Physician Mortgage Loans: Everything You Need to Know

Getting a mortgage can be one of the most difficult aspects of your financial journey. Home loans often come with strict underwriting requirements. This makes it difficult for those with high debt levels, small amounts in savings and limited income history to get a mortgage.

For physicians, dentists and others who get advanced degrees in healthcare fields, home buying might seem impossible.

This is where a physician mortgage loan comes into play. A doctor loan program is designed to cater to the specific situation of those who leave medical school with high student debt. Underwriting requirements — and loan amounts — are usually more generous for medical professionals who qualify for a physician mortgage.

Let’s take a look at doctor loan programs.

What is a physician mortgage loan?

A physician mortgage is designed for the unique needs of medical school graduates. In some cases, a doctor loan program also allows veterinarians, dentists and other professionals who have achieved these advanced degrees.

Lenders offering these programs recognize that these graduates have the potential for high income and stability, even though they leave school with a large amount of debt and low savings. As a result, these special programs are much more forgiving than a conventional mortgage loan.

How does a physician mortgage work?

A doctor loan works similarly to other mortgages. Many mortgage lenders offer their own terms, but you can usually get fixed-rate and adjustable-rate mortgage options, as well as an interest rate related to your credit score. Many lenders require smaller down payments than with a conventional loan, and the underwriting requirements are typically looser.

PMI

Private mortgage insurance (PMI) is usually charged by conventional lenders when you have a down payment of less than 20%. With a doctor loan program, however, the PMI requirement is often waived. Some lenders allow as little as zero down on loan amounts of up to $1 million — or more.

DTI

Another common barrier to getting a mortgage is the debt-to-income ratio (DTI). With many conventional loans, you need to keep your DTI to less than 45% — and student loan payments are included in your DTI. Many physician mortgage loan programs, however, exclude student loan debt from DTI. This makes it easier to qualify for a home loan.

Borrower qualifications

In general, to qualify for a physician loan, a borrower needs to meet some of the following requirements:

• Degree type. Have a certain medical degree, such as an MD, DDS, DVM, DPM or DMD. Depending on the doctor mortgage loan program, other professions, like nurse practitioner, might be included.
• Employment. An employment contract as a new doctor or a resident. In some cases, showing proof of self-employment with a practice might allow a doctor to qualify.
• Creditworthiness. Good credit is usually needed to get a doctor loan. Many programs require at least 700, although some are willing to qualify physicians with a 680.
• Down payment. Although some physician mortgages allow no money down up to large amounts, others require between 5% and 10% down, depending on the size of the mortgage.

Compare different lenders to understand their terms and available loan types. Each has different requirements, so choose a program that makes sense for you.

Property qualifications

In general, physician mortgages focus on a primary residence, rather than a second home. Some programs allow you to get up to four units as part of the program — as long as you live in at least one of the units. This can be a way for doctors to house hack their way to an investment property.

Some programs allow for new construction, while others require an already-built home. Finally, you might be able to refinance using a doctor loan program. Check the qualifying information and the disclosures to understand what’s available from the lender.

Pros and cons of a physician loan

Before choosing a physician loan instead of a traditional mortgage, carefully consider the pros and cons. Buying a home is one of the biggest financial decisions you’ll make, so you want to make sure it’s the right move for you.

Pros

• Buy a home with no money down in many cases.
• Qualifying can be easier than with a conventional mortgage.
• Get a larger loan amount for your money, including a jumbo loan.
• There are usually a number of fixed interest rate and adjustable rate loan options to choose from.

Cons

• A low down payment can encourage buying more house than you can afford.
• Monthly payments can be overwhelming if you have an expensive home and are also making student loan payments.
• Credit score requirements can be somewhat high.

Alternatives to a physician loan

Before deciding on a doctor loan program, consider other options. Just because you can get a physician loan, it doesn’t mean you should. You might be better off qualifying for a different type of loan instead.

Physician vs. conventional loan

Underwriting requirements are the biggest difference between physician mortgage loans and traditional mortgage loans. A conventional loan requires student loan repayment amounts to be included in most DTI calculations.

On top of that, you might pay PMI when you put down less than 20% with a conventional loan. There is no private mortgage insurance requirement with doctor loans.

However, with a traditional mortgage, you might be forced to adjust your loan amount to something that’s more affordable. By meeting conventional standards, you start with a smaller, less demanding mortgage.

Physician vs. FHA loan

With an FHA loan, you have to put at least 3.5% down in order to become a homeowner. Additionally, you might not be able to get a jumbo loan when you use the FHA program. On the other hand, though, if you have a lower credit score, you might be able to qualify. You can get a home with a score as low as 580 and still pay as little as 3.5% down. Underwriting in other areas is more strict with an FHA loan (such as a DTI limit of 43%), but you might be able to make it work.

Physician vs. other types of loans

There are other types of mortgages that you can consider, including:

• VA loan. Qualifying service members, veterans and surviving spouses can get a loan with no money down. However, there’s a funding fee instead of PMI. Physicians can avoid this funding fee with a doctor loan program. Additionally, you can usually get a larger loan with a physician mortgage. However, veterans might get a better deal with relaxed underwriting compared to a conventional mortgage or physician loan.
• USDA loan. Once again, those looking to put no money down can benefit from a government-backed program. There are income requirements, however, that can make getting this loan more difficult than a physician loan.

How much house can I afford with a physician loan?

Physician home loans make it easier to get larger mortgages than you might otherwise be able to qualify for. Deciding how much you can afford is a personal decision that requires you to think of your monthly mortgage payment and consider closing costs. Carefully consider how much you want to pay each month, and whether that will impact your other goals.

Even though you might be able to get a home with a purchase price of more than $1 million with a doctor loan program, it might not be the best financial choice for you.

Is a physician loan right for me?

If you have student debt that’s getting in the way of securing a mortgage, schedule time with a student loan consultant. They’ll walk you through your options and find a plan that matches your goals.

Make sure a physician mortgage loan is the right choice for you by speaking with different loan officers and brokers to review your options. Ready to compare different physician loan options? Fill out the form below.