I have had a total of 3 physician home loans from Suntrust Bank. Conventional wisdom would say to wait until you can put 20% down and then buy your house. Unfortunately, many physicians are not conventional, at least not when it comes to finances. Combine a desire to buy a home in residency (not a good idea) or right out of training (also likely best to wait a year or two), banks are all too ready to give out money. For physicians, this comes in the form of a physician home loan.
Caveat: I still think you will get a better rate if you can put 20% down and obtain a conventional loan. If, however, you cannot or would rather do something else with your money, then take a look at these physician loan options.
What is a physician home loan?
- A physician home loan is a loan provided to Doctors (whether it be of medicine, osteopathy, podiatry, optometry, dentists, etc.). Pretty much any high earning professional.
- There is typically little down payment (most are 0-0%) versus a conventional 20% mortgage. For instance at SunTrust bank (no affiliate relationship) you can get 100% financing up to $750,000, 95% financing up to $1 million dollars, and 90% financing up to $1.5 million. Also with Sun Trust if you put 10% down, it is the same rate as a conventional loan at 20% down. If you put 5% down, the rate is 0.125 higher and at 0% down it is .25 higher. Thus, if it is a jumbo loan then 0% down is at a similar rate as a conventional with 20% down.
- Typically there is no private mortgage insurance (PMI) which many banks require if there is little money down.
- There is no need to prove prior income, but typically a letter of employment with your upcoming salary is required. For conventional loans you have to prove your income for the last few years. This can be a problem for new attendings who were making $50K a year and now are making $200 to 400K.
- There are options such as a 15 or 30 year fixed mortgage, adjustable arms (here is why I went with a 7 year arm), etc. Basically any of the options you have with a 20% down conventional mortgage you will have with the physician loan.
These loans are good if you want to buy a home out of residency (some money mistakes I have made), put little down, and get started with your life. They are also good for trainees who want to buy a place (again I would caution against it).
What banks provide physician’s loans?
You will be limited by your region. Some banks only work in certain areas, and therefore will not provide you a loan if you live in another state. Therefore, I recommend you call around to multiple banks in your state and see if they provide a physician’s loan.
I have gone with SunTrust for all 3 of my mortgages. Each time I look for better rates and never receive them. Actually, a competitor’s mortgage broker once told me that if I can use SunTrust then I should go with them because they offer the lowest rates. Still I would recommend using them. Suntrust offers loans for people in the following states: AL, AR, DE, FL, GA, MD, MS, NC, SC, TN, VA, WV, DC and select counties in PA. So mainly the south. If you do have a bank account with them, then you can use them for out-of-state mortgages. For instance, I used them both in Louisiana and California because I had a prior mortgage and continued bank account with them from Tennessee. All in all I am happy with Sun Trust.
There are many other banks that also provide them. For instance, Bank of the West, Fifth-Third Bank, Bank of America, BBVA, Capital One and the list goes on and on. White Coat Investor has a nice post with some (only advertisers) but not all banks available by region here.
Downsides to physician loans
The biggest downside is that you are likely buying a bigger house then you need. If you are relying on a physician loan then you have not saved your requisite 20% and are going to have a big mortgage payment at the end of the day. Another downside is that your rate will likely be slightly higher than a conventional loan. Finally, you will be limited to banks that provide physician loans.
So should you use one?
A physician loan is a good idea if you want to buy a home. I have owned 3 homes and used a physician loan each time. In an ideal world, I would have waited to have 20% down payment and I recommend you do the same. However, if you want that house and are a doctor of some sort, then it may be worth the effort.
Also published on Medium.