WHY DO BANKS DO PHYSICIAN LOANS?

What is the catch? Why would a bank lend physician loans?

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Physician Loans can seem too good to be true. I had a non-physician loan lender tell me the recently when he tried to match a physician loan quote that it was "IMPOSSIBLE" and that my clients should beware of a bait and switch. I have closed many deals with this specific bank, and know that it is indeed, NOT too good to be true. 

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It's good to hear that someone is taking care of physicians out there. But it is not out of the goodness of their hearts alone. Why do banks give an incredible deal on these loans? What is the catch?

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This should come as no surprise. But the #1 reason banks give such an incredible deal to physicians on a mortgage is a marketing ploy to get you to use them for all your banking needs. ​

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Every true physician loan we know of will give you a steep rate discount (0.25%) if you open up a checking account with them. Many require that prior to closing you use that account to pay your mortgage out of every month to start (automatically- you could always change this post closing). By doing this, and by giving you special treatment on your mortgage, they are hoping you will move all your checking and savings accounts to them. The more money you hold in the banks checking an saving accounts, the more money they can lend to others since most banks are only required to keep 10%  according to the FDIC reserves on hand in their accounts, meaning they can lend up to 10X that is sitting in all their bank holder's accounts. The more money you have banking with them, the more lending power they have to lend to the general public.

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Physicians make a lot of money. If they keep that money in the bank account, the bank gets wealthier by lending that money.

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Other reasons physicians loans are a smart investment for banks-

1. Capture the high-income earners before the normal conforming conventional products can compete. By offering 0% and no PMI programs that are more lenient on student debt, now residents are buying homes when traditionally they never would be able to. Sure the banks may not make as high a margin at first, but you captured a client who will most definitely upgrade in the near future to a hefty mortgage once graduated. If they can snag your business once the first house in hopes of getting the cash cow mortgage on the second, it is worth the risk. 

2. They require high credit scores- chances of default are very low when lending to someone with a 720+ credit score

3. If it gets too risky, they take the program away. Back in April 2020 when the USA started shutting down due to COVID, most banks suspended 0% down physician loan programs. Most did not come back for a year later, in March of 2021.

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