According to the Association of American Medical Colleges, the median level of medical school debt for the class of 2015 was $183,000. For physicians who pay over the long term with interest, total cost of that debt can be over $400,000. One third of emergency medicine and family physicians are still paying off school loans. Those least saddled with such debts are gastroenterologists and rheumatologists (both at 16%). It is not known why some specialists are more able to pay medical school debts. Although family physicians are toward the bottom in earnings, there is no obvious relationship between school debt and earnings among other physician groups.
The Physician or Doctor Loan
A conventional loan is a mortgage that is not guaranteed or insured by any government agency, including the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA). It is typically fixed in its terms and rate. They follow fairly conservative guidelines for:
Borrower credit scores.
Minimum down payments.
Debt-to-income ratios.
Most of the new residents or fellows have large outstanding student loans (shown above) which are counted while calculating the debt-to-income ratios even if these loans are deferred, they usually do not qualify for conventional loans.
In addition, since they have very little money saved up for down payment (usually 10-20%), getting conventional loans becomes even harder.
A few years ago, some banks realized that although some physicians (residents, fellows, attending) do not have large current incomes, their income jumps significantly once they graduate and start working. In addition, the chances of them defaulting are very low (0.2%-much lower than a standard borrower) and they’ll soon need someplace to do their banking and investing too. As a reference, every year 18,000 new doctors graduate from medical school and about the same number graduate from residency. So banks started offering “portfolio loan” products to physicians with some great benefits like up to 100% financing with very low down payment requirements. And that started a new chapter in the saga of physician or doctor loans. Bank of America was a pioneer in this space and today a number of banks offer doctor loans or physician loans.
A portfolio loan means that the bank or institution that is making the loan is actually going to keep and service the loan. This enables the bank making and servicing the loan to determine its own underwriting guidelines and risk threshold, resulting in more liberal guidelines for physicians when compared to conventional loans that have to follow FHA guidelines. However, each bank’s guidelines are different so you may not qualify for one but may be a perfect match for another.
For this reason, it is best to work with a mortgage broker that specializes in working with physicians and other healthcare professionals. As a result, he or she will be much more likely to understand the unique situations and circumstances physicians face and help you choose the loan that is right for you.