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For years physicians and dentists have had access to “physician home loans” or “doctor mortgages”, which allowed qualifying doctors to exclude student loan debts, purchase high value homes with less than twenty percent down, and require less than two years’ history for self-employed and independent contractors.
Similar underwriting guidelines and underwriting flexibility are now being applied to other professionals such as ODs, MDs, DPMs, DOs, CRNAs, PAs, DPTs, DVMs, PharmDs, and several other medical professional designations.
Mortgage lenders have determined that home buyers with these professional designations are excellent credit risks and have begun to loosen the underwriting guidelines specifically around student loans, down payment amounts and self-employment history.
Student loans cause the biggest challenge to qualifying-
Student loan indebtedness has become prolific over the last decade. According to the Federal Reserve; U.S. students currently owe over $1.5 trillion in private and federal loan programs.
Since 2004 student loan indebtedness has soared 302%, roughly ten times the growth in U.S. GDP during the same period. Meaning that student loan indebtedness has expanded ten times as fast as our economy – something has to give.
$1.5 trillion is such a large number it’s hard to fathom but consider this, the total outstanding debt in the U.S. for auto loans is $1.1 trillion and $977 billion for credit cards.
Exacerbating the burden, borrowers cannot default on their federal student loan debts like they can on a mortgage, credit card, or car loan. That debt is likely to saddle indebted borrowers for decades and can become a major hurdle in qualifying for a home loan.
Much of the rapid expansion in student loan indebtedness has come post the 2008 - 2010 mortgage meltdown, while mortgage underwriting standards are near their most conservative on record.
This combination of high indebtedness and constrained mortgage availability has created a significant challenge for some OD families to qualify for a home loan.
Are there any solutions available for the highly educated and indebted OD?
Relying on deferment, forbearance, or income driven repayment programs helps you stay current with minimum student loan payments, but is an additional hindrance to qualifying for home loans. Most conventional and government loans like FHA, VA, and USDA, will not recognize any form of IBR, deferral or forbearance in student loans.
Most mortgage credit guidelines require underwriters to qualify you with a fully amortizing payment, or if not available, will default to a percentage of the outstanding student loan balance to estimate a monthly payment.
In many cases, the fully amortizing payment amount is more than the borrower can handle and blows the qualifying debt to income ratio beyond underwriting limits. This makes it difficult for some OD to qualify for traditional mortgage financing, especially when recently out of training or with high student loan indebtedness.
For example, if a client has an income of ten thousand dollars per month, their total outgoing expenses including the new mortgage, student loans, and all other indebtedness that shows on credit cannot exceed 43% or $4,300 (generally speaking – there are some exceptions to this ratio).
If a borrower has $100,000 in student debt that is deferred, in forbearance, or in income driven repayment with a zero payment; the underwriter still has to calculate a payment on that debt. That payment will typically be calculated in the one to one and a half percent per month range, adding another $1,000 to $1,500 per month to the qualifying debt to income ratio.
The Optometrist Home Loan program is more flexible in allowing for qualifying based on deferred and or income driven repayments when calculating debt to income ratios, making it easier to qualify in spite of high student loan indebtedness.
Other solutions with the optometrist home loan program:
- The OD home loan program allows down payments as low as three percent up to $650k and as low as five percent up to $1M loan amounts.
- Reduced and no mortgage insurance options available.
- Close on future income with a valid offer letter or employment contract as early as 90 days prior to the start of your new employment.
- Self-employment or 1099 independent contractors can qualify with less than two years proven tax history.
- Full pre-underwriting approvals available, enabling the closing of your loan in as little as 17 days.
The OD home loan can be a powerful tool to help you into a home with the least amount of cash possible, sooner than most conventional loans, and in many cases with less overall expense as you may pay reduced or avoid mortgage insurance all-together.
This does not mean they are the right prescription for everyone and we invite you to contact us directly to explore your options, as well as the solutions and services we provide.
Request your free consultation at www.odfinancehomeloans.com
Josh Mettle NMLS #219996 is an industry leading author and ranked in the top 1% of mortgage originators in 2018 by Mortgage Executive Magazine, specializing in financing Medical residents, MD, DDS, OD, DPM, DO, CRNA, PA, DPT, DVM, PharmD and other professionals with highly specialized professional loan programs. You can get more great real estate and mortgage advice here or by visiting his book's website. Josh is also a fourth generation real estate investor, and owns a number of rental homes, apartment units and mortgages. Josh is dedicated to helping physicians and other professionals become more financially aware and able - listen to “Physician Financial Success” podcast episodes or download Josh’s latest tips and advice here.