The other day, I received a call at the office from a gentleman who said that he anticipated completing his residency soon and relocating for his first staff position. He specifically wanted to learn about our physician loan program and he asked flat-out whether we offer low interest doctor mortgage loans. The way he asked the question is what merits discussion. Do we offer mortgage loans at competitive rates? Yes. Do we have a special physician mortgage loan program designed to accommodate the unique financial circumstances of residents, fellows, and new doctors? Absolutely we do. But, do doctor loan programs generally guarantee a low interest rate? That depends — compared to what?
It is not at all unusual for residents, fellows and new doctors to feel as though they have to put their home buying plans on hold while they save 20% for a down payment. They typically have high levels of debt from student loans, but they anticipate high future income. Physician loan programs address these circumstances by offering low- or no- down payment loans, generally with no monthly mortgage insurance premiums.
Doctor loan programs may additionally allow the 100% financing of a home at rates that mimic conventional loans but that would require a 20% down payment. For a doctor who is just starting a career and carrying significant debt, the ability to finance a home’s entire purchase price can be a huge benefit. Furthermore, doctors who authorize automatic, electronic monthly transactions to pay their mortgages may qualify for additional pricing incentives, such as a “credit to pricing” that nets a slightly lower interest rate.
Whether a particular physician qualifies for a “low interest rate” doctor mortgage loan, however, really depends on that individual’s credit score and other factors, including the following:
Prime Lending Rate – This is the rate set by the Federal Reserve; it establishes a baseline that lending institutions use to determine their actual or effective rates.
Credit Score – Typically, doctor loan products require certain minimum credit scores. Merely meeting the minimum criteria for the loan does not guarantee the lowest possible interest rate. Generally speaking, as with other loan products (such as conventional mortgages, VA loans, and adjustable rate mortgages), the higher one’s credit score is, the lower the effective interest rate on the loan will be.
Term of the Loan – Mortgages amortized over 15 years will offer lower rates than 30 year amortizations. Additionally, you may consider an adjustable rate mortgage. These can be ideal if you know you’ll only be holding the home for between 5 and 10 years.
Of course, there are other factors and everyone’s situation is unique. For residents moving into an attending role, the date you begin your new contract may be a consideration. Student loans coming out of deferment, the number of trade lines you have on your credit, how long your established credit history goes back, etc. can all be factors that may affect your ability to qualify.
So, do we offer low interest rate doctor loans? Yes. We offer competitive physician loans with underwriting, financing and repayment features that are specifically designed to accommodate doctors’ unique debt-to-income and cash flow circumstances. How “low” that rate actually is – whether the doctors go through our office or another lender’s – will ultimately depend on outside factors (such as credit score) more than the loan product’s features.
(It is also worth noting in this context that interest rates alone are not the only factor to consider when selecting a lender and a loan product; see our comments about when it does – and doesn’t – make sense to ‘buy down’ interest rates at our previous blog entry here.)
To read more about the Doctor Loan Program, click here.
The doctor loan program is available to physicians in Alabama, Arkansas, Delaware, Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Washington, D.C., West Virginia and some counties in New Jersey and Pennsylvania.