Should I Get a Physician Mortgage Loan?

Doctor’s loans are loans that, as the name suggests, are home loans for doctors. Though they are generally available for professions that require a lot of higher education.

They are made available because of the economic realities of becoming a doctor, such as a lack of opportunity to save, high student debts, and low credit scores. The reason these loans aren’t available to other potential borrowers is that doctors have a higher earning potential, so cutting a few corners isn’t as risky on the bank’s part.

However, some risks will come to you if you decide to cut these corners.

Staying Above Water

Just like with auto loans, a significant risk run with mortgages is the possibility of going underwater or owing more on the loan repayment than the house is worth on the market. With the way a physician’s loan is typically structured, the risk is even higher.

This is due to the down payment being less, as well as the loan repayment time is longer. For a 30-year mortgage, though you pay smaller amounts each month, your interest has more time to compound, and that adds up more in the long run.

Another way in which physicians’ mortgages differ from traditional mortgages is in how they’re managed. While a regular mortgage can be refinanced from one financial institution to the other, a physician’s mortgage typically stays in one bank for the entirety of its existence.

This is done not just, so the same staff stay on the account, but also so that those staffs have more leeway in managing the particulars of the loan. Such latitude in managing the investment makes it more convenient to adjust to the rapid increases that are typical of a physician’s career.

Caveat Emptor (Let the Buyer Beware)

The latitude that banks are given in managing physicians’ loans also means that they are keeping a close eye on their borrowers. As such, they might feel compelled to change terms on your loan if you change jobs.

Keep in mind that even small changes in your interest rate could significantly change your total owed by the end of the payment period. As your salary increases, try to avoid the temptation to increase your lifestyle along with it. Instead, use that money to make your repayment period as short as possible.

Another thing that makes physician mortgage loans more attractive for borrowers is that they usually do not require the buyer to purchase PMI or Private Mortgage Insurance. While the loan itself doesn’t typically have a large down payment, the PMI does, and the down payment on a PMI is mainly dependent on the borrower’s credit score, with mortgage terms being equal or lesser considerations. Not having to pay PMI can help a lot when you are a first-time home buyer.

Another thing that should be taken into consideration before you take out a physician’s loan is that they typically include the cost of the sale of a house, which usually comprises refurbishing costs, advertisement, realtors’ fees, a home warranty, and capital gains taxes. These are either paid for upfront or added into the loan itself. Be careful if you already have considerable student debt.

A physician’s loan isn’t for everyone. But if you made it through medical school and a residency on your own and learned good saving habits, you’ll be better prepared. Stay frugal elsewhere and overpay on your loan whenever you can.