The state of California offers numerous opportunities for new medical practitioners.
If you plan on becoming a practicing physician in this state in the near future, one of your next tasks may involve buying a house close to your new workplace.
As a new physician who carries a significant amount of student loan debt and lacks work experience, what type of loan can you anticipate? Fortunately, mortgage lenders have developed a specialized product specifically for individuals in your position – the physician mortgage loan.
Is it possible for you to qualify for a physician mortgage loan in California? If yes, what is the process for obtaining one? Additionally, what factors should you consider?
In this article, we will provide answers to these questions and further information. Keep reading to learn all the details.
Who Should Get a Physician Mortgage Loan?
If you’re considering a physician mortgage loan, the initial thought you may have is whether you qualify for one.
Who are eligible for physician mortgages? Can I qualify if I am not currently practicing or an MD? Will I still be qualified?
These are excellent questions and the response typically varies. Every bank has its own limitations on the designations it is willing to provide loans for.
Despite common belief, doctor mortgage loans have more flexibility than expected. In reality, numerous financial institutions provide comparable conditions to professionals who are in similar circumstances, including lawyers, other healthcare professionals, and individuals with high incomes.
Typically, banks are willing to provide this particular type of mortgage loan to :
- Medical residents
- Medical Doctors
- Doctors of osteopathic medicine
- Dentists (DMD or DDS)
- Optometrists
- Podiatrists (DPM)
- Veterinarians (DVM)
- Chiropractors
- PharmDs
- Other healthcare professionals such as NPs, CRNAs, and PAs
The majority of financial institutions require that individuals applying for loans must be relatively new graduates with less than a decade of experience, although there may be some cases where this rule does not apply.
Moreover, individuals with higher income titles will be eligible for a greater loan. For instance, a surgeon may secure a higher mortgage amount than a resident.
How to Get a Physician Mortgage in California
Purchasing a home can be challenging, particularly in the highly competitive real estate market of California.
For physicians looking to relocate to California, there are certain measures that can be taken to obtain a physician mortgage and start their new chapter.
1. Find a House
Before starting your search for a new home, it is important to consult with a real estate agent who can assist you in finding a property that fits your criteria, requirements, and financial limitations. There are various helpful resources, such as the mortgage calculator provided by Zillow, that can aid in determining your affordability for a house. Once you have a good idea of what you want, now comes the fun part! Shop around and tour homes until you find “the one.” Collect information on that real estate property to present to a mortgage originator. Remember that to qualify for a physician mortgage loan, this property must be a single-family home, not an investment property. While some loan lenders allow for condos, most banks prefer traditional homes.
After you have a clear understanding of your desired property, it’s time for the exciting part! Explore different options and visit various houses until you come across the perfect one. Gather all the necessary details about the real estate in order to present it to a mortgage lender.
Keep in mind that in order to be eligible for a physician mortgage loan, the property must be a single-family home and not an investment property. Although certain lenders may permit condos, the majority of banks have a preference for traditional homes.
It is important that you utilize this property as your main place of residence, not solely as a holiday home. However, there may be some exceptions to this rule.
2. Prepare Your Documents
It is necessary for banks to have specific documents for a physician home loan, therefore it is advisable to plan and gather these materials beforehand.
You will need to provide:
- Proof of identity
- Your current finances (such as savings and other investments)
- Proof of a medical degree (or similar degree)
If you are currently without employment, it will be necessary for you to provide a duplicate of a job agreement guaranteeing a job opportunity in the upcoming time, typically within a couple of months.
Finally, it is necessary to present details regarding the property of interest in order to confirm its eligibility for purchase.
3. Fill Out the Application
After obtaining your documents, the next task is to locate a suitable bank that can cater to your requirements. Find the best banks with the best rates with the help of our specialists at LeverageRx.
After limiting your search to a select number of banks, start completing the necessary applications.
The initial step will involve conducting a credit check, with a requirement of a credit score of at least 700 (with certain exceptions). Additionally, the bank will assess a debt-to-income ratio of 45% or below (excluding any outstanding student loans). This implies that your credit cards must not be fully utilized.
The loan officer will thoroughly examine all submitted documents and inform you of any incomplete items or additional information required.
In the event of approval, the bank will offer a pre-approved sum depending on your personal financial situation.
4. Place Your Bid
Once you have a pre-approval letter, you can proceed to make an offer on the property that your real estate agent has identified as suitable for your qualifications.
5. Have the Property Inspected for Closing
If the owner agrees to your offer, the next step is to have the property appraised and inspected. If there are no issues, you can proceed with the closing process. This will involve completing numerous documents and covering the closing expenses.
During this time, your bank will finalize the underwriting process for your doctor mortgage loan.
Once the necessary documents have been signed and the funds have been transferred to the previous owners of the house, you will be able to receive the keys and begin the process of moving into your new home!
How Are Physician Loans Different From Conventional Loans in California?
Is it even worth trying to secure a physician mortgage? Why not just use a conventional loan?
