What to know about
Mortgages
CONVENTIONAL MORTGAGE AND MORTGAGE REFINANCE SPONSOR:
Credible: Credible has partnered with Physician Side Gigs to offer options for primary mortgages and mortgage refinancing. Explore options at (affiliate ad link) www.credible.com/physiciansidegigs. NMLS #1681276, in all states except NV, NY, UT, and WA.
PHYSICIAN LOAN MORTGAGE SPONSORS:
Fifth Third Bank: Tony Lupescu (tony.lupescu@53.com) does physician loans. He can do loans in Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, South Carolina, Tennessee, and West Virginia. NMLS #224410.
Huntington Bank: Tom Raschka (Thomas.Raschka@huntington.com) does physician loans in 40 states (AR, CO, CT, DE, FL, GA, ID, IL, IN, IA, KS, KY, ME, MD, MA, MI, MN, MO, MT, NE, NH, NJ, NM, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, UT, VT, VA, WA, WV, WI, WY, DC). NMLS #205578.
First National Bank of Omaha (FNBO): Brian Smith (briansmith@fnni.com) does physician loans in Colorado, Iowa, Illinois, Kansas, Missouri, Nebraska, South Dakota, Texas, Wisconsin, Wyoming. NMLS #1452834.
Laurel Road/Key Bank: (use affiliate link at https://www.laurelroad.com/partnerships/physiciansidegigs/, see below for details on a 0.25% rate discount) - does physician loans in all 50 states and Washington D.C.; Laurel Road is a brand of KeyBank N.A. Equal Housing Lender. NMLS # 399797. Physician Side Gigs readers must apply through http://www.laurelroad.com/physiciansidegigs to access these benefits. Terms and conditions apply. All products subject to credit approval.
You can get a 0.25% rate discount 1 when you take out a new mortgage or refinance your existing mortgage. For terms and conditions, please visit https://www.laurelroad.com/partnerships/physiciansidegigs/ for further details and get one step closer to enjoying the benefits of homeownership or see what Laurel Road can do for your student loans. Laurel Road is a brand of KeyBank N.A. Equal Housing Lender. NMLS # 399797.
Disclosures:
1. The interest rate discount of 0.25% is offered to borrowers that are a Physician Side Gig member at the time of closing. This 0.25% interest rate discount cannot be combined with other offers, except the
Rewards Program. For Fixed-rate mortgages, the 0.25% rate discount is a permanent interest rate reduction that will be reflected in the Promissory Note interest rate. For adjustable-rate mortgages, the 0.25% rate discount will apply to the initial Fixed interest rate period and will be reflected in the maximum amount the interest rate can increase over the term of the loan, subject to the minimum interest rate that may be charged per the terms of the Promissory Note.
Types of Mortgages
Conventional Mortgage
Jumbo Mortgage
Physician Loan (see below for details)
VA loan
FHA loans
80/20 and 80/10/10 loans
Typical costs involved in a mortgage
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Closing costs - Upfront expense paid at closing
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Interest - Based on loan amount, interest rate, and length of repayment term
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Private mortgage insurance - protects the lender, not you, usually necessary for mortgages with a <20% down payment.
Alternatives to physician and conventional mortgages with a 20% down payment:
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VA mortgage (assuming you qualify) - also has little or no down payment, no PMI, often lower rates/closing costs, favorable financing requirements (credit scores, debt to income ratio), cash out refinancing option. Disadvantages are funding fees, can only be used for a primary residence, and may be less attractive to sellers in a hot housing market secondary to inability to waive certain contingencies related to home appraisals or inspections
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Conventional or Jumbo loan with PMI - Will allow you to put less than 20% down but will typically require PMI and higher rates/fees
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FHA loans - can be used by those with lower credit scores or who can only put a small percentage down. While rates may be better than a physician loan, there are additional upfront and ongoing fees that may not be worth it. Additionally, student loans can make it tricky to qualify.
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80/20 and 80/10/10 loans - essentially allows you to avoid PMI by paying higher interest rates on the 10-20% portion you would have put down for a down payment
Private mortgage insurance (PMI)
A type of insurance you may be required to buy for a conventional mortgage, usually when making a less than 20% down payment. This protects the lender’s investment in the home, not you. You are usually required to pay it until you have enough equity in the home that you aren’t as high risk of a borrower. Typically, the higher your risk profile based on the amount you borrow, your credit score, and the loan term, the higher you’ll pay. It is often a percentage of your loan balance.
Jumbo loan
A loan is considered “jumbo” when it is higher than the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Unlike conventional mortgages, a jumbo loan cannot be purchased, guaranteed, or securitized by Fannie Mae or Freddie Mac, and as such, are usually subject to more stringent underwriting criteria. For 2022, for single family homes this is $647,200 in most areas and $970,800 in high-cost areas.
What is a Physician Mortgage Loan?
