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Other ways to get money for your house – Doctor Loans

Posted on July 13, 2016January 30, 2021 by SmartMoneyMD

doctor loans alternative mortgage

This post is the fourth part in the series on mortgages and my experiences:

My local mortgage lender reintroduced me to the notion of getting a doctor loan. I had heard about these options from financially savvy doctors back in residency, but I never really learned whether these loans were actually prudent options. In general, the perks are as follows:

Option to put down less than 20% of the purchase price of your home without having to buy private mortgage insurance. I would estimate that this would save you about $1,000 – $3,000 a year.
Ability to borrow up to 95% of the purchase price of your home. This means that you’d only have to put down $50,000 for a $1 million home!
Approval of loan with only proof of an employment contract.
Better rates than traditional loans if you are going for a jumbo mortgage

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Depending on your lender, there may still be other options. All of the lenders who I spoke to stated that borrowers would still need to have a good credit score above 700.

When should I consider a Doctor Loan?

In the most extreme case, no financially cognizant person should obtain a doctor loan with the intention of overextending your earning power. For example, if you are a neurosurgeon starting your first job that brings in $1.4 million of income annually, you could reasonably get a doctor loan on a $1 million house with a $50,000 downpayment. Assuming that you can hold your job for the next few years, you should be in decent financial shape.

In contrast, everything else belong is a questionable situation. The average white-collar professional whose salary is in the $50,000 range may actually own a house that’s five times his annual salary ($250,000). Similarly a doctor who earns $250,000 annually might be able to “afford” a $1.25 million home. Through a doctor loan, you might be able to buy this home without having to cough up $250,000 for a traditional mortgage downpayment.

Will the lender underwrite such a loan for you? Probably. Most likely. Prior to the housing crisis, doctors could get approved for loans easily with very little oversight. It’s a little bit more difficult now, but is still easier than what the average consumer will experience simply because you as a doctor, you should have a stable job.

Should you use the doctor loan in this scenario? Probably not.

Ultimately it depends on what lifestyle you need to live at the moment and how you would fare otherwise.

You know that you’ll definitely be living in the same place for the next five years.

If you are a high income physician who knows that you’ll definitely stay at your job for at least the next five years, you can entertain the ideal of buying a house. Let’s say that you really don’t have enough in your savings account just yet to make the standard 20% downpayment…perhaps the doctor loan is for you. I knew an orthopedic surgeon who used a doctor loan on a house that was priced significantly below market value. At the time, he was planning to stay in the area for at least the next few years, but putting down 20% would have been a stretch for his purchase. (He found another job two years later in another state).

You’re an investing superstar.

Not having to plop down a significant chunk of your savings on a house allows you to invest the difference to your liking, whether in the stock market, real estate investments, gambling, bonds, P2P lending, or under your mattress. Most mortgage rates run in the 4.5% or less range, so there is some merit in hedging your investing luck/skill elsewhere.

Should you do it? I’d have to argue that most doctors should not get a doctor loan for this reason alone—there are more financially naive doctors than business shark doctors. It’s probably unwise to think that you are an anomaly.

What are some other reasons why doctors should get a doctor loan?

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(Photo courtesy of TaxRebate.org.uk)

Do not own more house than you need

Posted on May 25, 2015June 12, 2015 by SmartMoneyMD

This is the second article in a following series on saving money.

Housing costs in America are cheap. If you look at the cost of rent of an average city in Western Europe, you will see that it is several times higher than most of the larger cities in the U.S. How about Tokyo or Hong Kong? Equivalent housing in New York is similar in pricing yet the GDP of Hong Kong is much lower than that of the U.S. If you are looking strictly in doctor income, you will come out ahead significantly in the U.S. If you compare the overall financial health of a doctor in an average midwestern city like Omaha to one in Hong Kong, the Omaha doctor wins by a landslide. A $3000/month mortgage in Omaha will get you a giant 4500 sq ft house with 4+ bathrooms while you get a 800 sq ft apartment in Hong Kong with questionable bathroom plumbing!

You can definitely make the payments as a doctor. But it doesn’t mean that you should splurge on your housing. Standard recommendation for housing is that you shouldn’t spend more than a third of your monthly income on housing. A doctor who still has student loan debt or is in her first five years of practice should not be spending nearly that amount. If you spend $1000 less a month on rent or mortgage, you’d save $12,000 in one year! A smaller home will also require less energy to heat and cool, less space to furnish, and less maintenance.

The perk of being a doctor in America is that you have a higher potential income and cheaper cost of living. Use that to your advantage. The amount saved can be used to fund your Roth IRAs or taxable investment accounts. Even with tax drag, a 4% annual growth on $12,000 will result in $21,611.32 after 15 years. Contribute this amount every year and you will have a hefty sum.

Ask yourself where you priorities are, and what activities, hobbies, or goods make you happy? Is it a new pair of Loubs every year? Is it an extended vacation? Or a fancy house?

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Do you choose to put your money in your house? What do you do to control costs in your home? Sound out below!

How much house can I buy on my salary?

Posted on April 19, 2015April 12, 2015 by SmartMoneyMD

As a high-income earning physician, you deserve a McMansion, right? How much house can you buy on your income?

Suppose that you are the average physician that we discussed in an earlier post. You are making $200,000 annually. According to this example, you have approximately $131,000 for living expenses and miscellaneous expenses.

Unless you will be paying for a house entirely with cash, you will likely take out a mortgage. In standard home loan mortgages, a down payment of 20% will usually afford you the lowest interest rate. For a $200,000 home, you will need to scrounge up $40,000 for a down payment, plus a few extra thousand dollars for miscellaneous home expenses such as moving expenses, furniture, and additional taxes.

In our example, if our new physician rents an apartment for the first year and lives a moderately lavish lifestyle, she will have $51,000 left for savings. That leaves plenty to put towards the down payment for If that entire amount is directed towards the down payment on a home, you can purchase a $255,000 home. If our doctor wishes to have a larger home (loan of greater than $417,000), she could take out a jumbo loan.

Now, I know plenty of doctors who live in homes <$250,000, but I would venture a guess that the majority of doctors buy much larger and more expensive homes. How can this be manageable? The truth is that everyone is in a different scenario. Perhaps those with the larger home have a higher income. Perhaps they already have savings from prior jobs, the spouse, family…etc. Perhaps they’ve overextended their income. After all, a large percentage of physicians do not have much savings!

Questions or comments? Sound out below!

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