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First time buyer – I’m an intern, what this doctors mortgage thing?
This is a continuation of the series of posts for first-time buyers. The initial posts concerned the steps in the real estate process involved in looking for and buying a new home. This series of posts concerns some of the things that first-time buyers are likely to hit or questions that they are likely to have.
Answer – Well, first of all, congratulations for making it this far in your quest to become a doctor. You’re in the home stretch. And, speaking of homes, there are special programs now available in all 50 states for newly minted doctors to get their first home.
The so-called Doctors Mortgages or Doctor Loans have some great features, including the possibility for zero down and with no PMI. These mortgage are often balloon loans and do carry a premium in the rate, however the lack of PMI makes up for part of that.
So what’s the how and why of all of this? Well banks, led by Bank of America in this case, figured out that there is a significant number of new doctors emerging from the medial school process each year. These are people who’ve been heads-down and flat out for 6 – 8 years studying and learning how to be doctors. Many of them have not established any regular credit; or, if they have credit cards they may be maxed out. Many of them are already heavily burdened with student loans to help pay for all of that schooling – not exactly what would be considered to be prime risks for mortgages.
BoA looked at that market and said, “You know what; these are high potential earners with historically good records for paying off debts”; so they created a special mortgage program just for new doctors. The states probably got involved because this is a case of discrimination (in a good way) that had to be blessed. The States that jumped on the band wagon like the program because it encourages new doctors to stay I the state. Now there are many banks offering these mortgages in all 50 states.
So what are the programs?
A doctor’s loan:
Is made to a new resident, new attending (7-10 years out of residency or less), or dentist only (although some offer loans to veterinarians, optometrists, podiatrists, and even attorneys)
Requires little money down (0-5%)
May not require the borrower to purchase mortgage insurance (PMI), varies by company
Will accept a contract as evidence of future earnings (instead of paystubs the doctor doesn’t yet have)
Requires the physician to open a bank account at the bank from which the mortgage is paid by auto-draft
Is designed for town homes, row houses, and single family homes (not condos)
Has the same rate whether loan amount is above or below “jumbo loan” limit ($417,000 in my area)
Some programs even allow you to use gift money for a down payment
Requires cash reserves equivalent to a few months of Principle, Interest, Taxes, and Insurance (PITI), a reasonably good credit score, and a loan payment to income ratio of no more than 38%
Often doesn’t calculate student loans toward the loan to income ratio
This isn’t a free-lunch program. You may pay a slightly higher rate to get one of these loans, but it is structured such that you can refinance it once you get over your startup period (and costs) as a new doctor. It looks the other way on some of the debt load that you are already carrying based upon historical data that says you are a good credit risk. While it does cost more in terms on monthly interest you will get part of that back because of the lack of the monthly PMI payments.
All-in-all, given the problems that a newly minted doctor might have getting a convention mortgage loan; this seems like a good program to check out. I would advise that you go to the sites mentioned below and carefully read through them to see if this is for you.
Norm Werner is a full-time Realtor® working for Real Estate One in Milford, Michigan. Norms helps people buy and sell houses in Southeastern Michigan, in Oakland, Livingston and Macomb Counties
You can contact Norm about finding a new home or about getting a Market Analysis for your current home by texting or calling him at 248-7863-2497 or click here to go to his web site and fill out Help Form for buyers and sellers.
To see all of the post that have been made to this series of posts for first-time buyers (of anyone who hasn’t purchased a home recently) go to the post series index.