When Dr. William Ngo was shopping for his first home two years ago, he ran into a problem: He got rejected for a mortgage because he had about $250,000 in student debt and little savings.
So the surgeon applied for a loan specifically designed for doctors that came with a higher interest rate but no money down, and just a future work contract as proof of income.
Mortgages tailored to doctors have grown more popular in the last few years, according to the lenders who offer them. Bank of America said it has seen the dollar volume of physician mortgages it issued between 2008 and 2017 increase ninefold because of greater awareness from consumers.
Smaller banks also report increases. Stillwater, Oklahoma-based Bank SNB, owned by Simmons First National, issued $50 million in physician home loans last year and is on track to double that amount this year, said Drew Daniels, a mortgage sales manager who launched the loan program.
Meanwhile, SunTrust Banks' largest subsidiary, based in Atlanta, has doubled its staff dedicated to serving physicians and medical practices over the last four years as it sees more demand for the mortgages, according to a company spokesman. And LeverageRx, a website that compares physician mortgage lenders, has seen a 51 percent increase in doctors searching for the loans year-to-date, compared with the same period last year.
High salaries and a stable job market relative to other professions make doctors lucrative and low-risk customers for banks that hope to sell them other products down the road. The average physician salary this year is $299,999, according to Medscape's annual survey of 20,329 doctors across roughly 30 specialities.
"You're a student, emerging physician, hit with all this debt. You have a lot of future upside," said John Cross, divisional sales executive at Bank of America. "If you provide a mortgage solution at the beginning of their career, … from there it turns into all kinds of other conversations."
Bank of America stopped offering the loans in 2009 during the housing crisis but brought them back in 2010 with stricter borrowing guidelines, Cross said. For instance, doctors have to put at least 5 percent down instead of zero.
For new physicians, the loans can offer a fast path to home ownership for those who wouldn't be approved otherwise. Last year, the median student debt for new medical student graduates was $190,694, according to the Association of American Medical Colleges.
The loans are also designed for dentists, while some also cover veterinarians, optometrists, nurse practitioners and physician assistants.
William Ngo’s home in Knoxville, Tennessee
Source: William Ngo
William Ngo’s home in Knoxville, Tennessee
The catch: Higher interest rates
On top of little to no down payment and a more forgiving debt-to-income ratio calculation, physician mortgages don't require private mortgage insurance, which can amount to a few hundred dollars a month.
Such perks are appealing for physicians who are ready to settle down after grueling years in medical school and in residency, companies marketing their services to doctors say.
"When you're in training for so long, there's a delayed gratification," said Dr. Peter Kim, an anesthesiologist in Los Angeles and founder of Curbside Real Estate, a broker that connects physicians with real estate agents and lenders. "Getting a home is something you dream of — the American dream."
But physician mortgages also come with interest rates that are 0.25 to 1 point higher than mortgages for nonphysician homebuyers, said financial planner Daniel Wrenne, founder of Lexington, Kentucky-based Wrenne Financial Planning, which specializes in serving doctors.
And just because you can take out a $400,000 loan as a medical resident making $50,000 a year doesn't mean you should, Wrenne said, especially when that means delaying paying student loans.
"You'll be house poor," he said. "You'll probably be able to feed yourself and live in your house and that's it."
Ngo, who had trouble getting a mortgage in 2016, acknowledges that those who can afford higher down payments are better off going with a conventional loan.
He says he wanted to buy a home because the area near the hospital where he works didn't offer many rental options, and the available properties were older. Ngo now owns a three-bedroom house in Knoxville, Tennessee.
"I think ultimately a physician loan is definitely a good tool for people in certain situations," he said, adding that the loan "was able to get me where I wanted to go."