How Banks Benefit From Physician Loans
More and more banks are offering special programs for doctors, giving physicians the ability to receive special treatment and special considerations when it comes time to buy a home. This increased competition will allow you to compare rates and programs to find out which offer is best for your long term needs.
With interest rates expected to start rising this year, now is a good time to buy a home and take advantage of current low interest rates. In many areas of the country home markets are still suppressed and real estate prices have not fully rebound from the 2008 housing crisis. This combination of factors can provide an opportunity for higher levels of appreciation and very low mortgage costs.
Benefits of a Physicians Loan
A physician’s loan can almost appear to be too good to be true. Loans are offered to physicians in residency and practicing physicians. Some programs are extended beyond medical doctors to dentists and other healthcare professionals with a PhD.
The loans offer the use of a contact as opposed to requiring w-2’s or other forms of income verification. Loans can often close 60 to 90 days before you start a new job. Most loans geared towards physicians offer zero or a low down payment of 5 or 10%. No private mortgage insurance or PMI is charged saving you hundreds of dollars in the final monthly payment. Physicians loans also offer benefits for jumbo loans, which typically are $625,000 or higher, but will depend on the region you are purchasing a home. Traditional jumbo loans require larger down payments and higher interest rates. Physicians can gain all of these benefits from banks who are trying to court your business.
What’s in it for the Bank?
Higher Interest Rates, Fees and/or Points. Banks charge more for the benefits a physician’s loan offers, in order to offset the risk. You can choose from a fixed or variable rate and sometimes the bank will offer an interest only option. Compared to convention or FHA mortgages, the rates and/or fees will be higher. Benefits like a lower down payment, no PMI, few or no assets, all equals more risk to the bank that you will be unable to make on time mortgage payments.
What reduces the risk is the history of the profession as a whole. Typically physicians buy larger homes, have higher incomes and eventually have more assets than the average worker. This gives the bank the incentive to gain you as a client early in your career.
Each bank or lender will offer different options for their specific physician’s loan program. It is important to compare the rates, fees and points, along with the benefits being offered to determine which option will best meet your needs.
Long Term Relationship. Physicians are very profitable customers to banks. With higher than average salaries, banks have the ability to provide a wide range of services from checking and savings accounts to retirement and college planning. Banks are interested in more than just giving you a home loan. Many will require you to open a checking account as part of the loan qualification.
This means evaluating more than just the mortgage loan terms. Is this a bank that you want to do business with for other services? Do they provide the financial planning tools that will help you be successful? Many physicians do not dedicate adequate time to managing finances and therefore depend on banks or other institutions to provide these services. Working with a full service bank can be beneficial to both you and the lender, as your business expands and your financial needs increase.