When it comes to home financing, physicians and healthcare professionals have many mortgage options to choose from.
Like all potential homeowners, physicians looking to finance a new home can apply for a conventional loan, an FHA loan, or a VA loan if they qualify.
But there’s one unique option that’s only available to doctors, dentists, and a select group of other medical experts:
The physician home loan.
The physician home loan, also called the doctor mortgage loan or simply the “doctor loan,” offers physicians a unique opportunity to finance a home, even if they’re saddled with medical school loan debt or haven’t had the opportunity to save enough for a down payment.
From how they work to where you can get one, here’s everything you need to know about physician mortgage loans in Alabama.
Why a Doctor Loan May Be the Best Mortgage for You
The doctor loan is only for medical professionals, and that’s because physicians often find themselves in unique financial situations that can preclude them from getting approved for a conventional mortgage.
Doctor loans offer many benefits, as well as some drawbacks. Here are the pros and cons you need to know:
The Benefits of the Doctor Loan
Unless you have enough cash to buy a home outright, the home buying process requires getting approved for a mortgage. When you apply for a conventional loan, lenders look at a few key factors, including your:
- Salary (how much you earn affects how much you can borrow)
- Credit score (a minimum credit score of 680 is usually required)
- Debt-to-income ratio (a DTI of 43% or less is necessary)
Physician loans are different.
More Flexible DTI Requirements
Hitting the debt-to-income ratio of 43% or less is problematic for many doctors, as many newly practicing physicians have exceedingly high amounts of student loan debt. With a physician loan, DTI requirements are much more flexible because lenders treat student loan debt differently.
Zero to Low Down Payment with No PMI
For conventional loans, borrowers are required to make a 20% down payment or pay private mortgage insurance (PMI) until their loan-to-value ratio reaches 80%. Most doctor loans allow for zero down payments or small down payments of about 5% without having to pay PMI.
Jumbo Loans are Available
Physician loans offer financing on large loan amounts, sometimes up to as much as $5 million. For physicians early in their careers, this provides them with an opportunity to buy their dream home without having to spend years saving for a sizable down payment.
Physician Mortgages: The Cons
The physician mortgage isn’t the right choice for every doctor, and some doctors aren’t even eligible. Here are the downsides of the doctor loan to be aware of.
Eligibility Requirements Vary
Most lenders limit physician loans to doctors who have been in practice for less than 10 years. Many also limit the designations that are eligible as well. In the state of Alabama, MD, DO, DDS, and DMD designations are eligible for almost every doctor loan available.
Variable Interest Rates
Many physician loans are adjustable rate mortgages (ARMs), which means they have variable interest rates that can increase over time. Fixed rates that don’t fluctuate are the preferred option.
Property Restrictions
If you’re looking to buy a vacation home or an investment property, you won’t be able to do it with a physician loan. Doctor mortgages are limited to primary residences, and some won’t even extend financing for a condo or HOA property.
What to Look For in a Physician Loan
It’s always a good idea to obtain rates and compare terms from multiple lenders before choosing a bank for your mortgage. When doing so, here are a few things to consider.
Eligibility requirements
Not all loans are available to all medical professionals. In Alabama, those with MD, DO, DMD, or DDS designations are eligible for almost every doctor loan available. But there are some lenders who extend doctor loans to other healthcare professionals, such as podiatrists, veterinarians, optometrists, physician assistants, and nurse practitioners.
Before applying for a loan, make sure you meet the basic eligibility requirements.
Competitive Interest Rates
The higher the interest rate, the more your monthly payments will be. Since most physician loans have adjustable rates, it’s important to make sure that the initial rate is competitive. If it’s higher than what other lenders are offering, be cautious. Adjustable rates increase over time, so if the interest rate is high to start, there’s a chance your mortgage payments could soar in future years.
The federal government does have laws in place to protect consumers against soaring interest rates, but these laws do allow rates to increase to a certain point. Visit the Consumer Financial Protection Bureau to learn more about the rate caps on ARMs.
Down Payment Requirements
Physician mortgages typically limit lending to those who have been practicing for less than 10 years, but some allow it. When they do, it usually means a larger down payment is required.
Keep in mind that if the loan requires a 10% down payment and has an adjustable rate, you may actually be able to save money over the long term by making a 10% down payment on a conventional loan, paying PMI for a period of time, and locking in a lower interest rate that will never increase.
How to Get a Physician Mortgage in Alabama
The first step in getting a physician mortgage in Alabama is to compare different lenders to see the terms, rates, and down payment options they offer. The easiest way to do so is to connect with a mortgage broker that has specific experience in physician mortgage programs.
All brokers can help potential homeowners find financing through conventional loans, but many do not have expert knowledge of physician mortgage loan programs. Because doctor loans have different terms and eligibility requirements than conventional loans, it’s important to find a broker that has this specific type of experience.
To start obtaining and comparing rates and terms for lenders in Alabama, contact LeverageRx. Our team has helped more than 50,000 physicians and healthcare providers find banks and mortgage lenders for their home buying needs.
Once you determine which lender you want to use, fill out and submit a loan application. Be prepared to submit other forms of documentation as well, such as proof of employment and proof of your education and certifications or licensing as a healthcare professional.
