I am a big fan of what many banks refer to as the “doctor loan” or a “physician loan” that is available from banks as a loan on your primary residence. A doctor loan allows physicians to buy a house with less than 20% down and does not take student debt into account. This is ideal for many new physicians since most physicians graduate with a substantial amount of student dent. The bank also knows that doctors are very low risk to default on their primary residence mortgage, which is why this exists.
Previously I did my physician loan with Bank of America, but this time decided to go with Truist since they gave me the lowest APR with 10% down. I could have used other banks for lower down payment, but I didn’t mind putting 10% down for a much better interest rate. Today I’ll go through my experience with the physician loan.
Using A Doctor Loan For Your Mortgage On Your Primary Residence
Student debt burden is often high for new graduates. The average graduating physician has over $200,000 in student debt. The physician loan allows graduates with less than 10 years from graduating residency to take advantage of obtaining a mortgage with less than 20% down and not taking student debt into account.
Even though I did a lot of moonlighting during residency, I never would have qualified for a loan to buy a house with my lack of income history and student debt load otherwise.
Items Often Required For A Doctor Mortgage
- Graduate from US residency. You will need a picture of your diploma from medical school and residency.
- Be less than 10 years out from graduating residency
- US citizen
- Have a contract for employment
- This can only be used for your primary residence
Your Primary Residence Is Not An Invesment
You do not buy your primary residence as an investment. You buy your primary residence as a place that fits your lifestyle needs, in a location you want, that has enough space for you and your family. While you are living in the house, you are not getting any income off this property, and something is always breaking.
However, buying a house can be a hedge against inflation.
I put 5% down with Bank Of America for my first house that I bought 4 years ago. We bought that house for slightly over $400,000. Including closing costs, I spent about $25,000 on my down payment plus closing costs to obtain my first house.
We just accepted an offer to sell this same house for $967,000. After closing costs and fees, we will net almost $500,000 from selling our primary residence. That $500,000 is tax free for me since I’m married.
That money is a 20 time return on my initial cost for down payment in only 4 years. This is essentially me hitting the lottery since real estate does not appreciate like this normally.
Inflation Is A Beast In 2020
Although that number sounds great above, we are selling and buying in an inflated market. Only time will tell if the housing market crashes or continues to go up. However, my initial house that is 1,400 sq ft walking distance to most things no longer fits my lifestyle or needs.
My first house was a way for me to live in an area that I loved with a fixed monthly price. I don’t think many people saw this degree of housing market inflation coming. If the property market goes down, I am “out” that money that my new house drops. However, if the world were not so crazy and inflation stayed stable at 2% per year, I never would have sold my house for this high of a cost and I would have bought the new house at a lower cost. Essentially the only one winning in this situation is the tax man and my realtor.
The people who possibly lose are those who have no assets in high inflation times and buy into the market at the peak.
My Nightmare With Truist For My Doctor Loan
I sent all my documents for preapproval into the bank about 3 months before going under contract with my new house. This included all my tax returns, business documents, and bank statements.
After we are out of the option period on our new house, about two weeks into being under contract for the new house, the underwriter tells me I’m not approved for any loan.
That call was a slap in the face and completely out of nowhere. I ask why and they scramble for a few days to get me answers. Since I cannot talk directly to the underwriter, I had to go through other people at the bank to hear what the underwriter is saying.
Finally, I heard back. It was about my commercial loan for the practice real estate.
Commercial Loan Causing Issues
For my medical practice, I bought the commercial real estate that we currently practice out of. The underwriter denied my new home loan because I do not have two full years of tax statements with this commercial property showing 2 years of rental income.
At this point I’m furious. I sent them all the paperwork 3 months prior, how this did not come up is mind blowing. I also was furious since I initially had my loan with BB&T and now Truist holds that note to my commercial property. If anyone should know about that commercial property, it should be Truist.
The underwriter was claiming that she was not willing to take any of the rent paid as income since there are not two years of tax returns showing this income. She also put the commercial loan as personal debt for me, rather than business debt. This of course made my debt to income look absolutely terrible. Having a million dollar loan with no rental income for 1.5 years does not make the balance sheet look good.
I filed an appeal and soon after heard back that the underwriter was wrong. That I am approved for my initial 10% down loan.
At this point I had to ask the sellers to extend the closing date due to the underwriter making a wrong decision and denying the loan.
But Wait It Gets Worse
Two weeks before closing I emailed Truist about the appraisal. At this point I am three weeks under contract on the house and I have not received any news on how the appraisal went.
I hear nothing back for about another week. Eight days before closing, I call the lender and ask what is going on with the appraisal. They emailed me back admitting that they forgot to order the appraisal for the house.
Truist tried to get me to pay to expedite the appraisal. When I said no, they tried to get my realtor to pay for us to expedite it. In the end, Truist finally agreed to pay for the appraisal to be expedited and it was finally done 5 days prior to closing.
There is a requirement in my state that bank needs to provide the appraisal report at least 3 days prior to closing. The appraisal was turned into the bank the DAY BEFORE closing.
I get a message the day of closing that my house appraised for what I’m buying it for. This whole time I was worried that if the house did not appraise at what I am buying it for, then I must suddenly come up with that money out of pocket. Luckly, the house appraised for what I purchased the house for.
What. A. Cluster.
I’ll Never Bank With Truist Again
I fully admit that I may have had issues that most doctors will not have with this bank because I own a business and commercial real estate. This issue also stems from the fact that I made a huge commercial real estate purchase without two full years of tax returns showing rental income. The interesting thing is that PNC had no issues with my commercial loan, they considered this debt business debt and not personal debt.
However, being a bank, you would think that Truist must have dealt with many other business owners before. In my mind, this was literally their job to get this done correctly, and in my opinion really dropped the ball.
At the end of the day, I did buy the new house. The stress of dealing with this bank was insane. It should not be this hard. It was not this hard with my first doctor loan. Especially when Truist had all my documents 3 months or more before we went under contract with this house.
The Doctor Loan
Despite my bad experience with Truist as above, I still am a very big fan of the doctor mortgage. Consider renting and not buying if you are fresh out of training for your first job. When you are ready, consider using a doctor loan to obtain your first house if it is right for you.
The largest banks in my area for physician loans at the time of this writing are: