Many mortgage lenders give preferential terms to physicians

Mortgage lenders offer special deals to doctors — some doctors, anyway. I am a doctor but I am not eligible for any special loan programs because my doctorate is in economics. Economists and others with doctorates in philosophy have no special features that make them attractive as mortgage borrowers.

On the other hand, lenders view physicians as especially attractive borrowers, and many lenders court them.

Why? Because they have preset career paths with well-defined increases in income. For example, the physician whose inquiry stimulated me to write this article told me he was in the final year of a three-year residency, had signed on for three additional years of subspecialty training during which his income will increase 5 percent per year, and after those three years his income will increase by a factor of five!

This career path, which is typical, makes physicians relatively immune to the market hazards that may threaten the ability of most other borrowers to pay their mortgage. Another attractive feature of physicians as borrowers is that lenders can target physicians and market their services to them well in advance of the physician’s need for funds.

Are there any other professions that qualify for preferential treatment? Yes but it varies lender to lender. Most if not all lenders who offer special loan programs to physicians extend them to dentists as well. Some will include podiatrists and veterinarians; a smaller number include optometrists, accountants and attorneys. I even found one that covered registered nurses. But none covered economists.

One important concession made to physicians is the reduction or elimination of a down payment requirement, without a mortgage insurance requirement. Of some 10 lenders I checked, seven required no down payments on loans up to $650,000 to $750,000 or thereabouts. The other three offered “flexible” requirements.

As a point of comparison, nonphysician borrowers who take conventional loans must put 20 percent down to avoid mortgage insurance. Veterans are eligible for no-down payment loans under the VA program, but they pay a guarantee fee. FHA borrowers must put 3 percent down and pay an insurance premium. In addition, the maximum loan amounts available on FHA, VA and conventional loans underwritten by Fannie Mae and Freddie Mac are significantly lower than those available on physician loans.

Another important concession made to physicians is the acceptance of anticipated income in evaluating their ability to pay. On all other mortgage loans, ability to pay is based strictly on past and current income. Anticipated income is not considered because it is viewed as too chancy. But with physicians, the path to future income is so well defined that lenders are willing to use it.

Are physician loans priced lower? The short answer is that I do not know; they could be priced lower or higher. The 18 lenders who present their physician loan programs on www.leveragerx.com/physician-mortgageloans explain their programs in considerable detail, but none of them say anything about prices.

Here is how a physician can shop for a physician loan:

⏩ You must first decide the kind of mortgage you want, which may require a little homework on my website, www.mtgprofessor.com.

⏩ Go to the site shown above and identify four or five lenders that offer the down payment and maximum loan that meets your needs, and verify that they operate in your state.

⏩ You must obtain price quotes from all of them on the same day because lenders reset their prices every day.

⏩ A price quote includes the interest rate, points and fixed-dollar fees. On adjustable rate mortgages, pricing is more complicated and you would do well to read “Borrower Guide to Adjustable Rate Mortgages” on my website.