5 min read
Physicians have some of the most impressive reputations when it comes to finances. With traditionally high salaries and a stable job market relative to other professions, doctors (and dentists) are ideal customers for banks. In its 2019 report, Medscape reported that the average physician salary was $313,000. A profession like this comes with a long dedication to training (and continuing education) and respect from society. So, you may be shocked when you discover that you have been denied for a mortgage.
Before you resign to renting and set aside your dream of home ownership—at least for the short term—let’s look at seven reasons you may have been denied, and steps you can take to improve this.
Medical school and residency have taken up a large amount of your young adulthood and you may not have had the opportunity establish a large amount of credit. Lenders sometimes can’t look past this and assume that since you have not borrowed a lot of money, they shouldn’t loan you a lot of money. What they are missing out on is the fact that you haven’t defaulted on any loans and don’t have an extensive late payment record. This may be a challenge in your early years, but you will make up for it in the long run. Monitor your credit report regularly; a score of at least 700 will gain you a better interest rate.
Debt-to-income ratio (DTI).
Savvy medical residents know not to go crazy on their meager salaries. If there was a time for “tightening the belt”, this is it. However, if you have a debt load, restrict your budget during the last year of your residency and pay down your debt. Your physician income will go even further if you aren’t using it for things you bought while in medical school and residency. Now is not the time to purchase a new car or take a lavish vacation. Ideally, 45% or lower DTI qualifies you for some of the best financing terms. If you aren’t at that level yet, pay down some balances for about 6 months and review your financial situation again.
Large student loan debt.
Medical school is expensive; according to the Association of American Medical Colleges, the average medical school debt in 2018 (the latest numbers available) was $196,250. With starting salaries for young doctors varying widely depending on specialty, you may be starting your career with a nice pay rate. However, consider what your non-student loan debts are, and then combine them with your student loan debts to get a good picture of what you are really paying each month.
No work history.
So, you’ve spent 4 years in undergraduate school, 4 years in medical, and between 3 and 7 years in residency. You likely can’t remember much about your life before school! Many lenders shy away from your relative inexperience in the workplace. However, what requires as much commitment as a doctor in training? You can avoid this scenario by providing a contract, proof of your impending employment. If you have one that confirms you will be employed in a practice (or hospital) for a longer term, things begin to look up in your chances of getting a loan.
No—or low—down payment.
Traditional home mortgages require a minimum 20% down payment, and possibly more, depending on the appraised value of the home. If you come to the lender with less than that—or nothing at all—they probably will send you away empty-handed. However, any amount of money down helps lenders take you more seriously. A family member could provide the down payment, or you may sell something (low cost medical schoolbooks, anyone?), allowing you to qualify for a mortgage, or even better financing. Don’t discount as little as 10% down payment to back up your commitment to home ownership.
Little savings/available money not on paper.
Since you have spent a considerable amount of time (and money) on your education, you may be strapped for savings right now. Or perhaps someone else (parents, grandparents) intends on helping you out. Make sure you let the loan officer know how much money you will be putting down on the home you want to purchase or will have for unforeseen expenses involved in the purchase /repairs for the house. If you can, once you have chosen a home mortgage lender, open an account with them and put some money in it.
Okay, this one isn’t really something you have control over, but it is a common complaint with physicians when considering a home mortgage. Most lenders have restrictive underwriting terms, designed to protect themselves and applicable to the general public. Physicians, who represent a unique industry with high income potential and financial stability, SHOULD garner some of the best loan rates. But there is much more to choosing a home mortgage lender than just an attractive rate. Look for banks who truly understand your industry and unique needs, who can look beyond the paperwork and see what you represent long-term in repayment and further banking products. Experienced physician home mortgage lenders can help you through the process, understand the documentation you will need, and can offer you exclusive financing terms fitting your position.
These steps will help you navigate some common problems which arise when physicians are faced with a denial. Just remember that most situations simply need more preparation, and there ARE experts out there to help you through it. For a list of mortgage companies who specialize in physician home mortgages, check out our list here. We offer an overview of some of the most popular physician lenders in the U.S.
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