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Physician Loans & Doctor Loans FAQ - Dallas Texas

Physician Loans In Dallas, Texas 

Physician loans are available to medical professionals in Dallas Texas through various banks and lenders.

What is a Physician's 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 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.

 

There are several benefits of a physician home loan over a conventional loan including:

 

  • Higher Chance of Approval: When some “outside of the box” factor makes you ineligible for conventional financing, a physician home loan might be your only option. More often residents, fellows and new in practice physicians are approved with physician home loans and declined for a conventional loan because they just don’t fit the guidelines due to student loans, time on the job and/or the amount of down payment required.

 

  • Low Down Payment: The physician home loan will finance 90-100% percent loan to value depending on the bank making the loan, where the property is located, and the loan amount you are seeking.

 

  • No Private Mortgage Insurance (PMI) Required:   Most lenders feel that borrowers who make low down payments (and therefore have little equity in the property) are more likely to default on a mortgage loan. As a result, they generally require you to purchase Private Mortgage Insurance (PMI) if you are borrowing more than 80 percent of the value of the home you are purchasing (your down payment is less than 20 percent of the purchase price). PMI guarantees that your lender will be paid if you default on your mortgage. Since you are a physician and the odds of you defaulting on your loan is very low, this is not required. Typically the doctor mortgage is going to save you .5% to 1% in annual PMI, but you will pay .25% to .5% higher rate for this loan type.   Essentially the bank making the physician mortgage loan is willing to underwrite the loan with more liberal guidelines, but for taking on that added risk that conventional guidelines do not allow, they charge a slightly higher rate.

 

  • Student Loan(s) are Not Counted Against Your Debt to Income Ratio: This is a significant difference between a physician home loan and a conventional loan, particularly for someone transitioning out of residency, fellowship or are “new in practice” where student loans might be deferred or in IBR (Income Based Repayment).   Conventional underwriting guidelines do not allow you to exclude payments for any deferred, income based or loans in forbearance. In any case, where the current payment is zero, conventional guidelines require underwriting to count that debt against your monthly debt to income ratio at 2% of the outstanding balance. So if you are a resident, with $150,000 in deferred student loans, conventional guidelines require that your monthly student loan repayment be calculated at $3,000, which can significantly impact the home that you ultimately buy.   Physician home loans will typically allow you to exclude or use an IBR payment to qualify.

 

  • Higher Loan Limits: Since physician home loan lenders do not sell the loans to Fannie Mae and Freddie Mac, they are not going to have the conventional loan limits. The loan limits will vary by where you are in the country and by the institution that is making the physician loan. Generally, you will be able to borrow a higher amount with less money down using a doctor loan than you could under a conventional loan.

 

  • Ability to Close Before Starting Work: Most conventional mortgage lenders will require that you provide two paystubs before you close on your new home. A physician home loan will allow you to close prior to starting work. Some physician home loans will allow you to close as far as 90 days in advance of the start date of your new job and qualify you based on your employment contract or offer letter. For clients with families, this is a tremendous benefit and can save you the time and trouble of having to move twice.

 

  • Flexibility In Terms of Proof of Income: Conventional underwriting guidelines typically require two years’ worth of tax returns for proof of income if you are self-employed or an Independent Contractor (paid on a 1099 and not a W-2). This situation is very common for Dermatologists and, as such, these physicians may have to wait until they have two full years’ tax returns, which is often nearly three years on the job before they can obtain conventional financing. A physician home loan will allow a self-employed physician to qualify with as little as a six-month history of income, enabling you to buy a home almost two years earlier with a physician loan than you could with a conventional loan.

 

  • Multiple Mortgage Types Available: Most banks offer both Fixed and Adjustable Rate Mortgage (ARM)* loans with different interest rates and down payment requirements. Some banks offer 30, 20 and 15 year fixed loans as well as a 5 and 7 year ARM.

 

  • Flexibility in Terms of cash sources: Most banks will allow you to use gift money for a down payment, for required reserves, or for closing costs. They usually require letters from the people gifting the money to track source of money.

Physician Loans and Doctor Loans Restrictions

A doctor’s loan has certain restrictions as listed below. Please note that these will vary from lender to lender. A doctor’s loan or a physician loan:

  • Is usually limited to a new resident, new attending (7-10 years out of residency or less), or dentist only although many lenders will lend to a doctor at any stage of his career. Some sample designations are MD, DO, DDS, DMD (other designations maybe acceptable)

  • Is occasionally restricted from certain types of homes, such as condos, but in general can be used for any home e.g. some banks provide loan for primary residences only, single-family residences, and townhomes only while some others provide loans for condos units located in projects that meet Fannie Mae Guidelines Faster loan approval guidelines.

