A physician loan is a mortgage loan available to doctors, dentists, and other medical professionals. They are often offered special terms and conditions, such as no down payment or a lower interest rate, that are not available to the general public. Additionally, you do not need mortgage insurance with a physician loan.
However, it is crucial to understand that not all physician loans are created equal. Here are six things you need to know about physician loans before you apply:
Physician Loans Are Not Created Equal
Like other types of loans, not all physician loans are the same. It is essential to compare different offers and choose the one that best suits your needs. Lenders may offer different interest rates, down payment requirements, and other terms and conditions.
It is also essential to read the fine print carefully before signing any loan documents. Some lenders may require you to maintain a certain level of malpractice insurance, for example, or they may place other loan restrictions. If you have questions about the loan, ask the lender before signing anything.
You May Need a Cosigner
While some physician loans do not require a cosigner, others do. A cosigner is someone who agrees to repay the loan if you default. If you need a cosigner, choose someone with a good credit history who can repay the loan if necessary. Usually, a family member or close friend makes a good cosigner.
Your lender may require you to have a cosigner if you have poor credit or if you do not have a long employment history. The cosigner will be responsible for repaying the loan if you default, so choose someone you trust and who is financially stable.
Qualification Requirements Vary
As a standard requirement, you will need to be a licensed physician, dentist, or other medical professions to qualify for a physician loan. You also have to show proof of income and employment. However, qualification requirements vary with different physician banks, as some lenders may require you to be employed full-time, while others may consider part-time employment. Some lenders may require you to have a certain amount of money in the bank. Sometimes, you may need to make a down payment on the loan. As with any loan, it is essential to compare offers from different lenders to find the one that best suits your needs.
It would be best if you also had a credit score of about 700 or better to qualify for a physician loan.
The Interest Rate May Be Higher Than a Traditional Mortgage
The interest rate on a physician loan may be higher than the interest rate on a traditional mortgage. This is because physician loans are considered to be higher risk. Additionally, the interest rate may be adjustable, which means it can go up or down over time.
Some factors that may impact the interest rate on your loan include your credit score, employment history, and the amount of money you have in the bank. The type of loan you choose – fixed or adjustable rate – will also impact the interest rate.
Fixed-rate loans have an interest rate that remains the same for the life of the loan, while adjustable-rate loans have an interest rate that can change over time depending on market conditions.
Your debt-to-income ratio is also important regarding the interest rate on your loan. With a high debt-to-income ratio, you may be considered a higher risk borrower and charged a higher interest rate.
Prepayment Penalties May Apply
Some physician loans come with a prepayment penalty, which means you will be charged a fee if you pay off the loan early. This is something to keep in mind when considering taking out a loan. If you think there is a chance you may want to pay off the loan early, be sure to ask the lender about any prepayment penalties that may apply.
It is possible to find physician loans without a prepayment penalty, but they may come with a higher interest rate.
You May Be Able to Get a Loan for More Than the Purchase Pric
With a physician loan, you may be able to borrow more than the home’s purchase price. This can be helpful if you need to repair or renovate the property. Remember, however, that you will have to pay back any money you borrow over the home’s purchase price.
In most cases, you can borrow up to 100% of the purchase price plus the cost of any necessary repairs or renovations. This means you can finance the entire home cost without making a down payment.
Physician loans can be an excellent way for doctors to get the money they need to start their medical practice. By understanding the different types of physician loans available and what to look for in a loan, you can find the right loan for your needs.