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today's topic The Physician mortgage loan sometimes referred to as a doctor mortgage loan regardless of what you call it a very popular topic amongst the physician and Doctor Community let's just start with the basics there what are the benefits to it what are the drawbacks to it what costs can be associated with this who qualifies we call it a physician mortgage or a doctor mortgage but others do qualify where can you even find these things and I emphasize this one because we have seen some weird things where they were labeled as a physician mortgage but they weren't and last but not least probably the most popular question we get is it right for you is it right for me we're going to walk through all seven of those vital topics I'll also throw in some other important key points as we walk through this video together here but stay tuned because that is all coming up next thank you foreign [Music] first up what is a physician mortgage it's a mortgage that has special features to it that are allowed to only be accessed by medical professionals and I use the term medical professionals on purpose because as you'll see when we get down towards the bottom here on who qualifies for it it is larger than just Physicians or doctors the main benefits are it's just going to acquire a lower down payment possibly no down payment at all there's also more flexibility in there when we hit the next section on different benefits that make it very appealing to Physicians the main reason being they know that your future earnings are very strong so because of that they're willing to take a risk per se early on to know that you're going to be a very good borrower going forward and things like that could involve that very low to no down payment they'll remove PMI private mortgage insurance which is essentially this extra little cost that is on top of your mortgage which came in due to the housing crisis where you have large defaults so it's now this extra almost insurance premium embedded inside of the cost of your actual mortgage payment assuming that you have a mortgage with PMI what are the benefits to this physician mortgage we hear about it so much it must be pretty cool right so first and foremost the most notable I'm going to label as no down payment now I say no down payment but that's up to a certain limit and lenders can change these limits they can shift them around but one of the main mortgage brokers that we utilize I'm going to reference their numbers first here so 750 000 mortgage zero no down payment required up to 1.25 5 up to 1.5 million so that gap between the two is ten percent some lenders will let you go more than that some will keep it lower it can also depend on the area Southern California versus rural Iowa could have different numbers there again using certain areas of the country we're 1.5 million dollars could buy you an entire neighborhood other areas it might buy you a fixer upper so just kind of making note of that where these lenders can shift not only based on the actual lender but also where you're buying your home so that is the number one benefit in my opinion to The Physician mortgage the other one that's really enticing is they won't have PMI it's nice because it removes anywhere from 100 200 maybe 300 depending on the size of your home but usually that 100 to 200 range for PMI private mortgage insurance is a fair range that is another thing that is not included on the physician mortgage now with that we do always put a little caveat here PMI is not the worst thing in the world so let's just say you go to get quotes and you get a lower rate on a conventional mortgage and you only need to still put five or ten percent down but you're going to have this PMI on it remember PMI will fall off once you hit 20 so there is a little bit of math calculation here and we'll go through an example of this a little bit later on in the video but you also want to make sure for whatever reason is the physician mortgage offering a higher rate usually that's not the case but it can change based on the interest rate environment what lenders are seeing so just keep an eye on that and that's one of the main calculations that we always run for our clients is what is the difference in rates if the physician mortgage loan is lower easy slam dunk will go with that one all day but there is a little bit of math that needs to occur there another nice feature of it the debt to income ratio most lending standards are going to require a debt to income ratio around 43 percent physician mortgages will likely have a little bit more flexibility in there because again they know your future earnings capacity but one of the most important features with this section is how they calculate student loans and if you are on a Federal income driven repayment program they usually will not include that payment in there or use a much lower number in your calculation which is important because that's going to have a big effect on your debt to income ratio now with that there are some other things you got to keep an eye on loan limits so loan limits can also be higher with physician mortgages and I always come back I think it's mostly because a lot of academic positions are probably going to be in a larger City with those larger cities you're probably going to have higher phone calls so you'll see that number vary quite a bit but interest rates on physician mortgages usually will match up to jumbo mortgages historically we've seen jumbo rates be a little bit lower than conventional rates or your traditional rates out there but it's not always the case and this is one that we always check on we'll usually try to get more than one quote we'll maybe get some quotes on actual physician mortgages versus conventional mortgages and actually look at these different options in there but the main benefits to The Physician Mortgage in my opinion they're going to be your down payment your debt to equity ratio your debt to income ratio your loan limits and then your interest rates those are the primary benefits you're going to see with that physician mortgage loan you're probably thinking there has to be more to it right and there are some drawbacks the one is going to be the interest rate sometimes that rate could be higher than a conventional loan now the downside to conventional loan is it's going to introduce PMI but PMI is not the end of the world because we know it will fall off when you hit that 20 but in our actual blog post which we'll put a link to that in the video as well we updated the rates we are recording this in 2023 if you went back a few years ago