  • Minimum credit score is 720 for loan amounts above 417K.

  • May require the physician to open a bank account at the bank from which the mortgage is paid by auto-draft

  • May require the home to be primary residence of the purchaser although some banks may provide loan for a second home.

  • Requires cash reserves equivalent to a few months of Principle, Interest, Taxes, and Insurance (PITI), a reasonably good credit score, and a loan payment to income ratio of less than 38% (as high as 50% with some lenders)

We work with the following medical professionals 

  • Residents and Fellows

  • Attending Physicians

  • Self-Employed Physicians

  • Dentists

  • Pharmacists

Texas Physician Loans are available in following cities:

  • Dallas

  • Frisco

  • Southlake

  • Plano

  • Fort Worth

  • Colleyville

  • McKinney

  • University Park

  • Keller

  • Flower Mound

  • Allen

  • Highland Park

  • Prosper

  • Coppell

  • Irving

  • Heath

  • Lucas

  • Fairview

  • Trophy Club

  • Granbury

  • Lewisville

  • Celina

  • Argyle

  • Carrollton

  • Highland Village

  • Arlington

  • Richardson

  • Murphy

  • Aledo

  • Lantana

  • Denton

  • Rockwall

  • Parker

  • Possum Kingdom Lake

  • Grapevine

  • Mansfield

  • Double Oak

  • Westlake

  • Weatherford

  • The Colony

  • Bartonville

  • Cross Roads

Physician Real Estate Services In DFW

Texas Physician Loans FAQ

Are physician loans only available to physicians in Dallas, Texas?
Physician loans are typically available to dentists, attorneys, veterinarians, Physician Assistants (PA), Nurse Practitioners (DNP, NP), Nurses (RN), Physical Therapists (DPT, PT), optometrists and other medical professionals depending on the lender.
 
What are closing costs for home buying in Texas?
Closing costs are fees paid at the end of the house-buying process, otherwise simply as “closing”. At this point, the title of the property is transferred from seller to buyer. These costs can vary widely based on your location, the type of property you purchase, and the loan-type. Some these closing costs are fixed by state and some will vary based on charges from the title company and lender.
What kind of closing costs can I expect when I buy a home in Texas using Physician loan?
Buying a home includes a number of costs in addition to paying for the value of home. Here is a good summary of typical closing costs you can expect when buying a home in Texas using Physician Loans or Doctor Loans in Texas.
How much closing cost can I expect to pay for a home purchase using Physician Loans?
It can vary widely but usually it comes out to 2-5% of the home purchase price. It will vary depending on whether you are buying a new home or a resale home
What is a W-2 form?
The IRS requires employers to report wage and salary information for employees on Form W-2. Your W-2 also reports the amount of federal, state and other taxes withheld from your paycheck. 
What is a 1099 form?
The 1099 form is a series of documents the Internal Revenue Service (IRS) refers to as "information returns." There are a number of different 1099 forms that report the various types of income you may receive throughout the year other than the salary your employer pays you.
What’s the difference between  W-2 & 1099 and why does it matter for the physician loan?
As a W-2 employee, payroll taxes are automatically deducted from your paycheck and then paid to the government through your employer. If you’re a contractor, you will receive a 1099 from your employer and you are responsible for calculating your own payroll taxes and then submitting the sum to the government on a quarterly basis.

Where 1099 forms differ from W-2 forms is in tax withholdings.

As a result, your 1099 form won't show the taxes you've already paid to the government—just your income from each client.

When you apply for a physician loan in Texas, your lender will require you to submit additional documentation if you receive 1099 forms.
 
 
Why do conventional lenders ask for 2 years of tax returns if I’m self employed physician receiving 1099?
 
Determining your income poses more of an obstacle for self-employed workers who receive 1099 for lenders. These workers often have multiple sources of income that may fluctuate, so documenting income requires more paperwork. Compare that with a traditional borrower who receives a regular paycheck and who has a W-2 tax form, on which an employer reports the employee’s annual wages. Self-employed workers also might write off a significant portion of their income as a business expense, minimizing the size of the mortgage they’re able to obtain. Your income has a major effect on your debt-to-income ratio, or DTI, a significant factor in lending decisions. Lenders need to see that you earn enough income to make mortgage payments along with your other financial obligations
 
Tell me more about loans with NO CLOSING COSTS or ZERO CLOSING COSTS?
There is no free lunch ever. You will either pay a higher interest rate to the lender or the closing costs will be rolled into your mortgage.
Can I refinance a Doctor loan or a Physician loan?

