It’s no secret that medical education is a significant investment. According to educationdata.org and The Association of American Medical Colleges, the average medical school graduate owed $250,990 in total student loan debt as of November 2022.
This debt looms large in many life decisions that physicians make as they exit training and enter practice. Graduating from medical school means you’re ready to commit to your field and you’re looking for a contract to sign. You’re also considering where you should live and how you’ll be able to afford it.
When you’re new in your career and just getting used to making payments on your student loan debt, home ownership can seem nearly impossible. Luckily, as a physician, you are eligible for a physician home loan. These loan programs make it much easier to qualify for mortgage financing with large amounts of student loan debt compared to traditional mortgage programs.
Here’s how your student loan debt is handled when you apply for a physician home loan.
Debt-to-Income Ratio and Medical Student Loans
Student loan debt is considered in your debt-to-income ratio (DTI). This is a formula mortgage lenders use to help assess your creditworthiness as a borrower. The ratio is calculated by dividing your monthly debt payments (including your expected new home payment) by your monthly gross income, which yields a percentage value used to evaluate your ability to repay the loan. Depending on the loan program you choose, this ratio usually needs to be between 43-45% in order for you to be approved.
Student loans are factored into the DTI ratio for every mortgage borrower – even those looking to get a physician home loan. However, physician home loan qualifications and requirements take into account your career trajectory. A physician who has just graduated medical school and is about to enter residency or one who has just started their practice will typically have a large amount of debt and very low income, but is likely to realize significantly more income as their career progresses.
Because of this, physician home loan programs allow student debt to be calculated differently than conventional loans when it comes to your DTI ratio.
If you’re on an income-driven repayment plan like IBR, PAYE or REPAYE, a physician home loan program is only going to take into account your total required student loan payment and not the total amount owed. Conventional mortgage loan programs will often default to this fully amortizing payment, which could be significantly higher than your stated income-driven payment.
Additionally, physician home loan programs will exclude any debt that is deferred for at least 12 months from the date of closing.
Tips for Qualifying for A Physician Home Loan With High Student Debt
Knowing how your medical student loans can impact your approval for a physician home loan is crucial. If you have high medical student debt and want to improve your chances of being approved for a physician home loan, here are some tips:
- Switch to an income-driven repayment plan. If you are not already on an income-driven repayment plan, switch to one as soon as possible before applying for a physician home loan.
- Choose a physician-focused mortgage advisor. Not all mortgage advisors have experience working with the complicated income and debt structures of physicians. Choosing a lender who has worked with physicians before will make sure you are getting the best possible loan terms you can, even with high student debt.
- Consider adding a co-borrower to the loan. Additional income always helps with qualification. If your medical student loans are still pushing you over the maximum DTI threshold for a physician home loan, adding a co-borrower to the loan can make a difference.
The Bottom Line
If you have high medical student debt and are looking to purchase a home, you can use your earned physician home loan benefit to eliminate some of the hurdles that you might encounter with other home loan programs.
Physicians almost always have more complicated income and debt structures than most conventional mortgage borrowers. Choosing a mortgage advisor who specializes in working with physicians and understands how to calculate your income and DTI ratio to get you approved for the best terms can save you a lot of headache and make the difference between being approved or not.
Our mission at NEO Home Loans is to help you navigate the roadblocks that can come with buying a home as a physician. We have helped thousands of doctors not only select a mortgage strategy that works for them, but also present an attractive offer and close quickly in this increasingly competitive real estate market.
If you would like to find out how your student loans will affect your ability to qualify for a physician home loan, fill out the form below to schedule a consultation with one of our physician-focused mortgage advisors. They will answer all of your questions and help you decide if a physician home loan is right for you.