We've written about physician mortgages before. But now, we've built a physician loan mortgage calculator to help you project your monthly payments after you sign for your home loan. This article will discuss:
Our physician loan calculator
How to calculate your monthly payments
What are physician mortgage loans?
Loan criteria and requirements
Pros and cons
Our favorite lenders
Using our physician mortgage calculator
Using our physician mortgage calculator is really easy to do! All you have to do is estimate six variables for us:
Home purchase price
Your down payment
Loan interest rate
Annual property taxes
Annual homeowners insurance
Take a turn with the calculator for yourself.
Using the calculator is really easy to do! The six variables in this calculator - your home's purchase price, down payment, interest rate, term, and taxes - will directly impact what you pay.
Of course, some of these variables will play a larger role than others. In terms of expected impact to your physician mortgage payment, your loan's term and rates will likely play the largest role in what you pay each month, while your home purchase price may not actually play as large a role as you think.
Calculating physician loan costs
Just like any other mortgage program, your payments are going to be split into a few main buckets of housing expenses. Just like Conventional loans, your monthly payment will be the sum of the following:
Because of the way that home loans amortize, your early payments will be very heavy on interest and low on principal. Then, around the midpoint in your term, your payments will be split nearly in half between principal and interest. What most people don't realize is that the majority of principal on mortgages is paid off in those last years of the term.
You'll also likely escrow your property taxes and insurance, meaning that you'll pay these annual (or biannual) fees monthly to your lender, putting the onus on them to then pay these bills for you as they come due. Of course, property taxes vary greatly across the country and depends on the size of your home, lot, assessed value, and location.
The same goes for your homeowners insurance policy, which depends on the value you'll need to insure. Riskier features that open you up to potential liability, such as a trampoline and swimming pool, will also increase your premiums.
How to calculate your physician loan payments
Our physician mortgage calculator will handle all of the math for you! But if you're still wondering how to crunch the numbers for yourself, the numbers are easy enough to crunch on your own. Just follow these below steps.
Take your loan amount (your home's purchase price less the value of your down payment)
Calculate your monthly interest rate by taking your loan's rate and dividing it by 12
Determine how many payments your loan requires
Account for your property taxes and homeowners insurance
Let's take these steps one by one to help you run the calculation yourself.
1. Figure out your loan amount
Like we mentioned, it will be impossible to calculate your monthly payments without understanding exactly how much money you've actually borrowed. Do keep in mind that many physician mortgage programs do not require a down payment, so if you've decided to not come up with a down payment, your loan amount will likely be be equal to your home's purchase price.
Otherwise, just subtract your down payment from your loan amount.
2. Calculate your monthly interest rate
The next thing you'll need to do is determine the monthly interest rate on your physician loan. Doing this is really easy to do, and will require you to take your mortgage's interest rate and divide by the 12 months. For instance, if your loan carries a 6% rate, your effective monthly interest rate would be equal to 0.5%.
3. Determine the number of payments you'll make
The next component you'll need to help you calculate your physician mortgage payment is the number of payments you'll make over the life of your home loan. Figuring this out is also easy to do. Just take the number of years on your loan and multiply it by 12 to account for your monthly payments.
4. Account for property tax and homeowners insurance
Most physician mortgage lenders out there will want you to escrow your property taxes and homeowners insurance premiums, meaning that you'll pay for these expenses monthly with your mortgage payment. Then, when these expenses come due, your bank or lender will make the payments on your behalf.
Therefore, the formula to calculate what your monthly physician mortgage payment is:
Monthly payment = L [ i(1 + i)^n ] / [ (1 + i)^n – 1], where
L is your loan amount
i is your monthly interest rate
n is the number of total payments you'll make
And if you do decide to escrow your property taxes and insurance premiums, you'll add 1/12 of your annual expense for these two categories to your final calculated mortgage payment amount.
What are physician mortgage loans anyway?
Physician mortgage programs, oftentimes known as doctor loans or physician home loans, are a type of home financing program that extends flexibility to prospective home buyers working as healthcare providers. Since many doctors graduate from medical school with well over $100,000 in student loan debt and limited savings, these programs offer a way for young providers to buy a home.
Without special programs, many physicians would otherwise get denied due to their debt-to-income ratios, subpar credit scores, and inability to make a down payment.
To help these providers buy homes earlier in their careers, physician mortgages typically carry zero (or low) down payment requirements, and private mortgage insurance (PMI) is traditionally waived. It is easy to understand why lenders would offer these programs. Since doctors and other healthcare providers are oftentimes some of the highest paid members of society, banks and lending institutions are happy to try to build long term relationships in advance of that.
The exact provider types that are eligible vary by program and are lender specific, but generally physicians will have plenty of program options.
Who is eligible for physician mortgages?
Doctor home loans are typically open to residents, fellows, and physicians, but depending on the lender, may also be offered to other healthcare providers and those working in other careers that require years of education, such as:
Certified Public Accountants
Chartered Financial Analysts
Others as decided by lenders
The reasons for adding other qualifying professions or educational credentials are easy to understand. Working in any of these fields is financially lucrative, and the dedication required to earn these educational credentials shows a real commitment and maturity that makes you a less risky borrower.
