Back in the early 1990’s, very few resident doctors or new, practicing physicians could obtain a home loan. That all began to change later in the decade. Banks realized that there was a market out there for their mortgage business and devised loan programs specifically for this niche market.
Every year a new group of doctors graduate from medical school and residency. These professionals usually have little money and have been so consumed by the demands of their medical training that they may not have had the time to educate themselves financially. In addition, these new physicians have already accumulated significant debt; usually have no down payment; have no proven earnings; and often have not even started their job before buying a home in their new city! Before the advent of physician loan programs, these challenges made it difficult, if not impossible, to meet the underwriting criteria of lenders.
A few select banks finally realized that these new physicians had tremendous future earning potential, and almost all of them would soon desire a mortgage. Because physicians’ chances of default are historically very low, they were a desirable market in spite of the challenges. It made sense to figure out a way to tap into this market that was being underserved at the time. These forward-thinking banks created specialized mortgages that took into account the unique situation of new physicians, and the doctor’s loan was born.