Doctor's Loans?

[Deleted]

This is the type of loan we got for the house we bought last year (but diff bank). 0% down and 5% interest rate. The bank was very very easy to work with, but it took us a while to find one since all the local banks did not have this type of loan. We will refinance this year, just enough for us to save for a 20% downpayment and switch to a conventional loan and get a better interest rate (we hope at least).

ETA: DH is the physician in the family and did all the work on the loan but feel free to PM me if you have questions and I will ask him.

[boiler717]

Several of my friends did this, and most did 0% down

[ktzmoh]

Why do doctors qualify for special loan terms with no PMI?

[auntie]

When my BIL returned to his small home town to practice years ago the local bank offered him a very favorable mortgage- no down payment, no PMI, very low interest. This was common in some towns and meant to encourage young docs to set up practice which serves the community and brings the bank/community business.

[Deleted]

Jan 30, 2013 21:24:48 GMT -5 auntie said:

When my BIL returned to his small home town to practice years ago the local bank offered him a very favorable mortgage- no down payment, no PMI, very low interest. This was common in some towns and meant to encourage young docs to set up practice which serves the community and brings the bank/community business.

If I remember correctly doctors are able to get this only upto 5 yrs post residency/fellowship. Assuming after that they are more than capable to have that down payment for a conventional loan. So yeah, they can't just do this at any time in their career and is more meant to help out someone who just got out of training.

The way it was explained to me was that they have less risk of losing their jobs and defaulting on a mortgage. Pretty much all we needed to get approved was a contract with a starting date within 60 days after closing. So we closed and moved about 1 month before DH started his job. 

[ktzmoh]

Jan 30, 2013 21:42:39 GMT -5 asdfjkl said:

Jan 30, 2013 18:12:43 GMT -5 ktzmoh said:

Why do doctors qualify for special loan terms with no PMI?

Because they are very low risk and very high income/asset.  

I guess I don't understand why doctors are lower risk than anyone else coming out of postgraduate school in a high paying field. why a special program for doctors only? 


I could see some sort of program to create incentives for doctors to practice in rural or low income areas or something, but that doesn't seem to be the aim of this program

ETA: Wait, I just saw that it's not really even targeted at people just out of school. Now it's even more bizarre to me.

[tarheels]

Jan 30, 2013 23:37:37 GMT -5 ktzmoh said:

Jan 30, 2013 21:42:39 GMT -5 asdfjkl said:

Because they are very low risk and very high income/asset.  

I guess I don't understand why doctors are lower risk than anyone else coming out of postgraduate school in a high paying field. why a special program for doctors only? 


I could see some sort of program to create incentives for doctors to practice in rural or low income areas or something, but that doesn't seem to be the aim of this program

ETA: Wait, I just saw that it's not really even targeted at people just out of school. Now it's even more bizarre to me.

What other post-grad program comes with guaranteed employment til the day you die?  Not a one.  There's no such thing as an unemployed doctor.  There's sure as hell such things as unemployed lawyers and bankers...and don't get me started on the pointlessness and unemployability of fluffy degrees like PhDs in Haitian Culture (see: DH's aunt teaching 9th grade French with said degree).  Doctors, by their very nature, are responsible, driven people who simply aren't likely to default.

This is really no different than a VA loan.  Military personnel are proven to be among the lowest risk borrowers out there.  Between job security and personal integrity, banks believe they're entitled to a better interest rate and low PMI.  (Many people don't know that the fed gov't doesn't give the money for a VA loan, it merely backs it, telling the bank, "We're so confident this person won't default, we'll pay you back if they do.")  So it's no skin off the bank, just like giving a low rate and no PMI to a doctor is.  The doctor's going to pay them back.  Just like someone who's not a doctor or a soldier with an 800 credit score and great income in a solid field qualifies for a low rate, so does someone who meets other indicia of reliability.

Edited for typos.

[TBM]

I have seen homes belonging to doctors get foreclosed. More than a couple. We live in a hcol area though. Doctors are human and like everyone else, some live beyond their means. Debt, drugs, divorce...I've heard it all.

I am not saying that as a group they are not a good credit risk, or even better than most...just saying that there is no such thing as market proof, as long as human nature can play into it.

[teeah22]

So what kind of interest rates do you get with these loans? I didn't know programs like this existed, I definitely would have checked into them when we got our loan a few months ago (as I pay $300 a month in PMI ) They might not do them for DDSs in my area anyway but I would have checked it out.

[midwest07]

To the OP...maybe I am not up on the requirements for an FHA loan right now, but when we got ours, we only needed 3.5% down and the rate is at 3.5 right now.  I think you would be a lot better off putting down a small amount and getting a lower rate than 5%.  5% is historically really low, but it would be considered high right now.  That assumes you qualify for FHA though, which you may not depending on the size of mortgage you are seeking or other factors.

I do find this interesting in general though...I agree with the poster who commented about seeing more than one doctor with a foreclosed home.  In a prior job, I worked on some divorces involving doctors and was amazed at the high mortgages they had taken out right after school.  Even on their salaries, it was still a huge payment, especially when coupled with student loans.  I wonder if they are looser standards on these loans as far as debt ratios and such.