There are many benefits to a physician mortgage loan, especially for new physicians, that conventional mortgages don’t have:
Physician loans:
- Require no PMI (private mortgage insurance)
- Can provide 100% financing
- Can offer jumbo loans for $750k or more (However, many California counties have a higher-than-standard conforming limit, but also higher than average home prices.)
- Don’t consider student loan debt when making DTI calculations
- Don’t require pay stubs, just employment contracts (some for up to 6 months in the future!)
- Are based on the high-income potential that comes with a career as a physician.
On the contrary, conventional mortgages:
- Require PMI if you have less than a 20% down payment
- Rarely offer 100% financing
- Take all debt into consideration
- Require two years of proof of income
- Are based on the current income of an individual
Can You Qualify for a First Home Buyer Program in California?
The top alternative for newly qualified doctors, other than a physician mortgage loan, would be to consider one of the California programs for first-time home buyers.
The Housing Finance Agency in California provides VA and FHA loans to eligible borrowers, but it may present challenges for medical graduates to meet the requirements for these programs.
These programs, for example, have strict income restrictions attached to them.
Despite the lower minimum credit score requirement for eligibility, physicians may still face disqualification due to their DTI ratio. This is because, unlike physician mortgages, their medical school debt is taken into account.
What to Look for in a Physician Mortgage Loan
After familiarizing yourself with the process of obtaining a physician mortgage loan, it is important to consider key factors when evaluating different offers.
The Best Interest Rates
In the end, the interest rate you receive will directly affect the total cost of your home and the amount you pay each month. Therefore, a lower interest rate will result in lower payments and overall savings.
While fixed-rate loans are considered the ideal option, they are not commonly available for physician home loans.
A possible solution for an adjustable-rate mortgage is to pay it off and then consider refinancing after clearing your student loan debts. Opting for a traditional loan in the future can lead to cost savings, whereas a physician mortgage loan at present can eliminate the need for spending money on rent.
Down Payment
Several physician mortgage programs provide the option of 100% financing, but there are limitations on the loan amount available without requiring a down payment.
If desired and feasible, you have the option to initially make a down payment of 5-10% and then potentially raise your loan amount.
Eligibility
Obviously, you want a bank that will approve you for a loan. Check their eligibility requirements and see if you qualify before you waste your time filling out the application.
Reputation and Convenience
Larger financial institutions tend to provide a wider range of services for the sake of convenience and are known for their strong standing. However, they typically have more stringent criteria, such as credit score or income, for qualifying.
It is important to thoroughly research and examine the reputation and services provided by a smaller or more recent bank before choosing to work with them, including options such as online payment and financial education.
Don’t ever settle for a bank with a negative reputation.
Obtaining a mortgage is a significant and prolonged financial obligation. It is not advisable to rely on an unreliable institution when making this decision.
Terms and Conditions
Purchasing a home is a significant investment, and selecting the wrong loan could result in paying excessive amounts over the course of many years. Therefore, it is crucial to carefully review the terms and conditions before finalizing the agreement.
Be sure to look out for any additional charges and carefully review the detailed terms and conditions and disclosures.
Also, keep an eye on:
Prepayment Penalties
This means that if you make your mortgage payments faster than the term, you will have to pay extra. These are not necessary and are detrimental to your finances. The quicker you pay off your mortgage, the more money you will save in interest.
The Loan Repayment Term
You have the choice of a 15, 20, or 30-year term, along with the option of a 5- to 7-year ARM. It is important to discuss all the different loan options with your loan officer. Would you be able to access your home equity at a later date?
The Best Physician Loan Banks in California
After gaining an understanding of how to obtain a physician mortgage and the key factors to consider, the following are some of the top banks in California that provide such loans:
Truist Bank
According to Bankrate, this bank holds the sixth position among the top 15 largest banks in the United States.
Truist Bank provides doctors with the opportunity to obtain a mortgage of $1 million for buying a house without any down payment, and also gives the flexibility to increase the loan amount by 5-10% by making a down payment.
These home loans are offered for both first-time homebuyers and those looking to refinance. You have the option to select between a fixed interest rate or an adjustable rate. The property can either be a standalone house or a condominium.
To gain a deeper understanding of the services provided by Truist Bank, refer to our comprehensive review.
BMO
BMO offers physician loans to medical professionals in all states except New York who hold the designations of MD, DO, DDS, and DMD.
Up to $1.5 million, they provide 95% financing for mortgages.
One advantage of availing these loans is the flexibility to use them for financing different types of properties. They are not restricted to only single-family homes as mortgages can also be obtained for constructing a new residence. Additionally, fixed-rate mortgage choices are also available.
For more information on BMO Bank, read our full review.
Key Takeaways
Acquiring a physician mortgage might be a vital step for a newly hired doctor or any other well-paid medical practitioner who is relocating to California in order to fulfill the requirements for buying a house.
These unique mortgage programs enable aspiring homeowners in California, including new physicians, to achieve success in their pursuit of homeownership.
LeverageRx can help you in your mortgage search by connecting you with the most suitable physician mortgage lenders who provide favorable rates and terms.
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