Where to Get a Physician Loan in Alabama
Mortgage loan programs vary from state to state, so the loans available in Florida differ from those available in New York, and Texas, and so on. When shopping for a physician mortgage, focus only on lenders and programs that are available in your particular state.
Here are eight of the best physician mortgage loan lenders for physicians in the state of Alabama.
Bank of America
Bank of America offers physician loans to a variety of medical doctors, dentists, residents, and healthcare professionals in the state of Alabama.
You can apply for a doctor loan with Bank of America as long as you are a licensed, practicing doctor or a resident or fellow that can provide proof of future employment with a signed employment contract. With a contract as proof of employment and income verification, you can close on a home up to 90 days before the start date of the contract.
Bank of America offers loan limits up to $2 million. The size of the loan determines how much of a down payment you’ll need to make:
- Up to $850,000, the loan requires a 3% down payment
- Up to $1 million, the loan requires a 5% down payment
- Up to $1.5 million, the loan requires a 10% down payment
- Up to $2 million, the loan requires a 15% down payment
Available to: MD, DDS, DMD, OD, DPM, and DO designations, plus medical residents and fellows
Cadence Bank
Cadence Bank is an excellent mortgage lender for Alabama physicians, as they offer 100% financing on loan amounts up to $1.5 million. While some lenders limit doctor loans to those who have been practicing for less than five years, Cadence offers loans up to $1.5 million with as little as 5% down for physicians with 5 – 10 years of experience. Adjustable loans and fixed-rate loans are available.
Available to: MD, DDS, OD, DO, PharmD, DVM, and NP designations
Flagstar Bank
Of all the doctor loan lenders, Flagstar Bank extends financing to more medical designations than most. Flagstar Bank offers 100% financing on loans up to $1.5 million and 90% financing on loans up to $2 million for practicing medical professionals. Residents are limited to loans of $650k, with zero money down. Flagstar Bank only offers adjustable-rate loans, but refinancing options are also available.
Available to: MD, DDS, DMD, OD, DO, PharmD, DPM, PA, RN, CRNA, NP, DVM, and CNS designations, plus medical residents
LoanDepot
LoanDepot doesn’t offer 100% financing like other lenders, but they do extend doctor loans to medical professionals, such as nurse practitioners, who are often excluded from doctor loan programs. LoanDepot offers:
- 95% financing on loans up to $1 million
- 80% financing on loans up to $2 million
Fixed and adjustable rate mortgages are available.
LoanDepot also takes into consideration self-employment income, whereas many lenders limit doctor loans to those who have a verified employment contract.
Available to: MD, DMD, DDS, NP, OD, DO, and DPM designations
PNC Bank
For qualifying physicians, PNC Bank offers jumbo physician mortgage loans up to $5 million, which far exceeds the loan limits of most lenders. Unfortunately, a $5 million loan requires 65% financing.
Physicians and dental professionals can apply for:
- Up to $1 million with a 5% down payment
- Up to $1.5 million with a 10% down payment
- Up to $3 million with a 20% down payment
Loans up to $1 million require zero PMI, and borrowers can choose from standard fixed-rate mortgages or loans with adjustable-rate terms.
Available to: MD, DO, DDS, and DMD designations
Regions Bank
Regions Bank is only available in fifteen U.S. states, and Alabama is one of them. That’s good news for Alabama physicians and residents because Regions bank offers flexible financing options, including loans for purchase and refinance.
Regions Bank offers:
- 100% financing for loans up to $750k
- 95% financing for loans up to $1 million
PMI is not required, and closing can occur prior to beginning employment as long as you provide the lender with a signed employment contract.
Available to: MD, DO, DMD, and DDS designations, as well as medical residents and fellows
Truist
Alabama is one of only eleven states in which doctors could take advantage of the SunTrust physician mortgage loan. Since SunTrust and BB&T banks merged to form Truist, we expect that Truist doctor loans will continue to be made available to Alabama physicians.
Truist offers:
- 100% financing on loans up to $1 million
- 95% financing on loans up to $1.5 million
- 90% financing on loans up to $2 million
Adjustable-rate mortgages and fixed-rate loans are available.
Available to: MD, DO, DDS, DMD, and DPM designations as well as medical residents and fellows
U.S. Bank
Doctor loans from U.S. Bank are only available to medical doctors and doctors of osteopathy, so it’s not an option for dentists, doctors of pharmacy, or nursing professionals of any type. U.S. Bank also doesn’t offer 100% financing, so it’s not the best option for physicians who have nothing saved for a down payment.
U.S. Bank does, however, offer both fixed and adjustable-rate mortgages as well as new construction financing, which some lenders do not offer. A loan up to $1.25 million requires a down payment of 5%, while loans up to $1.5 million require a 15% down payment.
Available to: MD and DO designations, as well as medical residents within six months of completing residency
Conclusion
Many hard-working medical professionals think of homeownership as a distant dream. A dream that will only become reality when they’ve paid off their student loans and saved enough to make a 20% down payment.
Fortunately, with physician mortgages that offer zero to low down payment options, home buying can become a reality sooner than you may think.
To start obtaining quotes and comparing lenders for a physician mortgage, contact LeverageRx today.