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So, you've received your education, entered your chosen occupation and your long-term income prospects look strong. However, considerations like student loan debt and limited income are making it a challenge to save for a down payment or qualify for a mortgage.
Fortunately, if you work in a high-paying field, you may qualify for a certain type of mortgage that can help you become a homeowner sooner than you might think. A profession-specific mortgage, often referred to as simply a "professional mortgage," is a type of home loan some lenders offer to borrowers in specific occupations, such as health care, law or accounting.
What Is a Professional Mortgage?
A professional mortgage is a home loan that helps borrowers in certain fields overcome typical income and debt requirements due to their expected future earnings.
For example, a medical professional in residency could be saddled with significant student loan debt that eats up most of their limited income. In this scenario, qualifying for a mortgage could be difficult since lenders typically prefer a debt-to-income ratio (DTI) of 43% or less, with some lenders favoring ratios below 36%.
However, a physician mortgage loan could provide a pathway to homeownership, as lenders are more willing to work with borrowers with higher DTIs or exclude deferred student loans from the DTI ratio. These lenders generally recognize the earnings potential and job security the resident will eventually realize, making them a strong candidate for a professional mortgage loan.
For those who qualify, the benefits of a professional loan are substantial, such as:
- Higher loan amounts: Lenders understand that young physicians, attorneys and professionals working in other high-paying careers will typically have a higher income within a few years. Consequently, profession-specific mortgage lenders may be willing to offer larger loan amounts.
- Low or no down payment options: Depending on your lender and loan amount, you may qualify for a profession-specific mortgage with a smaller down payment or no money down.
- No PMI: Generally, mortgage lenders require you to pay private mortgage insurance (PMI) if your down payment is less than 20% of a home's purchase price. However, many lenders of mortgages for professionals waive this requirement, understanding your budget may not have room for PMI payments early in your career.
- Flexible DTI requirements: Mortgages for professionals may allow you to have a higher DTI ratio or may not include deferred student loans in the debt ratio.
Who Qualifies for a Professional Mortgage
A profession-specific mortgage can help you qualify with more flexible eligibility criteria. Some lenders provide professional mortgages specifically for those working in the medical field, but others work with those in other high-paying careers with strong job security. Generally, banks and lenders tend to qualify people working in the following professions:
- Medical residents
- Doctors
- Surgeons
- Dentists
- Optometrists
- Ophthalmologists
- Pharmacists
- Physicians assistants
- Registered nurses (RNs)
- Nurse practitioners
- Nurse anesthetists
- Veterinarians
- Airline transport pilots (ATPs)
- Attorneys
- Certified public accountants (CPAs)
Lenders That Offer Professional Mortgages
Lenders offer professional mortgage loans to people in high-income occupations because they reduce their risk. Your income may be lower now, but your income growth potential is substantial. From the lender's point of view, it makes sense to begin a long-term relationship with a client who has the potential for an above-average income and job security.
Here are examples of major mortgage lenders offering mortgages designed for specific professions:
- TD Bank: TD Bank offers a medical professional mortgage to doctors, dentists, residents or fellows who are less than 10 years out of residency.
- Flagstar Bank: People working in a wide range of occupations, from doctors and nurses to pilots and accountants, may qualify for a professional mortgage loan with this bank.
- KeyBank: This financial institution offers medical professionals loans of up to $3.5 million with no down payment required (geographic restrictions may apply).
- PNC: PNC provides loans of up to $1 million with no PMI through their medical professionals mortgage for eligible doctors, interns, residents and fellows.
How to Apply for a Professional Mortgage
The process of taking out a professional mortgage is similar to applying for other types of mortgage loans and involves the following steps:
1. Set Your Budget
Before you apply for a mortgage loan, consider your monthly income and debt payments to determine how much home you can afford.
With conventional loans, your new housing payment and related expenses should account for no more than 28% of your gross monthly income, and your total debts should typically fall below 43%. While professional mortgage lenders may make allowances for higher debt, it's still wise to ensure you can comfortably afford to make your new monthly mortgage payments on time each month.
2. Check Your Credit Scores and Reports
Knowing your credit score before applying could help you determine if your score meets a lender's minimum credit score requirement or is high enough to receive a larger loan or other benefits. For example, one lender may require a 640 minimum credit score to qualify for a physician mortgage loan but a higher score of at least 700 to receive a larger loan.
It's also wise to review your credit reports and identify areas where your credit can improve. You can obtain credit reports through AnnualCreditReport.com or access your credit report for free through Experian.
3. Apply for Mortgage Preapproval
You can apply for a mortgage preapproval through a bank, credit union, online lender or mortgage broker. Generally, you'll need to provide personal information about your credit and income history, employment, assets, debt and other data.
If you're eligible, you'll receive a mortgage preapproval letter from the lender stating the loan amount and interest rate you're likely to qualify for based on the information you've provided them. Remember, this document is merely a preapproval, not an official approval for a mortgage loan.
Consider getting quotes from multiple mortgage lenders to find the loan with the best terms.
4. Submit a Formal Application
Once you identify the loan that best suits your needs, the next step is to apply for the professional mortgage loan. You'll need to provide proof of income and employment, bank statements and other supporting documents the lender requests. Answering your lender's follow-up questions and submitting requested documents swiftly can help to ensure there are no delays to your closing.
Strengthen Your Credit Before You Apply for a Professional Mortgage
A profession-specific mortgage can help you qualify for a home with attractive terms if you're in a specific occupation and not yet earning a higher salary. Eligibility criteria vary by lender, but good credit may help you obtain a larger loan amount or other beneficial terms. Consequently, it makes sense to check your credit score and report and take steps to fortify your credit before you apply for a mortgage.
Likewise, consider monitoring your credit for free for at least three months before applying for a mortgage. Credit monitoring can help you ensure your credit is in good shape and identify any areas that need improvement before you apply.