That’s right – a physician mortgage loan only counts the total monthly payment you make through an Income-Driven Repayment Plan (IDR) as part of your total DTI. So, if your monthly payment toward your loans is relatively low due to a lower starting salary when you apply for your mortgage, your total DTI will be significantly lower than if you were to use your full loan value as part of your calculation.
Loan Limits
Through conventional mortgages, the most you can borrow for a conforming loan is between $548,250 in most areas and $822,375 in high-cost areas. Physician mortgages don’t have this same borrowing cap, which can provide more flexibility for physicians and their families. Keep in mind, however, that just because you can borrow more than you would be able to through a conventional loan doesn’t mean you should. Physicians should still look to borrow within (or below) their means to maximize their salary.
A recent study showed that physician mortgage rates are on par with conventional jumbo mortgage rates. However, this isn’t always the case. Your interest rate will still largely depend on your unique financial situation. It can be helpful to look at a physician mortgage calculator to get a ballpark idea of what you can expect.
Ultimately, the different interest rates from a physician mortgage loan vs. a conventional/FHA loan is one of the most vital calculations when comparing your loan options.
A physician mortgage loan may sound like a best-case scenario, especially if you’re a relatively new physician looking to purchase a home for your family. However, there are a few drawbacks that may influence whether or not you decide to pursue a physician mortgage for your home-buying journey.
Interest Rates
With a conventional mortgage, you can often select a fixed mortgage rate that makes it easier to anticipate your mortgage expenses for the life of your loan. A physician mortgage loan may come with a variable interest rate. Variable rates can be financially dangerous, especially if you’re planning to stay in your home for the long term.
Variable rates often increase over time, which might mean you end up paying more over the life of your loan. You always have the option to refinance in the future, but variable rates can be sneaky. Your monthly payment may slowly increase without you noticing, and by the time you think to refinance you’ve already been overpaying.
Another drawback to physician mortgage interest rates is that they’re often higher than conventional mortgages. Some conventional mortgages have interest rates of 3.0% or lower, and many physician mortgages ), depending on your unique financial situation. Although the difference may seem minimal, keep in mind that even a small interest rate difference can have a large impact over time.
The tool from Bankrate is fantastic for comparing the total costs of any new debts. Here is an example comparing a $500,000 mortgage for 30-years at 3% vs. 3.5%; you can see that the “small” .50% lower rate ends up saving $50,000 over the life of the loan!
Limits on Primary Residence Types
Some lenders won’t allow you to take out a physician mortgage on a condo as your primary residence. Similarly, they have limits for rental properties and vacation homes. These types of residences often are associated with higher risk, and lenders put limitations in place accordingly.
Who Qualifies for a Physician Mortgage Loan?
- Medical resident
- Fellow or attending physician (7-10 years out from medical school)
- Dentist or veterinarian
- A degree or proof of education
- Signed contract indicating future salary (not all require https://worldpaydayloans.com/payday-loans-md/ this, especially early in your training)