Impact Of Student Loans On Mortgage Approval For Physicians

Jenny Handwerk |

Impact Of Student Loans On Mortgage Approval For Physicians


Going to college, using your degree to secure a steady job, and becoming a homeowner are all vital components of many people's American Dream. However, in recent decades, the "going to college" and "becoming a homeowner" components of that ambition have become increasingly incompatible.


Student loan debt might make obtaining a mortgage more difficult — but not impossible —. Lenders analyze student loan debt as part of your overall debt-to-income (DTI) ratio, an essential indicator of your ability to make future mortgage payments. Here's everything you need to know about securing a mortgage with student loans.


The debt-to-income ratio (DTI) is an essential factor in mortgage financing. It will matter even if you are applying for a physician loan. This can be difficult for medical professionals, such as doctors and dentists, who typically have a large amount of student loan debt.


What is the debt to income ratio (DTI)?


Lenders assess your borrowing risk using the debt-to-income (DTI) ratio. It is the percentage of your total monthly income that goes toward debt payments. Mortgage lenders use it to determine if you can make your monthly payments on time and whether you will default in the future.


Add up your monthly minimum payments for all your loans, including credit cards, personal, school, vehicle, and other debt, to calculate DTI. Subtract that total from your monthly gross income. A low debt-to-income (DTI) ratio indicates a healthy balance between debt and income. Meaning, if your DTI ratio is 15%, that amount of your monthly gross income will go to your debt payments. A high DTI ratio, on the other hand, may indicate that an individual has too much debt for the amount of income received each month.


How does my student debt impact my ability to obtain a mortgage?


When you apply for a mortgage, your lender will consider several variables, including:


  • Your debt-to-income ratio, or DTI, indicates how much your monthly income is dedicated to paying debts.
  • Your down payment amount
  • Your credit rating


Regarding student loans, the most significant influence will be on your DTI.


Student loan debt is considered the same way as any other installment obligation a borrower may have. The payment amount is calculated as part of the overall debt-to-income ratio, one of the variables lenders consider when establishing your creditworthiness.


Why DTI is essential for physician loans


A lender will want to know if you can afford the loan even if you are a doctor. In general, once your DTI ratio approaches 50%, your capacity to cover all your bills, including your mortgage loan total, becomes a concern.


Understanding how DTI affects physician home loans is critical if you are considering homeownership. As a medical doctor, you may be eligible for preferential underwriting treatment under one of these loan schemes. For example, you may not be required to pay private mortgage insurance (PMI) or have lower down payment requirements. However, a lender will still want to know how your DTI affects the rest of your finances to make an informed home loan application choice.


Who can get a physician house loan?


Doctors with particular degrees, such as MDs and DOs (doctors of osteopathic medicine), are often eligible for physician mortgage loans. Other healthcare professions, such as veterinarians, dentists, and orthodontists with DMV, DPM, DDS, and DMD degrees, are eligible for similar loans from some lenders.


Medical doctors, doctors in fellowship, and doctors still finishing their residency at the hospital are also eligible. A physician loan is often only available to purchase a primary residence. That implies you can't use the loan to buy an investment property or a vacational home. Some lenders may be more accommodating (for example, allowing you to buy a multi-family home as long as you live in only one unit). Others have stricter guidelines, such as not lending to purchase a condominium.


What to do? Improve your compensatory factors.


The general guideline is that if one aspect of your mortgage application is weak, the others should be strong. If you have excellent credit and a significant down payment, you can get away with a higher DTI. 


FHA loans may also permit high DTIs provided the applicant has one or more compensating circumstances. Cash reserves, which indicates you have enough cash in the bank to cover a set number of monthly mortgage payments, are compensating considerations. 


If you have enough compensatory variables, you may qualify for an FHA loan with a Debt To Income of up to 57%.