By FlexMedStaff with contributions from Neil Surgenor
Purchasing a home can be exciting, but it is also a huge financial commitment that may require significant savings to allocate toward a down payment, closing costs and many other expenses associated with buying a home. Additionally, the average person, especially practitioners, needs cash reserves for responsibilities outside of buying a home, including investments, education costs, debt and business development. Therefore, most practitioners will require the assistance of a bank or lender when purchasing a home. In this article, we’ll discuss the typical types of mortgage loans offered by banks.
Basic mortgage loans:
Conventional and Jumbo Loans. Most banks offer these and usually require at least a 20% down payment. Conventional loans may have an option to put down less than 20%, but the borrower will have to pay for private mortgage insurance (PMI). On the other hand, jumbo loans require borrowers to put down at least 20%, so the need for PMI is eliminated. Most borrowers utilize these loans if they meet the lending criteria and have at least two years of steady income from the same job, but the loan amount determines if a lender recommends a conventional or jumbo loan.
Federal Housing Administration (FHA) Loans. These are government-backed loans offered by most large banks. FHA loans require a down payment of at least 3.5% for a primary one- to four-family home or condo. These loans are available to most borrowers that meet lending criteria, however they do carry PMI and have stricter criteria for the home’s condition.
Veterans Administration (VA) loans. These government-backed loans are available to most active and former military members. These loans do not require a down payment and do not carry mortgage insurance. However, most veterans will have to pay a VA funding fee of up to 3.6% unless they are exempt.
Professional Loans. Many banks offer professional loans. These loans apply to physicians, Certified Registered Nurse Anesthetists, nurse practitioners, physician assistants, dentists, podiatrists and attorneys. Lenders can offer professional loans for primary and secondary residences on single-family homes and duplexes. Usually, you can find professional loans that allow for less than a 20% down payment, but they will carry some form of mortgage insurance or a slightly higher interest rate.
Physician Loans. In the traditional sense, these loans are specific to physicians, although some banks include dentists and podiatrists. Physician loans often have zero down options on single-family homes, condos, or co-ops depending on the lender and loan amount. One of the great benefits of physician loans is that they usually do not require PMI, even if borrowers put less than 20% down. Traditional physician loans are only offered by a few, select banks and lenders, and the requirements vary slightly for each. It’s also important to note that these loans are normally kept on the bank’s own portfolio and not sold on the open market. These loans are usually not offered by brokers or smaller lenders who don’t have the resources or balance sheet to support these products.
Physician Loan Program:
Physician loan programs can be a powerful tool for the right borrower looking to purchase a home. Here are a few common features, advantages, and misconceptions about physician loans.
Higher loan amounts with zero down and no PMI . This is true! Physician loans allow buyers to borrow substantial amounts without making a down payment of 20%. In fact, physician borrowers may be able to put 0% down and not pay PMI .
No work history is needed. Physician loans do not require borrowers to have a steady income from the same employer unlike traditional mortgage loans. In most cases, you can apply for a physician loan without a consistent work history. Additionally, you might be able to have a current or future employer submit documentation to the bank verifying your future employment.
Fixed Rates. Physician loan programs offer both fixed and adjustable interest rates.
Physician loan rates can be less than conventional loans. Physician loan rates can be comparable to or in some cases better than conventional rates.
No pre-payment penalties. As a physician, you may have more money in the future to pay down the principal of your loan. A good physician loan program should not have any pre-payment penalties, but borrowers will need to verify that with their loan officer.
You can refinance physician loans. Most banks will allow physicians to refinance a physician loan at any time without penalty.
Underwriting is slower than traditional loans. Some believe that physician loans take longer for underwriters to process which is simply not true. These loans are done in-house and therefore don’t require the typically lengthier underwriting process that can come with traditional loans.
Physician loan offerings are similar at brokers and banks. This is false. When brokers have access to programs like this, they may not offer as much flexibility around requirements as working directly with banks.
Not all banks offer an actual physician loan program. You will hear from many loan officers that they offer physician loans. Many offer professional loans that may only require a 5-10% down payment, but a physician loan is different, offering as little as 0% down with no PMI.
Always consider all your mortgage options. There may be mortgage professionals, including real estate agents and loan officers, that don’t encourage you to take advantage of physical loans. But borrowers should consider all their options. Have discussions with banks and lenders that offer physician loan programs to see what loan product best meets your needs.
Conclusion:
Over time, there have been fewer banks that offer traditional physician loan programs. Physicians should do their homework and weigh all their options. And most important, speak with a lender early in the process. He/she can help a borrower understand their overall financial health and provide the right product that fits their needs, which may in fact be a physician loan.
***Neil Surgenor from TD Bank has been a lender for 22 years and has exceptional expertise in providing physician loans for borrowers. 212 933-9900 / Neil.Surgenor@td.com