heck one or two years ago we were always looking at 30-year fixed rates because who would look at these arms these adjustable rate mortgages when you can lock in 30 years at three percent so we did update our rates as we have seen rates going up and also just another note here to modernize this video for the world that we live in now arms which are labeled as adjustable rate mortgages will start to become more attractive again and as we always describe it to clients when you're looking at either a five or a seven or a 10 year arm our main thing is this if it's not a forever home an arm could be something that you look at here if you're not going to keep it as a rental property I know passive income and rental properties are a huge part of the physician Community you guys love that topic but keep in mind in that example if you're going to keep it as a rental property and rate Skyrocket on you five seven ten years from now because your adjustable rate mortgage is finally starting to adjust that is also not ideal so just keep that in mind with these adjustable rate mortgages probably start to get a little bit more attractive again because rates have gone up where it's not as simple as 30 years at three percent sign me up but here's why rates are important so we did an example on a 500 000 home and I'm referencing the blog post again and just a simple difference of six and a half percent or six percent so in this example we did a 30-year fixed what do you think that half a percent means in terms of dollars you think about half a percent I don't know it can't be that much right well in this example we did a five hundred thousand dollar mortgage that's a difference of almost sixty thousand dollars in the lifetime of that loan so that half a percent so six and a half or six will add another almost sixty thousand dollars of extra interest cost through the life of your loan so this is where we always get to the point you know back in the day when you can refinance a lot easier because free throw is going down this is where anywhere from a quarter basis point so point two five percent or to a half but anything above a half a percent it's almost always a slam dunk because you gotta include closing costs things like that so one of the drawbacks possibly the interest rates the good news is the ball is in your court here you can control this narrative by getting details on both sides and then going from there and then one other minor downside I list to The Physician mortgage loan is sometimes they won't allow condos most of the time I would say think of this as a single family home but for whatever reason some lenders will eliminate Hondos as a possible property that you could purchase with a physician mortgage loan also primary resident I always note that you can't go buy your vacation home with this so little things to keep in mind but not many drawbacks to it if anything the worst part is just kind of comparing the two of a conventional versus a physician mortgage on the interest rate side besides that you have a lot of Pros going for you right now on that physician mortgage loan what are the costs of a physician mortgage loan there's not really any extra cost per se with a physician mortgage limit now if the rate's higher I would argue that that certainly is a cost but this is more or less what should I expect in my mortgage payment you're going to have your principal you're going to have your interest that is your loan right there when you bought your home there's only two numbers that go into that calculation initially now what you'll also often see is something called escrow escrow is just a chance for you to add a monthly payment to this little account off to the side with that escrow account you're putting property taxes in there and your homeowners insurance so when it comes time to pay your six thousand dollar Property Tax Bill you're not sitting there thinking like oh my goodness I just don't have six grand sitting around you were already pre-painted and this is often a question we'll get because someone will send us an email Chad my mortgage payment went up well mortgage payment didn't actually go up you locked in a 30-year fixed mortgage your principal interest never change your property taxes went up and your escrow was probably under withholding and now they're going to update or increase that escrow number I think escrowing is a good idea every now and then we'll have a client that does not escrow I think it just makes life a little bit easier but to each their own and another fee you could see in here is your HOA fee so if you're in a certain neighborhood or development that has HOA fees that could also be included here or you could be paying that out of pocket it just kind of depends usually your closing disclosure will list that but most of the time it's going to be paid as a separate expense some other costs that we don't list in the blog post but I want to include the video don't forget about closing costs when you go through the mortgage process you can get essentially an initial estimate on what they expect closing costs to be some of those physician mortgages have really neat features where they'll actually allow you to roll in maybe up to one or two or three percent of the closing costs into the mortgage why is that important well if you're a younger position and you haven't built up a nest egg yet where are you going to come up with 20 or 30 Grand in closing costs that might completely eliminate you from the buying opportunity there so some of these lenders now will allow you to roll them into the mortgage I don't love that idea because now you're taking closing costs and spreading them out over the life of the mortgage let's just call it 30 years so I don't love it but if it's your only way to get into a home I think it's worth kicking the tires on it could be an option for you there and just other things don't forget moving is not cheap always keep in mind moving calls look inside of your current contract or talk with your next employer if they'll maybe help cover some of that the other thing I noticed if you were renting your entire life which makes sense if you were in residency and fellowship and all across the US here in different training programs you finally got a home you're probably going to buy some furniture you probably need window coverings it's very odd living in a home with no window coverings so these are other costs to keep in mind now they're not included in your mortgage but we've been building these plans for a decade at this point over a decade now just common points that we see with clients though that you see oh sugar we have this