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The average amount of debt for a medical student is about $200,000. About 21% of medical school graduates have student loan debt of more than $300,000.
That amount of debt is pretty much like paying for a house. That student loan payment can prevent new doctors from buying a home, even though they earn more than the average worker.
The fact is that student loans are a burden, but that shouldn’t dissuade you from buying a home. There are home loans for doctors that are tailormade for new doctors buried in student loan debt.
Read on to find out more about these special home loans for doctors and how you can get one.
What Are Home Loans for Doctors?
Home loans have been out of reach for many young doctors because of the amount of student loan debt they carry. Many of these doctors are still early in their careers and they’re not making a lot of money just yet.
Banks and other financial institutions recognized the need to give loans to people who are likely to pay the loan back. They got caught lending money to people who shouldn’t have qualified for home loans and created the housing crisis of 2009.
Now lenders are looking for prospective borrowers who are low risk. Doctors fall into this category because of their earning potential. On average, doctors earn about $313,000 a year.
Since doctors are high wage earners, they make attractive banking customers. They’ll also have other financial needs, such as financial and retirement planning. Offering a doctor a home loan can pay off in other ways for lenders.
They created home loans for doctors, which still gives doctors the ability to buy a home with little money down and great interest rates. They can get good terms even when they carry several hundreds of dollars in debt.
Advantages of Home Loans for Medical Doctors
There are many benefits to getting a physician home loan. For starters, you can get a home whereas many other people with student loans can’t.
Lenders don’t look favorably on general student loan debt. However, because you’re a doctor, the process to get a home loan is easier and faster.
Another advantage is that you don’t need a huge down payment to get a loan approved. You only need about 5% as a down payment. In some cases, you may find a home loan for doctors to cover 100% of the purchase price of the home.
This is huge for many borrowers and something you wouldn’t be able to get with a conventional loan. The closest thing available would be an FHA loan for first-time homebuyers.
How to Get a Home Loan for Doctors
Just because you graduated from medical school doesn’t automatically mean that you’ll get approved for a doctor’s home loan. You still have to have some things in place just like you would for a conventional loan.
Here are the items you need to get a home loan for doctors.
A Medical Job
Conventional lenders usually want to see about two years of steady employment in the same company or industry. If you just graduated from medical school, you’re already in your late 20s or early 30s.
You may already feel behind because it seems all of your friends already bought their first home or are starting a family. Waiting another two years to get a home may seem like agony.
Fortunately, a physician’s home loan doesn’t require two years of steady work. You just need an employment contract that details when the work will begin.
You also have to produce a copy of your medical degree for the home loan to be approved.
A Good Credit Score
This is something that you need to have control over. Lenders still require great credit scores of at least 700 in order to get the best terms for your home loan.
Every lender will have a different credit score threshold for approval. Some will be as low as 680, while others will be as high as 720.
There are a few things that you can do to improve your credit score. The first thing is to order your credit reports and see if there are any errors or fraudulent accounts. These need to be handled and disputed right away.
You need to make sure you pay all of your bills on time, including your student loan bills. Any late payments will knock down your score and it could take years to recover.
You also want to make sure that your credit utilization rate is low. This is the amount of credit available and the amount you use. If you have a $500 credit card and you have $250 on it, your credit utilization rate is 50%.
You want to keep the ratio as low as possible to increase your credit score.
Low Debt to Income Ratio
Your debt to income ratio (DTI) looks at all of the debt that you have, with the exception of your student loans, and compares it with your income.
Let’s say you make $80,000 a year and you have $1,500 a month in debt payments (credit cards, car payments, personal loans, etc.). Your DTI is 22%. You want to be in a range of about 45% for approval.
Finding a Lender
You have to find a good lender to work with that offers the best home loan for doctors. You want to shop around and find lenders that specialize in these types of loans.
You also want to compare the qualifications of the lender and interest rates before you decide which one to go with. Be sure to check with other doctors who used this type of loan for recommendations as well.
Getting a Home Loan as a Doctor
There is something special about being a doctor. It’s not just that you get to help people live longer and better lives. You get to take advantage of your earning potential right out of school.
Home loans for doctors are a great way to buy a home while you’re still starting your medical career. You can get started on the path towards building wealth as you grow your career. You’ll then have plenty of money and income to be able to take the trip of your dreams.
Take a look at the section of this site that focuses on Europe for travel inspiration.