Physician mortgage requirements
Since physician mortgages are intended to be used by doctors early in their careers, most lenders will set a ten-year rule, meaning that you have a decade following your graduation from medical school or the completion of your residency. Typically, these home loans also carry other eligibility requirements, like:
Using the program to purchase a single-family home, condo, or other eligible property (lender specific) to serve as your primary residence
Having a good credit score (typically over 700)
A debt-to-income ratio below 43-45% or so (student loan debt is excluded)
Having a qualifying student loan debt balance
Being employed or having accepted an offer of employment
You may find other lender specific eligibility requirements too.
So, are physician loans good?
Physician mortgages may prove to be a good idea in some instances for some borrowers. First, in our opinion, it depends on what stage in your career you are in. If you are working a residency or as a fellow in an area where you will not be settling down long term, it probably makes more sense to rent until you know where your long term home will be.
Along these lines, there are a few other instances in which you may either wait on the doctor loan or decide to use a Conventional mortgage instead:
You can make a down payment: If you have the funds on hand to make a 10% down payment, you may want to consider it, given the high interest rate environment we have entered. This will likely save you hundreds per month in extra principal and interest. Just make sure your cash flow can handle your student loan payments as well.
Your debt to income ratio is above 40%: You can still get approved for a physician mortgage with a DTI ratio above 40%, especially if this figure includes your student loan debt, but for more financial security, you may consider renting for a period of time until you can pay down some other debt. This will likely improve your credit score, saving you money on financing down the line.
Your credit score is under 700: With subpar credit, you may consider waiting a year or two until you've had a chance to shore up your finances. You may get approved for a mortgage as is, but you may use the extra time as an opportunity to improve your finances.
But for those in situations where the above bullets don't apply, a doctor loan may be a great option for you.
Pros and cons to physician mortgage programs
All things considered, there are still a lot of pros to programs like these. These are among our favorites.
1. No down payment required
Many, but not all, lenders waive down payment requirements for borrowers up to a certain limit (usually between $1 million and $1.5 million). This can save you some serious cash in the present, though it will increase your payments moving forward, albeit when you're making a higher and more steady income.
Not making a 10% down payment on a $400,000 home will save you $40,000 now, making physician home loans a great option for those without the cash saved to buy a home using a Conventional loan.
2. Higher loan amounts
You'll be able to buy more home than you would have been able to with a Conventional, or likely even a Jumbo loan. Now this is a pro if you buy responsibly and take advantage of the opportunity to get into your dream house earlier in life, thanks to your future earning potential. The higher limits, which may stretch upwards of $2 million with some lenders, also provide the opportunity for physicians to buy homes in the most expensive areas of the country, like California, Hawaii, and downstate New York.
3. Close on your home before you start working
Most physician mortgage programs actually allow you to take ownership of your new home before you begin working full-time as a healthcare provider. With most lenders, you will be able to close on your new home up to ninety days before you begin working full-time as a qualifying provider.
You will need to have proof of an employer offer and acceptance however.
All this said, there are still a couple negatives that you should we aware of.
1. Potentially higher interest rates
One thing that you'll want to be aware of is the chance that you'll end up with an interest rate higher than you may have with a Conventional or other home loan. This premium, which is normally in the range of 0.25%, is not a deal killer, but something you should monitor.
And with mortgage rates currently hovering around 7%, every basis point you can save counts.
2. May be a variable rate loan
Some physician mortgages out there are established with variable rate terms, which we are not fans of given the risk associated with them. Now that we're in an environment where rates are higher than they have been in years, variable rate loans with certain terms could make more sense for some borrowers.
But there is always the risk that rates continue to rise, in which case your monthly payments will too. Generally, we recommend using a fixed rate loan and refinancing in the future if possible.
Tips for those with doctor home loans
For those that are considering or already have doctor loans, you may consider browsing these insider tips and tricks that we've learned over the past few years.
Consider refinancing eligibility: Another tactic you may consider refinancing your home, especially if interest rates drop in the years following your home purchase. And even if they don't drop by huge amounts, you may be able to save some money, since physician mortgages sometimes have higher interest rates than Conventional loans do in order to compensate the lender for giving you 100% financing.
Assure there are no prepayment penalties: Just because you have a doctor loan means that you'll need to hold this loan to term. If you do well financially, you may consider making extra principal payments in an attempt to pay your home off early. The vast majority of mortgages offered out there do not have prepayment penalties, but it can't hurt to verify.
Calculate your annual mortgage interest expense: In some situations, mortgage interest is deductible, up to $750,000 if married and filing jointly (otherwise, up to $375,000). This will generally make sense for those that pay more in mortgage interest and other itemizations annually than the standard deduction amount. So, if you're close to that threshold, it may make sense. This scenario is commonly faced by young doctors because student loan debt can also be itemized.
Lenders offering physician home loans
Elsewhere on our blog, we've written about some of the lenders offering physician home loans. Among our favorite lenders are: