Garnet Capital Advisors Blog

Lenders have begun focusing on ways to increase lending to physicians. Specifically, banks are looking for ways that they can tailor mortgage products to doctors. 

Imagine a physician with a six-figure salary that can't qualify to buy a home. It happens. This occurs because many doctors also have high student loan debt and lower levels of personal savings. This doesn't necessarily mean that they are a bad risk, however. Some banks recognize this and are now focusing efforts on creating mortgage products aimed at physicians. 

Physician loans are helping doctors with student loan debt qualify for mortgages. 

What is a Physician Loan?

Since many physicians have high student loan rates, they may not qualify for mortgages even though they meet income requirements. The Association of Medical Colleges reports that new medical student graduates last year carried a median student loan debt of $190,694. Such a high level of debt would make qualifying for a home loan next to impossible, but this is something that lenders are working to change. 

A physician loan, which might also be referred to as a doctor loan, is a mortgage loan that has been developed specifically for doctors who would otherwise have difficulty getting approved for a loan. Some of these loans are also available to medical residents as well as dentists, physician assistants, veterinarians, nurse practitioners, and optometrists. 

There is little to no down payment required with these loans, no PMI requirement, and a much more forgiving debt-to-income ratio calculation. Some lenders will accept an employment contract as evidence of future earnings instead of W-2's or pay stubs. 

What is the Incentive for Lenders Offering Physician Loans?

If these borrowers have such high levels of debt, what is the incentive to offer them home loans? There are two main reasons. Physicians have excellent career prospects, and lenders can charge higher interest rates for these products. 

While a medical resident might earn $50,000, their salary increases significantly once residency is complete. Medscape reports that the average physician salary is $299,999, based on a survey of thousands of doctors that encompasses about 30 specialties. This means that the default rates on the loans will be low. 

Physician loans also come at a higher price. Specifically, there are interest rates tied to these loans that are about 0.25 to 1 point higher than conventional mortgages. 

Lenders are also interested in these loans because they provide an opportunity to cross-sell to borrowers with a lifetime of high earning potential. Physicians may not just need a home loan but also a loan for cars as well as bank, retirement, and other investment accounts. 

Physicians that take out these loans are also more likely to have close connections with others in their industry. This provides the opportunity for referral business from colleagues. 

A loan sale advisory service can locate investment opportunities involving physician loans. 

A Loan Sale Advisor Can Offer Investments in Physician Loans

Physician loans are becoming more popular with major lenders, some of which report having increased their portfolios ninefold over the past decade. A website that tracks participating lenders, LeverageRx, reports that there has been a 51 percent increase in physicians searching for these loans so far in 2018 compared to the same period last year. 

Banks who want to invest in physician loans may not be sure where to begin. As a whole loan broker, Garnet Capital can help. Doctor loans are attractive assets for banks who want to buy or sell loans to maximize portfolios returns and minimize risk. Sign up for our newsletter to learn more about the benefits of working with a loan sale advisory service.