we have this we have this so you know make sure you're keeping on all those calls even outside of the traditional principle and interest in escrow that are included in your mortgage who qualifies for the physician mortgage and this is my note where we said earlier medical professionals as a broader term because not only does it cover medical residents fellows and attending physicians all the way up to about 10 years out of medical school 7 and 10 is the range that we actually put on the blog post it also covers dentists and vets so that's why we use the term medical professionals and not just Physicians that a lot of dentists and a lot of vets actually miss out on this because they assume it does not apply to them so a little bit broader scope there on who does qualify for the physician mortgage loan or Dr mortgage loan which also includes dentist and vets where can you find these and why do we include this section in the actual blog post we have links to places to find legitimate physician mortgages essentially we're directing to the white code investor page where there's good mortgage brokers even the mortgage brokers we use today with the bulk of our clients we found through that website and we just made good relationships with them they've worked with numerous clients so go to White code investors page or just make sure it's a true physician mortgage let me give you two weird things that I've seen before I have seen Physicians that have come to us with two separate mortgages they took out a 20 mortgage which was their down payment and then an 80 mortgage the 20 mortgage was what allow allow them to avoid the PMI so when they sign up for it they think oh it must be a physician mortgage it doesn't have any PMI Insurance that's what we were told it has yes and no but you also have two separate mortgages now so just always make sure they truly offer that a lot of banks don't want to have a physician or a dentist or a vet walk away so they'll think of some weird things we have seen one client that actually got into a mortgage because they didn't list the escrow they pretty much said or the property taxes so the payment look much smaller but then they got a surprise that the number was going to be a six seven thousand dollar number just for their property taxes that was one where they essentially were trying to show a lower payment by excluding an escrow payment homeowners insurance is not that expensive maybe a thousand two thousand dollars so you're talking about 100 150 a month property taxes are usually a larger one so if you want to show a lower payment and you remove that property tax that's one way to get it down so just make sure it's a true physician mortgage if you're having questions about it maybe even go to Dr Dolly's Pace the white coat investor just click on there and see does this Bank look like they're actually offering these so sometimes a simple Google search won't hurt to see what that out there but make sure you're finding a proper physician mortgage loan and the million dollar question that's if you're looking for a million dollar home see what I did there is it right for you and you're not going to like my answer it depends you know you're working with a financial planner when the answer is it depends and I say that because I can make a case for either route numerous times meaning do we do it do we not do it I am not the world's biggest fan of buying a home while you're in training I also am not the world's biggest fan of the first two years of an attendee because my theory is this you get out there you're excited right you get in there and you realize you hate every partner this practice is not what you thought you were not enjoying your life right now this is not what you signed up for now we're in a tough spot not only did you sign a contract but you also own a home now oddly enough it's pretty easy to get out of a contract right you know let's just say you send it to your contract well we got to get through this for two years if you bought a home the break even on most homes is about five years you didn't probably sign a five-year contract so that is where we get a little bit concerned even up to those first few years of being in attending I think the the main thing here is to always analyze you have something that most people don't unless you're a physician a dentist or a vet you don't even have access to this but you do and that's where I think comparing the conventional mortgage to The Physician mortgage is where you're going to decide is it right for you maybe you take advantage of it maybe you don't need to but you have the option we can at least kick the tires and see if this is something that's going to make sense for you so I think the term or the response it depends holds up very well here because your situation is a unique I don't care if all of your colleagues just bought homes maybe it made sense for all of them maybe it didn't but it only matters and what makes sense for you so just know that you have this extra option kick the tires on it see if it could be something you could take advantage of but at the end of the day maybe you don't need to maybe you don't have to maybe renting still makes sense we get so caught up on this American dream that we got to go buy a home we gotta have a car you got kids there you got you know the golden doodle in the front yard maybe that doesn't make sense right now in this moment so is it right for you the answer is it depends but the biggest benefit and I hope you took away this from the entire video here in the entire blog post is at least you have this extra option so kick the tires see if it might make sense for you and there you have it one of our most popular topics The Physician mortgage most of this content is coming from a blog post that we already wrote I always am focusing on writing new blog posts and getting new content out there and then like to add videos because not everyone wants to read some people like videos so we'll have all those links in there as always thank you for tuning in we appreciate you spending the last 15 minutes or so here with us we'll put some good show notes in there at the bottom so if you want to continue your learning and then also if you have not subscribed Please Subscribe click a little bell icon you also get notifications one of our big updates here in 2023 and going forward is more and more content especially in the video side so please continue to follow along and we hope to continue to provide great content to make Financial Planning in this journey a little bit easier for you again thanks for tuning in we'll see you on the next video thank you foreign