digging in to understand your situation, keep looking for one that does.
- Once you have a good feeling about a loan officer; take the time to verify their reputation. Look for client testimonials on their website, check out their LinkedIn page, Google their name and try to find client reviews from Google, Facebook, Angie’s List, etc.
- Obtain a full credit and income approval. The reality is, the mortgage underwriter is the most important person in the mortgage transaction because they will have the final say in approving or declining your loan.
I always suggest that clients gather and submit their documents up front before making an offer and go through our extensive credit and income approval process. Rather than having your documents reviewed by an underwriter after you have written an offer, we have reversed the process and have our in house underwriting team review your documents up front, virtually eliminating the chances of something going off the rails after you have contracted your new home.
- Use the best home search technology available. We advise clients to stay off of the typical media sites like
Zillow, Trulia, and Realtor.com because those websites do not have direct access to all MLS (Multiple Listing Services), which is what Realtors have access to.
These media companies have some but not all of the data listed on the MLS, and most of what they have is delayed by up to twenty five days, meaning your dream home might be on the MLS today but you may not see it for weeks. We suggest clients download and use
HomeScout because it will give you access to one hundred percent of the MLS listed homes and gives you the exact same power that a Realtor has to search for a home.
- Carefully select your Realtor. This has become more crucial than ever as the demand for housing has continued to outpace the supply of new homes being built. In this market, the reputation of your Realtor matters.
You want to use someone who is familiar with physician relocation and has a great reputation for getting deals done. I would again recommend you seek testimonials or reviews from past physician clients whom have successfully worked with the Realtor before making a final decision.
Let us know if you have any additional questions about doctor mortgages and what we can do to help you and your family.
Josh Mettle NMLS #219996 is an industry leading author and mortgage lender, specializing in financing physicians, dentists, CRNA, and physician assistants. You can get more great physician real estate and mortgage advice here or his by visiting his book site. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. Josh is dedicated to helping physicians become more financially aware and able; listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.
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