Physicians & Residents
You’ve worked long and hard to get to earn your MD, with years of minimal income, large loans and great promise. Now, as you start your medical residency or establish your practice, you’re eager to get settled and own you own home. However, you and the banks may not see eye-to-eye on the risks involved in lending to someone with a resident’s income and lots of student-loan debt.
Luckily, there are mortgages for physicians and solutions that can work for residents and physicians who are just starting out. We at the Wilson Team of mortgage professionals have made it our business understand the particular challenges you face. You won’t get any blank looks from us when you explain the walls you’ve how to help.
Total Debt Service
An Important Measure
Mortgage lenders generally want proof that you, as a resident or physician, have a regular income that will allow you to pay down your debt – including student loans – while also making your monthly mortgage payments. A key ratio they use to assess your financial fitness for a mortgage is called total debt service (TDS). It can be described as the ratio of your repayment obligations on current and proposed debt to your proven income. Generally, the acceptable TDS is 44 per cent of your proven income, which can be defined as your base salary or your financial track record for the past two years.
If TDS is set as the bar for obtaining a mortgage, you, as a resident or new physician, may find it hard to surmount. After all, you’re probably carrying a large debt load from medical school and have a modest salary during your first few years of residency. If you’re establishing a new practice, you have start-up costs by the dozens. In fact, you may even have a negative net worth. Frustrating, no? Yet, it’s not an insurmountable obstacle.
Using Income Potential
to Qualify for a Mortgage
You’re a doctor. You have excellent earning potential and there are lenders are willing to provide mortgages based on that potential and projected income, relative to your debts. In order for the Wilson Team to make your case to these lenders, we’ll need various types of documentation, including:
- Confirmation that you’re enrolled in a residency or fellowship program, with expected completion date.
- Your potential future earnings, based on your chosen field of specialty and demonstrated by your employment contract, as well as industry earnings data.
- Your plans for improving your cash flow, such as loan forgiveness for working in remote or rural areas or approved suspension of loan payments during residency.
- Your credit rating and your debt load.
For example, the Wilson Team often works with the Big Banks (who offer the product ) to obtain residential mortgages for residents through the bank’s Projected Income for Medical Doctors Program. This program is open to medical residents/fellows who are in at least their third year of residency (second year for family physicians) or fellowship and newly practising physicians who have started practising within the last 12 months.
Under the program, medical residents/fellows who are in their last year of residency or fellowship, or within the first 12 months of practicing are permitted to qualify based on their field or specialization; the bank uses the following Projected Income for Qualification Purposes chart to determine future earnings:
NOTE: If your specialization is not reflected in the categories listed below, the default projected income for qualification of $185,000.00 should be used. Confirmation of enrollment/completion is still required.
|Medical Specialty||Projected Annual Income|
|Cardiovascular / Thoracic Surgery||$282,000|
|Clinical Immunology / Allergy||$254,000|
|Critical Care Medicine||$185,000|
|General Internal Medicine||$257,000|
|Medical Microbiology and Infectious Diseases||$289,000|
|Physical Medicine and Rehabilitation||$186,000|
|Public Health and Preventive Medicine||$224,000|
These mortgages are available only for owner-occupied residences. They may be insured or uninsured, which dictates the length of the mortgage and the necessary down-payment required. Insured mortgages come with a maximum 25-year term and a required 10 per cent down-payment, with five per cent coming from the resident’s or physician’s own resources. For uninsured mortgages, the comparable terms are a maximum of 30 years with a 20 per cent down-payment, 10 per cent from the applicant’s resources.
If you don’t have enough cash on hand to make the required down-payment, don’t lose heart. There are other sources of obtaining the requisite amount, including:
- A TFSA, RRSP or savings account.
- A gift from family members.
- A loan from your line of credit.
- Sale of an asset, such as a vehicle.
Why worry about paying rent each month when you could benefit from owning your office space?
As a practising physician, you may want to eliminate much of your commute by combining your home and your office in one spot or earn additional income by purchasing a commercial property and renting out the space you don’t use for your own offices. If your medical practise generates 51 per cent or more of the property’s income, it is considered an owner-occupied commercial property and you may be eligible for a commercial mortgage.
Commercial mortgages generally come with a financing period that ranges from five to 20 years with a longer amortization rate than residential mortgages. Although the necessary deposits may be higher than those for homebuyers, there are lenders who will provide 100 per cent of the financing for physicians, since the risk of default is low; they may even be willing to loan you additional funds to outfit your office space.
Mortgages for Incorporated Physicians
If you’ve incorporated your medical practice, you are undoubtedly aware of the benefits that accrue, such as a lower tax rate, income splitting with family members and shareholder dividends. Mortgages, too, be negotiated to serve you well, because you may be able to use a future work contract as proof of income. Some lenders may require no down-payment, but a higher interest rate, for example. There may also be no requirement for mortgage insurance, which can result in considerable savings[Not sure if this is true in Canada]. There are ways to maximize your income, so check with your mortgage professional before you buy a property.
You, as residents and physicians are vital contributors to society and we at the Wilson Team want to ensure that you obtain the assistance you need in achieving what you’ve worked so long to obtain: financial security and all of the physical trappings that suggests. Give us a call and we’ll discuss the mortgage options available. We’re looking forward to visiting you in your own home!