Several years ago Bank of America realized there was a huge untapped potential for business in the thousands of Doctors graduating annually. Although they have huge future earnings potential they do not fit into the standard criteria lending institutions require. Those graduating from Medical School or Residency programs have little money are fairly naive financially and best of all they will be needing a mortgage very soon. With no down payment, tons of existing debt already, no proven earnings – usually with no new job started when they purchase a home in their new city they are unlike other lenders. The powers that be decided to create a program that allows these high future income earners to secure a mortgage from a mortgage broker.
A New Type of Loan
Banks created a special mortgage with different criteria because these new graduates have a very small chance of defaulting on their mortgage compared to the standard borrower. In the future they will be looking for a place to bank and invest and by offering them mortgages a bank would secure their business in the future. New graduates tend to be financially unsophisticated and could be given higher interest rates and fees and they didn’t have many options when it comes to lending money. As Doctors they will recommend the financial institution to colleagues in the future and so the “ Doctor’s Loan” was created and many banks now offer them.
What is it?
- May be limited to a new resident or new attending (7 to 10 years out of residency) or less, some banks offer these loans to Veterinarians, Optometrists, even Attorneys and some banks lend to a Doctor at any stage of their career or on a second home
- Little money down is required (0 – 5 %)
- No mortgage insurance needed
- May be required to open a bank account at the bank where the mortgage is paid by auto draft
- Will accept a contract as evidence of future earnings if they don’t have pay stubs yet
- Occasionally loans could be restricted to a certain type of home for example a condo, but generally can be used for any home
- Has the same interest rate whether the amount is above or below the “jumbo loan” limit which varies in each area
- Some programs even allow gift money for a down payment or for required reserves or closing costs
- Cash reserves equal to few months principal, interest, taxes and insurance PITI, a reasonably good credit score, and a loan to income ratio of less than 38% could even be 50% for some lenders. Often student loans are not calculated into the loan to income ratio or banks may use modified payment similar to the income based repayment, pay as you earn calculation
Other Options
There are other options available, conventional mortgages with 20 % or less down payment needed or one not covered here for each individual circumstance.
Contact a Toronto Mortgage Broker for more information.
