Ryan Mandley · Physician Loan Specialist · NMLS #1181993
Almost every physician mortgage ad says something like "your student loans won't hold you back." That is true for a resident. For an attending it is only partly true, and the gap between the two is where a lot of pre-approvals fall apart.
Here is how it actually works on this program, in plain terms.
During residency or fellowship: loans can be left out
If you are in residency or a clinical fellowship and qualifying on your training income, student loans that are in deferment, in forbearance, or showing a zero payment on an income-driven repayment plan can be excluded from your debt-to-income ratio entirely.
That is a big deal. A resident with a large federal balance can qualify as if the loans were not there, which is why buying during training is often easier than people expect. (More on that in buying a house during residency.)
After training: a payment always counts
Once you are an attending, or qualifying on an attending contract, the exclusion no longer applies. The lender has to count a monthly student loan payment. There are two ways that number gets set:
- Your documented income-driven payment. If you are on an IDR plan and can show the actual required monthly payment, that payment is what counts.
- 1% of the balance. If a loan is deferred and no payment is documented, the lender counts 1% of the outstanding balance as the monthly payment.
The difference between those two is the whole story.
An example
Say you owe $300,000 in federal loans. With no documented payment, 1% of the balance means $3,000 a month goes into your debt ratio. If your IDR plan shows a required payment of $600, then $600 counts instead.
That $2,400 a month swing in debt can mean a much larger approval on the same income. Numbers here are illustrative; your actual payment depends on your plan and income.
How to keep the counted payment low
- Get the payment in writing. A current statement or letter from your servicer showing your required monthly IDR payment is the single most useful document you can bring. Without it, the 1% rule applies.
- Watch your recertification date. If your IDR plan is about to recertify on attending income, the payment will jump. Plan around it: the lender has to use the payment that will actually apply.
- Don't refinance your federal loans to private right before buying without running the numbers. A private refinance can lower your rate but raise your required payment, which counts against you.
- Pull your credit report early. Servicers sometimes report balances or payments that don't match your plan. Fixing that before underwriting is much easier than during it.
Fellowship counts as training
If you finish residency and go straight into a clinical fellowship, you are still in training for this purpose. Buying during fellowship, rather than waiting until you start as an attending, can keep the exclusion in play. Whether that is the right move depends on how long you plan to stay in the city.
Bottom line
Student loans don't stop most attendings from buying, but they do get counted. The physicians who get the biggest approvals are the ones who show up with a documented IDR payment instead of letting the lender default to 1% of the balance.
Check whether you qualify, run your numbers in the calculator, or see how the process works. If you want me to look at your student loan situation before you start shopping, send me a note.