The answer is, it depends. It's dependent on your personal financial situation and where you are in your career. The loan that is right for you is the cheapest cost option that will accommodate your specific current situation.
This is one of the most common mortgage questions we field. The answer is, it depends. It’s dependent on your personal financial situation and where you are in your career.
The loan that is right for you is the cheapest cost option that will accommodate your specific current situation.
So what exactly is a physician home loan and how can it help you?
In the simplest terms, a physician home loan has more liberal underwriting guidelines and take a more common sense approach, whereas a conventional loan is underwritten to more rigid and inflexible underwriting guidelines.
The Conventional Loan
When we talk about conventional loans, we’re talking about loans that are purchased by government sponsored enterprises (GSE’s). Over 95% of the loans in the country are purchased by GSE’s like Fannie Mae, Freddie Mac, or Ginnie Mae, and are conventional, VA or FHA type loans.
In most cases, it doesn’t matter which bank you go to, the vast majority of their loans are being sold to the GSE’s and therefore underwritten to their exacting underwriting guidelines. The bank (Wells Fargo, Chase, Bank of America, etc.) you receive your loan from typically remains as the servicer on these conventional loans, billing you every month, collecting your payment, administering your escrow account, managing your taxes and insurance and providing you with a payoff when you want to pay off your loans. In most cases, that’s all they do. They don’t actually own the loan anymore, they simply act as the loan servicer and get a premium for doing so.
The loan itself is then bundled with a bunch of other loans that are similar to yours and then sold to Fannie Mae and Freddie Mac, which in turn bundle them and sell them as mortgage-backed securities (bonds secured by mortgages) on Wall Street. Because Fannie and Freddie are government-sponsored enterprises making loans from coast to coast, they must have sweeping, rigid guidelines in order to maintain consistency in the kind of loans that are delivered to them. This is the biggest market for mortgages and therefore they typically can offer the lowest interest rate to you as a borrower. In order to qualify for a conventional loan, your situation has to match their rigid guidelines exactly, or fit inside their “underwriting box,” as I call it. So a physician home loan is not a loan that is typically going to be sold by Fannie Mae and Freddie Mac; many physician clients are simply out of the box.
The Physician Home Loan
In general, a physician home loan is a portfolio loan product meaning that the bank or institution that is making the loan is actually going to keep and service the loan. That enables the bank making and servicing the loan to determine its own underwriting guidelines and risk threshold. This results in more liberal guidelines for physicians than it would for other people.
There are several benefits of a physician home loan over a conventional loan:
One more intangible benefit of the physician home loan may be the people who are helping you with the loan, the loan originator, processor and underwriter. If they’re in the business of administering physician home loans, then these folks are much more likely to understand the unique situations and circumstances which are commonplace for physicians. You’re dealing with people who are more specialized and have seen everything you’re going to throw at them. The process and your experience moving through the loan is going to be better with someone who’s a pro at working with physicians.
Josh Mettle is an industry leading mortgage lender and published author, specializing in financing physicians, dentists, fellows, PhDs, and physician assistants. You can find information on his new book and get more physician focused real estate and mortgage advice at: www.whyphysicianhomeloansfail.com or www.physicianfinancialsuccess.com.