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A mortgage to help doctors settle into new homes

Learn more about physician loans here

It was time to trade an Old City condo for a townhouse large enough to accommodate their three growing children. But dentist Brad Pirok and veterinarian Maya Pirok had been spending considerable capital building up their practices, and so were in the market for a mortgage that took their situations into account.

Two years ago, Maya opened Northern Liberties Veterinary Center, which "required a lot of emotional, financial, and physical capital," as Brad put it - something common among medical practitioners.

For the Piroks, the answer was the "physician's loan," a mortgage designed for medical doctors, dentists, osteopaths, and, in some cases, podiatrists and optometrists.

"Unfortunately, the loan isn't as well-publicized as it might be," said Brad Pirok, whose Pennsylvania Dental Group has offices in University City and at Graduate Hospital. Because new doctors spend much of what they earn repaying education loans and building their practices, "it allows us to get on with our lives, including raising families."

The couple settled on a townhouse in Old City a week ago.

The concept behind such mortgages is that while newly minted doctors and dentists are carrying a lot of debt and not making much money, they are guaranteed to be high earners in the future.

Thus, offering low or no down payments, forgoing private mortgage insurance, and not including educational debt in the calculations is a win-win situation for borrowers and lenders alike.

John Cross, regional sales executive at Bank of America, the first to offer the mortgages a decade ago, said "the evidence shows the default rates as almost nil."

"This is the pivotal point of their professional careers," Cross said, "and it allows us to stay with them," involved in other financial aspects of their practices.

"Our goal is to become their mortgage loan officers for life," he said.

Though many lenders in the program - six in Pennsylvania, four in New Jersey, listed at www.doctorloanprograms.com - offer mortgages to those who have been in practice for seven to 10 years, the focus is on the newbie.

This is especially true in March, which includes "Match Week," when graduating medical students vie for places in residency programs throughout the United States.

This year, 18,000 medical school seniors and 17,000 other applicants competed for 30,000 positions at more than 4,800 residency programs. These days, many look to buy rather than rent within easy commuting distance of their hospitals.

"It happens very quickly," Cross said. "They need a place to live," and physician's loans take quick closings into consideration.

Jerome Scarpello, president of Leo Mortgage in Ambler, said lenders that do physician's mortgages typically require only 10 percent down or less and are "self-insured," and so don't need traditional private mortgage insurance.

Banks will lend up to $417,000 for medical residents, interns, and fellows, and up to $1 million for those who have completed residencies within the last five years.

Financial-reserve requirements are also more lenient, Scarpello said. Some mortgages typically require post-closing liquidity thresholds, but the physician's loans allow use of retirement accounts to meet the reserve criteria.

In addition, student loans deferred more than one year can be omitted in debt-to-income ratios. Normal loans would count the debt and potentially lower the amount for which a home buyer would qualify, he said.

Real estate agents find these loans "straightforward and streamlined," said Michael Duffy, of Duffy Real Estate in Narberth, who recently did his first transaction using one.

"There isn't as much paperwork involved [as in] some of the loans I've dealt with," Duffy said. His client, a doctor who bought a house in Narberth for an easy commute, just needed a contract letter from his hospital in Philadelphia.

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