A 2021 report revealed that medical school graduates owe an average of $241,600 in student loans. The same study pointed out that 76% to 89% of med school students graduate with educational debt. In total, graduates leave med school still owing some $4.3 million in educational debt every year.
An earlier report (2019) also found that 65% of active physicians still had medical school debt. Of these, almost half admitted it would take them another decade to pay all their loans off.
So, it’s no wonder that many doctors need a special type of medical loan to finance their home purchases. If not for these programs, many medical professionals would be unable to have their own homes.
To that end, we created this guide on mortgage loans for health care professionals. Read on to learn your options for financing that dream home you deserve as an essential worker.
What Are Medical Loans for Home Financing?
These loans are also called “medical professional home loans” or “medical mortgage loans.” They are home financing programs specifically for medical professionals. These include doctors, dentists, veterinarians, and even nurses.
Why Are There Home Loans Specific to Medical Professionals?
Medical home loan lenders understand that majority of medical professionals are in debt. They also know that these loans affect the credit reports of healthcare providers. However, they also acknowledge that these professionals have a huge earning potential.
As such, medical professional home loan lenders make allowances for these professionals. Compared to traditional lenders, medical loan lenders have more relaxed lending requirements.
For example, many medical loans for housing don’t factor in current student loans. Most of these specialized home loans also have low down payment requirements or none at all. Many others don’t require purchasing private mortgage insurance (PMI), either.
Why Not Traditional Mortgages?
A 2020 report found that 5% of borrowers received a mortgage application rejection. Of these folks, 35% reported that lenders denied them due to their debt-to-income ratio. This means that they owe more than what they were making at that time.
Low credit scores were also a reason for one in five mortgage application rejections. Some 12% also got denied due to having insufficient funds to make a down payment.
If lenders submitted medical professionals to the same criteria, very few will pass. Again, the primary reason is that most healthcare experts are still in debt. They make more money now that they’re in service, but they’re still paying back huge student debts.
That’s why traditional home loans aren’t fit for medical professionals.
Who Can Qualify for a Medical Loan for Financing a Home?
Physician loans are available to doctors with a medical degree (M.D.) or a doctor of osteopathic (D.O.) medicine. Some lenders offer similar programs to Doctors of Podiatric Medicine (D.P.M.). Doctors of Dental Surgery (D.D.S.) and Doctor of Medicine in Dentistry (D.M.D.) are also eligible.
Many lenders who provide physician loans also offer veterinarian mortgage loans. Several nurse home loan programs are also available to registered nurses.
Interns, residents, and fellows can also qualify for medical mortgage loans. However, they can only usually borrow lower maximum loan amounts than active doctors.
What Are the Benefits of a Medical Loan for Home Financing?
Medical mortgage loans don’t require qualified borrowers to maintain PMI. They also have higher maximum loan amounts and flexible repayment terms. To top it off, residency contracts usually suffice as proof of employment.
No PMI Needed
Private mortgage insurance exists to protect lenders from potential non-payment. Most lenders require annual PMI when borrowers can’t make a down payment of at least 20%.
Yearly PMI rates usually range from 0.58% to 1.86% of the original loan amount. The higher the amount of money borrowed, the higher the PMI rate lenders usually require.
Let’s say you’re a regular, non-medical professional and you’d like to finance a home that costs $450,000. Let’s also say you can only put a down of $50,000 and not the full 20% down payment of $100,000. In this case, you’d need to borrow $400,000, and since you can’t make a 20% down, you’d also need to get PMI.
That means your PMI payments can add another $2,320 to $7,440 every year to your mortgage costs. You’ll keep paying for this until the lender cancels it once you gain 20% equity on your home.
Most medical mortgage lenders don’t require PMI, even if you can’t make a 20% down payment. Since you don’t have to pay PMI, you can then use the money you save to pay for your student debts instead.
Educational Debts Not Included in Debt-to-Income Ratio
Medical professional mortgage lenders still factor in the DTI of borrowers. However, many usually exclude educational debts. In most cases, these apply to student loans with deferred payments or are in forbearance.
Easy-To-Meet Employment Requirements
Income-related issues are another common reason for mortgage rejections. So much so that the 2020 NAR study found 14% of mortgage denials were due to “unverifiable” income.
After all, lenders need applicants to prove that they earn enough income to pay back their debts. So if they can’t prove this, they’re unlikely to get approved for a traditional mortgage.
Medical loans for home purchases are often an exception. Many medical lenders acknowledge employment contracts as proof of income. They grant loans to applicants who are about to start or are still in a residency program.
Buy That Dream Home of Yours With a Medical Mortgage Loan
As you can see, a specialized medical loan can make it easier for you to finance the purchase of your dream home. If you’d like to take that first step to homeownership but can’t due to your student debts, this loan may be a good idea. What’s more, some lenders may even offer you medical business loans to start your own practice.
Interested in more home and living tips and tricks like this? Please feel free to check out our other home improvement resources then!