What new dentists need to know about mortgages
Editor’s note: This is the fifth article in a fall financial series of New Dentist Now blog posts from Darien Rowayton Bank, which provides student loan refinancing and is endorsed by the American Dental Association. Qualifying ADA members receive a 0.25 percent rate reduction to DRB’s already low rates for the life of the loan as long as they remain ADA members. View rates, terms and conditions and disclosures at student.drbank.com/ADA.
If income alone determined who qualifies for a mortgage, new dentists would be in good shape. Average entry-level dentists take home around $115,000 a year, making them solid earners in the eyes of mortgage lenders. However, many dentists graduate from dental school with significant amounts of student debt, which means they have a high debt-to-income ratio (monthly debt relative to their monthly income) and little in savings for a down payment.
According to the American Student Dental Association, 75 percent of dental-school graduates are over $100,000 in debt. In fact, the average new dentist comes out of dental school more than $241,000 in the hole, according to the American Dental Education Association. With that much debt, how are you supposed to convince a bank to lend you money for a house?
You’re in luck: Many mortgage lenders are willing to take on the relatively riskier (risk as defined by a higher debt-to-income ratio) debt profiles of dentists because of their strong earning potential. They trust that at your salary and job stability, you’ll be able to manage paying down your student debt and a mortgage.
Home loans that are designed for dentists most commonly fall under a bank’s “doctor mortgage loan” product. Many (but not all) mortgage lenders offer their doctor programs to dentists. You’ll want to confirm with individual lenders that dentists are eligible to apply for their “doctor mortgage loans.”
Dentist Mortgage Loans Versus Standard Mortgages
Dentist mortgages typically differ from standard home loans in a few key ways:
Dentist loans require little-to-no money down. This varies by lender, but the requirement is usually less than 10 percent down, with some lenders allowing dentists to finance 100 percent of the loan.
Dentist loans don’t require private mortgage insurance. Most borrowers who put less than 20 percent down on their home are required to purchase private mortgage insurance. Despite the low down-payment requirement, many lenders waive private mortgage insurance on dentist loans.
Dentist loans allow income verification via contract. The average non-dentist mortgage applicant needs to verify income with paystubs and tax returns. With dentist mortgage loans, many lenders will accept an employment contract as evidence of earnings.
Dentist loans look beyond DTI ratio. Debt-to-income (DTI) ratio, the measure of how much of an applicant’s income goes toward paying off debt, is weighted heavily in standard mortgage applications. But dentist, who are typically plagued by poor DTIs, get a pass. Favorably for new dentists, many lenders don’t factor student loans in calculating DTI for dentist mortgages.
Things to Consider Before Taking Out a Dentist Mortgage
Dentist loans are sounding pretty great, huh? In many cases, they are a boon to dentists who are eager to become homeowners. However, there are some things to consider before taking out a mortgage designed for dentists:
Some dentist mortgage loans are offered at high interest rates. The tradeoff for not having to put much money towards your down payment is usually higher interest rates on dentist home loans. Although there may be potential to refinance down the road, paying off a mortgage at a high interest rate can get costly. Renting for a few years may allow some dentists to build up a down payment and eventually find a lower-interest-rate mortgage.
Dentist loans require high credit scores. Lenders let a lot go when it comes to approving dentists for mortgages, but there are some areas where they still draw a hard line. If you have a credit score below 700, you might not be a candidate for a dentist mortgage loan. You can check your credit score for free in this link.
Dentist loans are usually adjustable-rate loans. Fixed-rate mortgages have the same interest rate for the entire loan. Adjustable-rate mortgages, or ARMs, have an initial fixed-rate period before their rate adjusts. This means that if interest rates rise when you’re out of the initial fixed period, your monthly payments go up.
Dentist loans, in some cases, have restrictions on home type. Some dentist loans only apply to certain property types. For example, certain lenders won’t grant dentist mortgages for purchases of multi-family homes or co-ops. It’s best to inquire with individual lenders about whether their dentist mortgages cover the type of home you’re interested in.
Some dentist loans are not tax-deductible. This is another thing that varies by lender, and it will depend on whether you itemize or take standard deductions, but it’s worth looking into whether a dentist mortgage you’re considering will be tax-deductible. Don’t forget to ask.
New graduates are in flux. Although graduating from dental school can feel like the opportune time to settle down, beginning your practice life is still a time of transition. Maybe you’ll need to relocate in a few years for a job, or perhaps you’ll prefer a bigger home as your income stabilizes or to accommodate your family needs. Your options may be limited if you’re committed to a mortgage that’s tied to the decisions you make right after school.
Becoming a newly minted dentist is an exciting, long-awaited time that’s filled with a lot of anticipation. A dentist home mortgage may be a worthy option if home ownership is a top priority as you enter the next stage of your professional life.
DRB (Darien Rowayton Bank) is a national bank, marketplace lender and the fastest lender in industry history to reach $1 billion in student loan refinancings. FDIC insured and established in 2006, DRB Student Loan has helped thousands of professionals with graduate and undergraduate degrees across the country to refinance and consolidate federal and private student loans, saving these borrowers thousands of dollars each.
If you are interested in a Dentist Mortgage Loan, feel free to learn more here, DRB’s Dentist Mortgage Loan. DRB is an Equal Housing Lender.
For more information about the company, visit https://student.drbank.com/