Yes, a Mortgage for a Resident Doctor is Possible!
Perhaps you have just finished university, and are now starting your medical doctor internship at the University of Calgary Foothills. Perhaps you have finished your medical residency at University of Alberta in Edmonton and starting your practice.
It doesn't matter where you are in Canada, as a new doctor you are likely burdened with heavy student loan debt, a barrier in most cases to qualifying for a mortgage hence homeownership. Yet at the same time, after years of hard work, many young doctors are tired of renting and eager to buy their first home.
Good news for you is that there are a handful of mortgage lenders eager to extend credit to debt-burdened graduates coming out of medical school. Whether you call it a pre-practice mortgage, new doctor mortgage, a medical resident mortgage, or a resident doctor mortgage, these are special mortgages specifically designed to meet the needs of physicians just starting out.
Mortgage Lending Issues for Medical Residents
In a normal mortgage qualification scenario, a borrower is required to demonstrate he or she has a reliable and proven income stream sufficient to service all debts including student loans and the new mortgage. If the ratio of debt repayment obligations to proven income is too low, then no mortgage approval. This ratio is called the Total Debt Service ratio or TDS and is typically capped at 44% of proven income. Proven income means a guaranteed base salary or a 2-year earnings track-record.
Here are the issues a new doctor faces:
- Typically they have heavy student loan debt, which could easily exceed $100,000 depending on where they attended medical school.
- Resident doctors often earn modest salaries in the $60K/yr range, certainly not generous by most standards, and insufficient to qualify for most mortgages even without taking into account their debt load
- There is almost always negative net worth.
- TDS based on debt-to-proven income is almost always far beyond the allowed limit of 44%.
How We Can Help Medical Residents
When we present your application to lenders, we can get you qualified based on your earning potential relative to your debts. To do so, we need to include in our submission:
- Confirmation of your enrollment in residency/fellowship and expected completion date, such that we can demonstrate you are within a year of completing your residency or just started your practice.
- Confirmation of what your future earning potential is likely based on your specific specialization using industry data, your employment contract, or your earnings performance to-date.
- How you intend to improve your cash flow. For example student loans can become payment and interest-free while training as a medical resident , 6 month interest-free period upon graduation, or perhaps you have made application for a loan forgiveness program for family doctors and nurses who choose to work in rural and remote areas.
- You still need to qualify based on other items including your credit rating, overall debt load*, location of residency (must be Canada) and eligible property types, which we can discuss.
- *Student loans or LOCs not yet in repayment and - unless you can prove otherwise - will have a monthly payment factor typically at 3% of any balance under $50K and 1.5% of balances the balance for amounts above that.
Down Payment Considerations
Down payment can be as little as 10% and come from a variety of sources, provided it can be clearly documented: Here are some suggestions:
- Savings, RRSP, or TFSA accounts
- Gifted down payments from an immediate family member are permitted
- Sell something of value like a car
- You can borrow up to half your down payment, perhaps from your student line of credit.
Veterinary Medicine of Dentistry Programs (We didn't forget about you!)
- We do have programs for Vets or Dentists in your final year of your program or first year of practice, just not as generous
- Program is based on projected income (industry standards) unless you can prove otherwise.
- Down payment is a minimum 20%, with 10% from your own resources
- All other normal qualification rules apply.