Some doctor loan programs allow refinancing, and some are also available for construction. Please check with your physician loan lender.

How are physician mortgage rates different than conventional mortgage rates?

Physician loans usually come with a slightly higher rate and fees than a conventional mortgage

Do I have to be a U.S Citizen or Permanent Resident to qualify for a Physician Loan?

It all depends on the bank or the lender. Some lenders will only allow U.S. Citizens or Permanent Residents to participate in Physician Loans, but there are several that will include non-permanent residents. Some of these require an H1 B Visa while others will accept anyone with a legal right to work in the U.S.

 
If I am still a Medical Student and have not graduated yet, can I qualify for the physician loan?

You are typically eligible for Physician Loan on Medical School graduation. You will need to provide your “Match Day” letter assigning you to your Residency program. This letter should include position, start date, and salary. Many banks will allow you to close on your new home up to 90 days (and sometimes even more) prior to starting your new residency assignment.

 
 
What does my Credit Score need to be to be eligible for the Doctor Loan?

The minimum credit score required for participation in a Physician Loan program differs with each bank, but typically they range from 630-720. The credit score required is also often based upon the desired down payment. The more you want to borrow, the higher the score they may require

What if my credit is below the minimum score required by lenders for Physician Loan?

We have been successful in helping some physicians obtain home loans in spite of a lower score. However, each situation is unique and needs to be handled on a case-by-case basis. There are ways to improve your credit score. The first thing is knowing why your credit score might be lower. We recommend obtaining a copy of your full credit score to understand if there are any negative remarks or notes on your report. We recommend getting your free yearly credit report not from one of those “paid” services but from the government recommended  AnnualCreditReport.com. You can also find out your FICO score through free services like Credit Sesame.

 
What are the typical loan options available for the Physician loan or Doctor Loan?

There are many different options, and each bank offers different loan programs. But you should have no problem finding the type of mortgage that you want since they run the range from ARMs that are fixed for 1, 3, 5, 7, 10, or even 15 years to the conventional Fixed Rate Mortgages of 10, 15, 20, 25, or 30 years.

 
What is needed to qualify for a physician loan or a doctor loan in Dallas?
  • Proof of medical degree

  • Signed contract indicating that your job as a doctor will start within 60 to 90 days

  • FICO score of 700 (although some lenders will go as low as 680 and others lenders will require 720)

  • Deferred student loans

  • A debt-to-income ratio (DTI) of 45% or less, not including student loans

What are the downsides to physician mortgage loans or doctor loans?
There are really no downsides or disadvantages of physician loans. But like any other mortgage, you should make sure that you are going to stay in the home that you purchase for a few years.
What is the most special thing about physician loans in Texas and rest of the country?​

The most attractive thing about physician loans is that the lenders who offer physician mortgage loans accept 0% down, which is a rarity in the mortgage world. Most mortgage products with 0% down come with huge fees or specific requirements. This means borrowers don’t have to save thousands of dollars before they’re ready to buy a home. Most conventional loans require a down payment of at least 3-5%.

Physician mortgage loans also don’t charge private mortgage insurance (PMI) when a borrower puts down less than 20%. Almost every other kind of mortgage lender requires PMI when the borrower has less than 20% equity in the home.

Lenders who provide physician home loans often extend the same interest rates to jumbo loans, which are loans that are more than the Federal Housing Finance Agency conforming limit. In 2018, the jumbo loan limit is $453,100.

Am I qualified for a physician loan if I have my own practice?
Generally, If you’re a self-employed physician, the salary requirements are a little different. You’ll have to present two year’s worth of income and show either a consistent or an increasing income. The lender will then average the two years to determine how much house you can afford. Self-employed doctors should still have a strong credit profile and low DTI percentage.
Is a physician loan same as a doctor loan?

Yes, both refer to same loans available to medical professionals such as physicians, optometrists, dentists and pharmacists. 

Is a physician loan a conventional loan?
or
How is a physician loan different than a conventional loan?

In general, a physician loan or doctor mortgage is a portfolio loan product. This means that the bank or institution that is making the loan is actually going to use their own funds for the loan and 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. 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 explore options with different lenders that specialize in working with physicians and other healthcare professionals.  

Are Texas Physician Loans different than physician loans offered in other states?

Mortgage loans for healthcare professionals in Texas or Physician loans are similar to physician loans offered in other states.

Are there any restrictions on Texas Physician Loans?

Some lenders also prohibit using a physician mortgage loan for a condo. 

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