What Are Doctor Loans and How Do They Work?
If you’re a new physician or medical student aspiring to be a doctor, you may have heard of a type of loan known as a doctor loan before. These loans are somewhat unique in the consumer debt world as far as being occupation-specific, but they can be extremely useful for new physicians. Here’s what all new practicing doctors and medical school students should know about doctor loans.
What Are Doctor Loans?
Doctor loans, sometimes called physician mortgage loans, are a special class of mortgages that are designed to service the specific financial situations of new doctors. When physicians graduate from medical school and begin their careers, they usually find themselves with massive amounts of student debt that prevent them from qualifying for normal mortgages. However, because physicians have extremely high earning capabilities over the course of their careers and tend to be at low risk of default, most banks are willing to extend them loans with special terms.
How Do Doctor Loans Work?
One of the interesting features of doctor loans is that they require very low down payments, usually under five percent. At the same time, these loans tend not to have the private income insurance requirement that usually goes along with a traditional mortgage. These two elements of doctor loans, combined with the fact that student debt is disregarded, make them extremely attractive for new physicians.
It’s also worth noting that a doctor doesn’t actually need to have started earning money in his or her profession to qualify for some doctor loans. Many banks will allow physicians who already have a contract with a hospital to apply and qualify for physician mortgage loans, even though they don’t yet have a solid proof of income. The reasoning behind this is the fact that doctors earn enough once they do begin to work to make the loans a low-risk proposition for the bank.
Who Can Qualify for Doctor Loans
In addition to medical doctors, there are a handful of other medical professionals who can take advantage of the favorable terms of doctor loans. Dentists, optometrists and even veterinarians can access doctor loans to buy homes. In some cases, physician assistants may also qualify for loans very similar to ordinary physician mortgage loans.
Are Interest Rates on Doctor Loans Higher Than Normal Loans?
As a general rule, doctor loans do come with slightly higher interest rates than normal mortgages. This is simply a result of the fact that banks making doctor loans are putting out large amounts of money for lower down payments than they would normally require. Even with the slightly elevated interest rates, new physicians usually find the terms of a doctor loan to be very reasonable and advantageous.
Why Banks Make Doctor Loans
Banks make doctor loans for two primary reasons. The first is that they produce reliable returns at a very low rate of risk. When a bank makes a loan to someone who is about to embark upon a career as a physician, it can be almost certain that the loan will be repaid. The second reason is that doctor loans give banks the opportunity to promote other financial products to professionals who will soon have high net worths thanks to their earning power. By establishing a good relationship with new doctors, banks can bring them in as regular customers and potentially make good money by doing business with them over the course of their careers.
If you’re a new doctor or a medical student who will graduate soon, doctor loans are well worth looking into. Owning your home will help you achieve long-term financial security, and the sooner you start the sooner you will be able to pay off your mortgage.
