If you are a new or established medical practitioner this program is for you! Qualifying for a home loan can be difficult when you have enormous student loan related debt on your credit report, but this product will give you hope!
Who Can Use This Loan Product?
Established and licensed Physicians who have been out of residency for one year as well as Residents, Fellows, and Dentists in medical school.
What Is This Loan Product?
The Physician Loan Program is a 5/1 or 7/1 home loan option with interest rates starting at 2.75% for physicians looking to purchase a single-family residence that is either a condo or a home with up to two units on the property.
*A 5/1 and 7/1 are hybrid mortgages that combine features from an adjustable rate mortgage (ARM) and a fixed mortgage. The loan will begin with a fixed rate for 5 or 7 years, then change to an ARM with the rate changing every year for the rest of the term of the loan. People often refinance out of this type of loan before the ARM kicks in after the 5 or 7 years. By this time you would be established in your career and would most likely qualify for a regular loan.
There are a few differences depending on whether you are a newly established physician who has been out of residency for at least one year, or if you are still in medical school. In both cases, your student loan debt will be excluded from the qualification process, and your future earning will be included!
Newly Established Physicians
• Single-family residence with up to two units on a property up to 20 acres
• maximum loan amount you can receive is $1,250,000
• maximum loan to value ratio is 90%
• Condo
• maximum loan amount is a bit lower at $750,000
• maximum loan to value ratio is 90%
Medical Students and Dentists in a Fellowship or Residency
• Single-family home with a maximum of two units on a property up to 20 acres
• maximum loan amount you can receive is $650,000
• maximum loan to value ratio is 85%
• Condo
• maximum loan amount is $500,000
• maximum loan to value ratio is 85%
Both Established Physicians and Students or Dentists in a Fellowship or Residency
• 700 minimum FICO score
• A minimum of 50% of the reserves must come from your own account
• Four months reserves for SFR, two months from your account
• Six months reserves for Condos, with three months from your account
*Reserves means enough money to pay mortgage payments; including principal, interest, taxes and insurance
• Must be eligible for membership with a Credit Union
Please remember that the program explanations above do not mean you will automatically qualify for the maximum loan amounts simply because you fit the criteria of physician. This program absolutely provides a huge advantage based on the fact that your student loans are overlooked, and your future earnings as a medical practitioner are figured in. However, qualifying for this type of loan will still depend on common factors such as your FICO, retirement accounts, savings accounts, down payment amount, etc. just like any other loan.
Preparing to Qualify
One of the best things you can do to ensure that you will qualify for this loan is to begin working on your FICO score as soon as possible. Your FICO score is a very important factor in qualifying for this loan program because a minimum of a 700 is required, and depending on your credit card habits in college, it may take some work to get there.
Below is a chart to help you visualize all the factors that play a role in determining your FICO. You will notice that “Amounts Owed” and “Payment History” are the two largest factors.
Amounts Owed is primarily referring to the balance on your credit cards, however car loans, personal loans, and any other type of installment loan also play a role.
• Your credit cards are revolving accounts
• A revolving account means the outstanding balance does not have to be paid in full every month. You are only required to make a minimum payment, based on the balance amount each month
• The balance on a revolving account shows the percentage of available credit being used. This is important to lenders because it shows whether you are close to maxing out your cards and that is a good indication on whether it will be difficult for you to make payments in the future
• It is ideal to keep your total credit card use under 30%
*If you have a credit card with a $1,000 limit be sure to keep your balance due under $300
• Your auto loan, personal loan, and student loans are installment loans
• An installment loan means that the outstanding balance is paid down monthly with a predetermined payment amount
*When qualifying for this Physician Loan Program, your student loans will still be factored in, in terms of timeliness. However, the amount of your outstanding student loans will not play a factor in determining your debt to income ratio.
• Installment loans are an important factor because it shows your payment history.
*It is important to see on time, monthly payments for the predetermined amount. This shows the lender that you will be likely to pay them as well.
Payment History is such an important factor in a high FICO score because it shows lenders the likelihood of you paying back your loan on time. One missed payment on either a revolving account or installment loan can reduce your score by several points. Always be sure to keep payment methods up to date if you have auto pay set up, and double check to be sure the payment went through. Recovering from missed payments is a difficult task and there is rarely anything you can do except balance out the missed payment with a year of perfectly timed payments.
Another factor that you can begin to work on to ready yourself to qualify for this loan is your debt to income (DTI) ratio. Your DTI is pretty much what it sounds like. It is your total debt figure divided by your income.
As noted above, this loan requires that you have a maximum 90% DTI ratio as an established physician and a maximum 85% DTI ratio if you are still in a fellowship or residency. Typically, the maximum DTI ratio that a lender would consider in qualifying a borrower for a loan is about 43%. The DTI allowance is double for this loan program in order to compensate for your student loan debt.
To get an idea of what your DTI ratio is you can click here. If it is above the maximum you can work on ways to pay off or eliminate personal or auto loans to reduce your DTI in order to qualify. If you choose to calculate your DTI as a reference point, remember that you will be allowed to use your future earnings as income. For help with this you can contact our offices and we can help you formulate a plan to get where you need to be in order to qualify.