[wawa]

Jan 31, 2013 10:36:20 GMT -5 midwest07 said:

To the OP...maybe I am not up on the requirements for an FHA loan right now, but when we got ours, we only needed 3.5% down and the rate is at 3.5 right now.  I think you would be a lot better off putting down a small amount and getting a lower rate than 5%.  5% is historically really low, but it would be considered high right now.  That assumes you qualify for FHA though, which you may not depending on the size of mortgage you are seeking or other factors.

I do find this interesting in general though...I agree with the poster who commented about seeing more than one doctor with a foreclosed home.  In a prior job, I worked on some divorces involving doctors and was amazed at the high mortgages they had taken out right after school.  Even on their salaries, it was still a huge payment, especially when coupled with student loans.  I wonder if they are looser standards on these loans as far as debt ratios and such.

from the link sbp provided: 

Q: How do student loans impact the financing I’m able to obtain?

A: Traditional mortgage loans consider your student loans into your debt-to-income ratio. (click here for more info on debt-to-income ratios). However, your educational debt is not considered and does not impact your ratios with the doctor loan program.

 

 

Any other debt you have such as consumer debt, credit card debt or automobile loans will affect your borrowing power.

[midwest07]

Jan 31, 2013 11:00:15 GMT -5 asdfjkl said:

Jan 31, 2013 10:36:20 GMT -5 midwest07 said:

To the OP...maybe I am not up on the requirements for an FHA loan right now, but when we got ours, we only needed 3.5% down and the rate is at 3.5 right now.  I think you would be a lot better off putting down a small amount and getting a lower rate than 5%.  5% is historically really low, but it would be considered high right now.  That assumes you qualify for FHA though, which you may not depending on the size of mortgage you are seeking or other factors.

I do find this interesting in general though...I agree with the poster who commented about seeing more than one doctor with a foreclosed home.  In a prior job, I worked on some divorces involving doctors and was amazed at the high mortgages they had taken out right after school.  Even on their salaries, it was still a huge payment, especially when coupled with student loans.  I wonder if they are looser standards on these loans as far as debt ratios and such.

Since we plan to buy a fixer upper, an FHA loan isn't really an option for us.  Plus, even though your interest rate is .3% lower than what we were quoted, I'm assuming you're paying at least $250 per month in PMI.  We actually talked to the officer about an FHA because if offered it as an alternative to the doctor program if we bought a multi-unit complex to convert to a SFH, which is something that we're also considering doing and would not be permitted under the doctor loan program.  In general though, I think it would come down to an analysis of which monthly payment is cheaper, because we'd like to keep that down. 

I think that people are getting kind of turned off by the idea that there's some kind of loosening of the standards for doctors and there's really not.  The terms of the loan are more favorable because the assumption is that once you qualify, as a physician, you are unlikely to find yourself out of a job or in a situation where you suddenly can't afford your monthly payment anymore.  But the process of qualifying, as I understand it, seems to be more restrictive than a regular mortgage.  The credit score is higher, the savings is higher, the limits against the self-employed...  I think if this product were offered to the masses, the overwhelming majority of people wouldn't qualify for it anyway.  And then on top of that, they're riskier than physicians because most fields are simply more volatile than medicine.  

We do pay PMI, but it's only around $85 a month.  I have never been able to figure out how it's so low because our mortgage isn't that low, probably about average nationwide, but I don't ask!  But I do understand the idea that a higher interest rate could be better if you don't have any PMI, especially if the goal is a low payment.  I also understand there are lots of reasons FHA isn't for everyone, including fixer uppers.

As Wawa posted, it does appear the standards are a little different since student loans are taken out of the mix, which isn't the case for most people.  But it sounds like other standards are still high.

My real point should have probably been more clear in that I still hope people don't buy over their heads, whether they are doctors who have a guaranteed job but also high student loans and are often starting their real career later in life, or poor lawyers like my H and I.    We definitely wouldn't qualify for any program that wants borrowers with guaranteed jobs!  I guess unless we were Fed, and probably not even then.

[midwest07]

I also think it's a really great idea if part of the intent is to get doctors to settle into underserved areas and buy a home right away, which would better root them to the community.

[ktzmoh]

I get that as a group MDs are lower risk than average. I could imagine some kind of system that accounts for the stability of employment in an individual's field, and even possibly (possibly) not counting some student loans in the debt-income ratio. But this still seems overly gratuitous for just one category of low-risk borrowers and the exclusivity is off-putting.

[teeah22]

Jan 31, 2013 13:11:42 GMT -5 ktzmoh said:

I get that as a group MDs are lower risk than average. I could imagine some kind of system that accounts for the stability of employment in an individual's field, and even possibly (possibly) not counting some student loans in the debt-income ratio. But this still seems overly gratuitous for just one category of low-risk borrowers and the exclusivity is off-putting.

Some jobs have extra perks, I don't see what the big deal is...