3 Key Differences Between Contract Doctors and Mortgages

Doctor mortgages are a specific type of loan available exclusively to doctors and medical residents. Some factors can make mortgages more difficult than you would expect for a doctor.

If you are a doctor or dentist, you may have a high student loan balance as a recent graduate doctor. Or, you may still be in and out of training. Well, let’s look at three of these important problems that you can solve by choosing Doctor home loans.

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Advance payment & PMI

First, we have the down payment, the initial amount you will pay for your new home when taking out a regular home loan. Lenders generally claim at least 20% of this home equity in advance. It can be difficult for doctors who are still being trained to find a way to pay 20% of the total value of the home.

If you can not find a 20% down payment, your lender will consider you a risky borrower. In this case, you will probably be charged PMI (Private Mortgage Insurance). It is equivalent to additional insurance in addition to the payment of your loan, compensation of your lender in case of default of your loan.

Closing costs

You will also need to cover the closing costs to get started and complete the loan process. It could be anything from one to two percent of the value of the loan amount you are applying for.

These costs can add up significantly to your total cost. Also, health professionals are likely to earn more than the tax threshold. In such scenarios, you will not be able to benefit from these expenses as a tax deduction.

Debt to Income Ratio (DTI)

Lenders generally prefer the DTI ratio to be in the high 30 or low 40 to consider you a good risk taker. But here’s the problem with student loans.

Many of you who have high federal loan balances are on an income based program. Unfortunately, most lenders will not allow you to use this income-based payment when calculating the debt-to-income ratio with a conventional loan.

Instead, they will consider the entire duration of your payment. This period can extend up to twenty-five years. They will use this final cumulative amount to calculate your debt on income. This amount can be significantly higher than full immediate repayment and push you out of the acceptable debt-income range.

Advantages of a doctor loan

Under a doctor loan, they will allow you to have a down payment of zero to five percent without having a PMI on your mortgage. They often charge a higher interest rate on a doctor loan than you would find on a conventional loan in exchange for this benefit.

If you are high income, it is very unlikely that you will be able to deduct a portion of your PMI payment from your taxes each year. However, you can enjoy a much higher limit by deducting the mortgage interest you pay on your mortgage.

Closing costs work the same way you would in a conventional loan. You will usually find that closing costs are a bit higher when subject to a doctor loan. However, it is still much smaller than the 20% down payment you have to pay otherwise.

With regard to the problem of debt-to-income ratio under a doctor loan, you will be able to use income-based payments, giving you a better chance of qualifying as a more responsible bet for each lender.

To summarize

Even doctors find it difficult to arrange a 20% down payment and closing costs with a regular home loan. There is also the risk of suffering a PMI on your non-deductible mortgage.

A home equity loan can solve almost all of these problems and help you get the home of your dreams with almost one tenth of the initial capital you may need to arrange on a conventional loan.

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