While each program differs slightly, fundamentally, a physician loan offers the opportunity to buy a house without putting down a substantial down payment (often zero down up to a certain amount) or without having to meet many conventional loan requirements. This is predicated on the belief by the bank that you are good for the payments with your attending physician paycheck. You typically require a signed employment contract to qualify - independent contractors or locums physicians usually still have to provide 2 years of tax returns to prove income. These can typically only be used for a primary residence, although there are some ways to use it for an investment property.
Is a physician mortgage loan a no-brainer for a physician?
No. Although the term “physician” loan may make you feel special, it is not always the best financial decision and you should carefully weigh the advantages and disadvantages. Banks are in the business of making money, and there’s no such thing as a freebie. That said, physician borrowers are attractive to banks because they rarely default on payments and often establish large banking relationships, and the bank’s willingness to make exceptions to normal protocol may be what you need to buy your first home.
Advantages to a physician loan:
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No (or little) down payment - can get 90-100% financing, thus allowing you to buy a more expensive house than you’d be able to afford if you had to make a conventional down payment
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Can be useful at a time in your life when you don’t have a down payment because of lack of substantial savings, or would prefer to direct that money towards other expenses such as student loans, a growing family, or practice buy-ins
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No private mortgage insurance (PMI)
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Favorable terms on “jumbo” loans, and overall higher loan amounts allowed
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Less disqualification based on credit scores or debt to income ratio (important for physicians with student debt), and more emphasis on the physician’s contract
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Student loans in Income Dependent Repayment (IDR) programs such as IBR, PAYE, and REPAYE can get special treatment they don’t get with conventional mortgages.
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Can close on your home before you start working
Disadvantages to a physician loan:
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Can have higher interest rates than a conventional loan, because they wrap in costs instead of presenting them upfront.
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Even if offered a similar interest rate, by putting 0% down, your loan balance is higher, which means a larger percentage of your monthly payment will go towards interest. This means it will take longer to pay off your mortgage, and you will pay a lot more in interest over the life of the loan.
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The less equity you have, the less security you have. Let’s say your job doesn’t work out, you get divorced, or this house no longer meets your needs. If you have to sell quickly or in a bad seller’s market, you may have to write a large check to make up the difference on the amount between the sales price and the amount you bought the house for.
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If you take a physician loan assuming you will invest the money and get higher returns, you are taking on multiple risks - that the other investment loses money or doesn’t do well enough to offset the interest you are paying in post tax dollars, that you don’t deploy the money, or that you just end up spending the money.
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May encourage you to buy more house than you should, leading you to be “house poor.”
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May encourage you to buy a house earlier than you would have otherwise, in a situation where it’s better to rent. Many physicians change jobs within the first few years out of training, and the costs associated with buying and selling a house are substantial.
Tips for primary mortgages:
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Shop around. Mortgage lenders will negotiate when they know there’s competition.
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Compare your total costs with a conventional versus a physician loan - run quotes for both. To initially compare apples to apples when looking at different loan options, ask lenders to provide quotes with the least amount of closing costs as possible so that you can assess the total costs in each scenario. You can then ask about ways to get the rate down by paying higher upfront closing costs later.
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If you take the physician loan assuming you will invest the money that you would have put down for a down payment to generate more than the loan costs, then make sure you actually deploy that money to invest. If it sits in your bank account or if you spend the money instead, you are losing money.
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Generally, if you want the lowest interest rate possible, you’ll pay more in upfront closing costs. Consider how long you are going to be staying in the house (i.e. is this your forever home?) when deciding how much you should pay in closing costs, and figure out the breakeven point where a lower interest rate equalizes with the upfront costs.
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ARMs have better rates, but the interest rate becomes variable after a set period of time. If you know you will stay in the house less than that amount of time or will pay off your mortgage in that amount of time, it may be worth it. Keep in mind that interest rates are currently very low compared to historical rates, and that payment could go up substantially once you are out of that window.
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If you take a physician loan, reassess regularly whether it still makes sense. Reasons why it might make sense to refinance to a conventional mortgage include reaching 20% equity in the house, getting below jumbo limits on your loan size, improvement in credit scores, appreciation of your house, or dropping interest rates.
Disclosure: We may receive compensation through clicks to our affiliate programs through this website, or we may receive compensation through advertising and sponsorships from commercial businesses. These help support the existence and mission of the group (at no cost to you), but I genuinely feel they are helpful resources! This disclosure is intended to comply with the US Federal Trade Commission Rules on marketing and advertising, as well as any other legal requirements which may apply. Any decision to do business with these companies is purely your own. We are not licensed real estate professionals, business, accounting, legal, or investment advisors. You should do your own due diligence if applicable.
This page contains an advertisement from a third-party advertiser, Credible Operations, Inc., which is licensed as a mortgage broker in some, but not all, states (see https://www.credible.com/a/mortgage/licenses). Information contained herein is provided for illustrative purposes only, without any representations or warranty as to its accuracy or applicability to you. All credit requests are subject to review and approval, and your actual loan terms will depend on your financial situation. Credible Operations, Inc. is solely responsible for the content of its advertisement and the services it provides.