For a long time the Bank of America Doctor Loan was the best and, in some cases, the only option available as financing for doctors and medical residents who wanted to buy a home. On April 1, 2009, Bank of America indefinitely suspended their Doctor Loan Program due to the economy and the impending restrictions on risky lending practices. This has made finding financing for the purchase of a new home very difficult for young physicians, especially those still in residency. There are other programs available, but they are often hard to find and nearly always limited to specific geographical areas. If you can find a lender who offers Doctor Loans in your area, then it is worth checking out because the advantages of owning your own home can often make it more affordable than you think.
As a Realtor that specializes in real estate for doctors I can personally attest to the fact that, for medical residents and young doctors, the most important question when buying a home is whether or not you can afford your own home at this point in your life. With so much student loan debt, many young doctors don’t even consider homeownership until a few years after residency. And many that do are often easily discouraged. However, with the right financing, the mortgage payments for a home can often be more affordable than renting a similar property. The bottom line is that, if you plan on staying in the same city for the next several years, then homeownership is definitely something you should consider, and you should start by learning about Doctor Loans.
So, what is a doctor loan? The Bank of America and similar programs were built on the idea that young doctors do not fit into the conventional profile of homeowners. They have lots of student debt and a comparatively lower income. According to conventional lending practices, they would be very risky borrowers. Lenders offering Doctor Loan Programs understand that a physician with a lot of debt isn’t less creditworthy, that’s just what it means to be a young doctor.
Dr. Loans and other similar mortgages:
- Offer 100% financing that requires no down payment
- Do not require Private Mortgage Insurance (PMI)
- Offer flexible Debt-to-Income ratios that don’t count deferred student loan debt against the applicant
- Offer competitive interest rates that do not penalize the applicant for increased risk indicators
What options are still out there? There are some large lenders out there that offer Physician Loan Programs or Doctor Mortgages. They can get you the financing you need and might even be experienced working with doctors, but they operate at a national level and may not have any loan options in your specific area. For instance, there are very few options available in the Chicago area, and those that exist have proven difficult to find for homebuyers. Be careful, though, because many of these mortgage brokerages and lenders cropped up over night after the Bank of America Program was suspended and some will try to take advantage of the situation by charging much higher interest rates than normal citing “increased risk,” and “poorly qualified” borrower background. Remember that the entire philosophy of a Physician Loan is based on an understanding that doctors have unique financial circumstances that do not, if fact, make them risky borrowers.
Another option is to find a local real estate agent or Realtor where you want to buy a home that specializes in real estate for doctors. They will often have a connection to a good mortgage broker that offers Physician Loans. This is often a better approach because your Realtor can help put you in contact with trusted mortgage brokers, and they will often already have a working relationship with lenders who specialize in this field. Plus, you will find that these real estate agents are experienced with the unique work schedules and financial circumstances of doctors, so they are better equipped to help you through the process of financing and beyond.
How can you apply for one? Start by searching online for a Physician Loan Program in your city. Again, many of these programs are limited to geographic areas so be as specific as possible (i.e. “Physician Loan Program Chicago” for Chicago and its suburbs). If you can’t seem to find one in your area, then try to find a local Real Estate Agent that specializes in real estate for medical professionals. They should have a connection with a lender or a mortgage broker that will offer some type of Physician Loan. Then, they should walk you through the entire process from financing to closing.
Remember, not every Doctor Loan Program will be the same. Though, they should all have better terms than the financing that you could get with a conventional mortgage, some will be markedly better than others, especially when it comes to the interest rates that they offer. Just be diligent in checking around and don’t just go with the first lender that says the words “Doctor Loan.” Keep that in mind and you will be well on your way to owning your own home in no time.