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This is a guest post from Tyler Gossett. He is a mortgage professional with Fifth Third Bank and has extensive experience dealing with physician loans. Fifth Third physician loans are offered in the following states: FL, IL, IN, KY, MO, MI, OH, PA, TN, WV, GA, NC, SC, WI, AL. We have no financial connection to Tyler or Fifth Third, however, we occasionally refer clients to one another. You can reach Tyler Gossett at 859.588.5820

Residents and physicians want to own homes just like the rest of us. Where they differ from the average buyer, though, is that doctors often have hundreds of thousands of dollars of debt sitting in their way. Fortunately, there are special physician loans designed specifically for people in your shoes.

These loans often offer benefits to the borrower such as:

  • up to 100% financing
  • no PMI
  • the ability for the bank to ignore student loan payments when qualifying you for your mortgage

Why do lenders do this? Because doctor loans are also favorable to lenders. There is a strong payment history of medical professionals and historically stable and increasing income of physicians. By offering doctor loans, many lenders also hope to gain other banking and financial services.

Physician Loans: Choosing the Right Lender

When purchasing a home with a doctor loan, it is just as important to select the right lender as it is to choose the right home for you. The lender will help you get pre-approved and review your goals and personal financial situation.

Lenders tend to throw out terms and phrases with which you may not be familiar. Do not hesitate to ask questions or seek clarification so that you
are confident you are selecting the right lender and to ensure your transaction goes as smoothly as possible. Also check out our complete guide to physician mortgage loans to get you started on the right foot!

What Should I Be Asking a Potential Lender?

When selecting a lender, there are several questions that you should ask to determine if the mortgage professional and loan product is right for you. You want to make sure you are aware of all the features of the potential mortgage.

Q: Do you offer a fixed rate on your doctor program?

Some lenders will only offer Adjustable Rate Mortgages (ARMs) on their doctor loan programs however others offer fixed rates. Some even offer both. ARMs are only fixed for a certain period of time (usually 3-10 years). Once the ARM period is up, they become variable rate loans for the remainder of the loan period.

ARMs can be beneficial to the borrower in order to secure a lower rate in the beginning, however, rates may dramatically increase after the lock period is over and can result in much higher payments down the road. Borrowers should seek lenders offering the best program for them. The most important factor is how long they will own the home. If they are unsure, fixed rate loans are much safer.

Q: Does your loan program have a prepayment penalty?

Some lenders charge fees if the borrower pays off the loan balance before a certain time period. Depending on the lender, borrowers may be assessed penalties for paying down their loan early, for refinancing the loan, or for selling the home. Borrowers should be aware of loans with prepayment penalties and remember to evaluate these fees when comparing lenders.

Q: What are your rates and closing costs?

When comparing lenders, it is important to compare closing costs as well as rates. Closing costs typically include fees for appraisals, attorney’s fees and other lender fees. Closing costs can vary significantly between lenders and most can offer lower or higher closing costs depending on the rate selected. When comparing loan programs, be sure to ask the lender to provide a fee sheet for the rate quoted and ask if there are any other rates available for the same loan product.

Make sure you also confirm that the quoted closing costs represent all required fees and services. Depending on how long you plan on holding the mortgage, it may be beneficial to select a higher rate in order to lower your closing costs.

Remember to ask your mortgage professional about their qualifications and their approval process to make sure you are comfortable with them and that they align with your timeframe. Often the process takes 1 – 2 months from start to finish however each situation is different. It’s important to initiate the conversation sooner than later to provide ample time for your transition.

Getting Pre-approved:

Once you have selected a lender, you will want to get pre-approved. A pre-approval allows lenders to get a broad overview of your credit and financial situation to assess whether or not you meet the basic loan guidelines. During pre-approval, lenders typically focus on credit score/history, debt-to-income ratios, and assets. Upon successful completion of this step, the lender will issue a “pre-approval letter” that you can provide to sellers to let them know you are a serious buyer.

Due to the low down payment requirements of doctor loans, many lenders have higher credit score requirements on doctor loan programs. Credit scores range from 300-850. Most lenders consider credit scores from 700-739 “good credit” and those over 740 “excellent credit”.

You should ask your loan officer or mortgage broker if they have experience helping people work on their credit scores when necessary. Often these scores come in on the bubble and having a savvy representative is essential.

The debt-to-income ratio is used to determine what kind of monthly payment a borrower can afford. Debt-to-income guidelines can vary dramatically across lenders, but they typically look for borrowers to keep total monthly debt payments (including the proposed mortgage) to around 40-45% of their gross pay. Some doctor loans allow borrowers to qualify on proposed income if graduating from medical school, completing an internship, residency, or changing jobs & require proof of the new employment income.

Lenders ask questions when conducting a pre-approval but typically do not verify information provided until the actual application process begins. As a result, pre-approvals can be completed quickly but may not always be reliable. Look for a mortgage professional that has experience in the product being offered and asks questions that lead to a detailed understanding of your financial picture. Disclose anything you feel may be relevant to your pre-approval so that you can have the smoothest transaction possible.

Review Your Goals and Financial Situation

When considering a new home purchase it is important to review your personal budget, goals, and general financial situation. Lenders are often able to qualify borrowers for payments much higher than they wish to spend. Before purchasing, take the time to consider how long you plan on living in the area, your future housing needs (not just your short term needs) and weigh them along with your other financial goals. Try building a budget that includes monthly expenses as well as financial goals for savings, debt payments, and room to have some fun.

Don’t Be Afraid to Ask

Purchasing a home can seem like a daunting task, but if you take the time to review the programs available to you, ask questions to evaluate the lender, get pre-approved and review your financial goals prior to buying, you can be confident that you are making the right decision.

Tyler Gossett (NMLS ID 435974) is an Employee/Contractor for Fifth Third. The statements or opinions expressed on this site are his own and do not necessarily represent those of Fifth Third.

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