House Calls

Doctors are often burdened with debt when they graduate from medical school. This can make it especially difficult for these young professionals to buy a home and plant roots in a community. 

Mortgage originators can aid doctors and others in the health care industry in achieving homeownership. It takes specialized knowledge in the needs of these borrowers, the available lending programs for medical professionals and how to surmount the obstacles that are unique to these clients.

This past March, more than 40,000 medical school graduates across the country learned the details of the hospitals they have been matched with for their residency, the intensive training program that postgraduates must complete to practice medicine in the U.S. For these future physicians, the aptly named Match Day marks the start of an exciting journey and, for many, a fulfilling and lifelong career. 

But in the years following graduation and advancement through residency programs and fellowships, many aspiring physicians face a roadblock. Despite their desire to put down roots in the communities where they are training and practicing, homeownership seems out of reach. Many are carrying a student-debt burden that feels unsurmountable, especially considering that 76% of medical school students who graduated in 2017 carried debt and the median debt at that time was nearly $200,000, according to the Association of American Medical Colleges. Those numbers are even higher for graduates of private schools.

Last year, TD Bank surveyed 651 medical professionals about this topic. Almost a quarter of the survey respondents who owned homes said their student-loan debt made buying a home more difficult. It’s a conundrum: This is a group of highly educated, disciplined individuals who are heading into lucrative and steady careers that promise high earning potential. Yet because they had to invest in themselves to get there, they have sacrificed the opportunity to qualify for a standard mortgage.

Seeing this challenge, many mortgage lenders have developed products and programs to help physicians who are early in their careers take meaningful steps toward owning a home. Yet it takes real expertise to work with this kind of borrower. Mortgage originators must navigate complex income structures, and understand the intricacies of a medical professional’s personal balance sheet and how to fit a manageable mortgage into their life. Originators have several ways to help guide medical professionals into the right mortgage.

Dispel myths

The misconception that homebuyers must put down 20% has stopped far too many people in their tracks. For those burdened by significant medical school debt, saving for a downpayment is all the more challenging. 

That’s why it’s so important to make buyers aware of programs and products that make it possible to secure a mortgage with a minimal downpayment. Fannie Mae’s HomeReady program, for example, requires only 3% down, allows buyers to utilize a relative’s or roommate’s income to help them qualify for the loan, and offers lower mortgage insurance payments.

Additionally, some mortgage lenders offer specialized products that cater to medical and dental professionals. These products can alleviate the burden of a large downpayment with features like 100% financing up to a particular loan amount (typically in the range of $750,000) and low-downpayment options for homes at higher price points. 

Many offer flexible debt-to-income (DTI) ratios to help mitigate a borrower’s copious amounts of debt and lack of earnings history. And many lenders will not require private mortgage insurance on these loans, freeing up money for other living expenses. In many cases, these loans are limited to the purchase or refinance of a primary residence, while some loan products may be geared toward practicing physicians and dentists who are early in their careers.

Unfortunately, not enough physicians, dentists and surgeons know about these products. TD Bank’s survey found that less than one in five doctors are aware of medical-professional mortgages, and of those who were aware, less than half understood the features being offered.

This makes it even more important for lenders to get in front of young medical professionals before they become demotivated from pursuing homeownership — and for those lenders to have the niche expertise to help borrowers properly secure these products.

Manageable payments

Of course, working with debt-burdened physicians requires more than navigating the DTI ratio challenge. Even if a medical-professional borrower has secured approval for a low- or no-downpayment mortgage, they will still likely see a large chunk of their paycheck going toward paying down their outstanding debts, insurance premiums and more. That’s why it’s critical for originators to complete their due diligence and ensure the mortgage has long-term sustainability.

Has the borrower deferred any student-loan payments that will hit their personal balance sheet within the next 12 months or further into the future? Have they accounted for post-purchase liquidity to furnish their new home, pay homeowners association fees and more? What about an emergency fund for unexpected repairs, such as a busted water heater?

It’s up to mortgage originators to pose the questions that many borrowers won’t think to ask but will undoubtedly impact their ability to repay or to live comfortably in their new home. It’s about more than getting a borrower into their house; originators also must think about their clients’ financial health once they have moved in and their monthly statements start to arrive.

It’s up to mortgage originators to pose the questions that many borrowers won’t think to ask but will undoubtedly impact their ability to repay or to live comfortably in their new home.

Complex challenges

Properly serving medical professionals requires going beyond establishing the right loan product, rate, term and payment structure. It also requires originators to think holistically about the financial and legal obligations facing practicing physicians, and how their homeownership status could be affected.

For example, many physicians — especially those in high-risk specialties — must consider the potential for medical malpractice claims. Although many doctors secure insurance to protect their personal finances from legal events, it is worthwhile for mortgage originators to present these borrowers with options that add layers of protection. For example, physicians may want to consider a nontraditional method of title vesting, such as a trust, which would shield the borrower’s home in the event of a lawsuit.

Having these conversations with doctors at the start of your business relationship will streamline the mortgage process. It also will assure these borrowers that their mortgage originator has the right expertise to help. 

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Medical professionals dedicate many years of hard work and sacrifice, and incur substantial debt, in order to serve their patients. These borrowers require the partnership of knowledgeable mortgage originators who can help them confidently put down roots in the communities they’re serving.