Physician mortgage loans: A mortgage option for doctors
Key takeaways
- Physician mortgage loans are a type of financing designed to help medical professionals become homeowners despite their high levels of student debt.
- These loans often have looser requirements and more generous terms, such as no down payments and higher debt-to-income ratios.
- While most physician loans are geared toward primary residences, some lenders may offer loans for other purposes, such as establishing a medical practice.
Doctors usually find themselves in a unique position after leaving medical school. They now have large incomes — but also massive student loans. “Since medical school costs tend to be astronomical, doctors can carry a lot of debt that would otherwise bar them from securing a traditional mortgage,” says Jeffrey Zhou, CEO of Fig Loans, a personal loan lender based in Sugar Land, Texas. Physician mortgage loans, a special kind of financing aimed at helping medical professionals become homeowners, can help.
What is a physician loan?
The student loan debt many doctors carry could prevent them from getting traditional home loans. But physician mortgage loans—offered specifically to medical professionals—help them get financing with looser requirements.
Physician mortgage loans are private mortgages with more generous terms and looser qualifying requirements than most conventional loans. These “doctor mortgage loans” are geared toward medical professionals who have a harder time qualifying for a typical mortgage due to their college and med school debt and limited savings.
“Due to the requirements for medical education, many doctors are much older before they enter the workforce, and they don’t have the down payment needed to purchase a home; yet, they have the income to qualify for a home,” says Mikell Richards, VP at United Community Bank in Mount Pleasant, South Carolina.
How do physician loans work?
Physician mortgage loans usually do not require a down payment; lenders can offer up to 100 percent financing. This home loan for physicians also has high limits, typically $1 million or more, depending on the mortgage lender. The physician loan’s mortgage limit can vary based on how much you’re financing — for example, the size of a 100-percent financed loan could be capped at $1 million, while a 90-percent financed one could go up to $2 million.
Most physician loan lenders allow you to have a higher debt-to-income (DTI) ratio, as well, because they know that new doctors have sizable student loans.
“New graduates and residents often work for very little money and have a lot of student debt, so they may be at a disadvantage for a typical mortgage,” says Luis Strohmeier, CFP, Los Angeles-based partner and wealth advisor of Octavia Wealth Advisors. “Student loans aren’t counted against you with a physician loan, thankfully.”
Most, but not all, doctors’ mortgage loans have fluctuating interest rates. If rising interest rates become an issue, it’s important to know that you can refinance physician loans.
Private mortgage insurance (PMI) for doctor loans
Because a physician loan has low or no down payment requirements, you might expect to have to pay for private mortgage insurance (PMI). PMI is a common added cost that borrowers pay when they put down less than 20 percent of the purchased home’s value.
However, physician loans don’t require PMI — which can save borrowers hundreds of dollars per month. Doctors tend to have high enough incomes to keep the risk low, so lenders figure these borrowers can handle their physician loan mortgage payments and student loan repayments.
Debt-to-income ratio (DTI) for doctor loans
Your debt-to-income ratio measures your monthly debt payments compared to your monthly income. For example, if all of your debt payments total $1,500 a month and you make $4,000 per month, your DTI ratio is:
Conventional mortgages usually have DTI ratio limits of 36 to about 45 percent. The rationale is that if you have too many other financial obligations, there’s a risk that you won’t be able to afford your mortgage payments.
Given the typical student debt of a physician, meeting these DTI requirements can be difficult. For that reason, a physician loan tends to have more flexible DTI requirements than other mortgages, letting your ratio go as high as 50 percent.
Who qualifies for a physician home loan?
Physician mortgages are often given to doctors with specific degrees. Here are some of the most common:
- Medical Doctors (M.D.) and Doctors of Osteopathic Medicine (D.O.)
- Doctors of Dental Medicine (D.M.D.) and Doctors of Dental Surgery (D.D.S.)
- Doctors of Podiatric Medicine (D.P.M.)
- Doctors of Veterinary Medicine (D.V.M.)
Along with these, there are also special loan programs available with some lenders for physician’s assistants (P.A.), nurses and nurse practitioners (R.N., D.N.P. and N.P.), and physical and occupational therapists (D.P.T., P.T. and M.O.T.).
“Medical doctors, doctors who are currently in fellowship and physicians still completing their residency with the hospital are eligible,” says Kennis Tong, a home loan consultant with Valley Bank, a regional bank that covers New York, New Jersey, Florida and Alabama. “We verify their status with their employer and by requesting medical school transcripts or diplomas, if necessary.”
Typically, you can only use a physician loan to buy a primary residence. That means you can’t buy an investment property or vacation home with the loan. Some lenders may be more flexible, such as letting you buy a multi-family home as long as you live in a portion of it. Others have additional restrictions, such as not lending for the purchase of a condo.
Pros and cons of physician loans
While a physician loan can open doors for recent graduates at a critical life stage, this loan type can also have some drawbacks. Consider the pros and cons before committing to borrow:
Pros of physician loans
- No down payment. Most physician loan lenders offer as much as 100 percent financing for as much as a $1 million loan.
- No mortgage insurance. Physician loans don’t charge PMI, even if you have no down payment.
- Higher DTI ratio. You can qualify with a DTI of up to 50 percent so long as you can show you can afford the payments.
- Looser credit, employment and income standards. You can often borrow right out of school as long as you have a signed offer letter and start working within a few months. You don’t need any professional history.
Cons of physician loans
- Variable rates. Physician loans usually aren’t offered with a fixed interest rate (although some lenders do have them). That means you’ll have an adjustable rate after a fixed introductory period, so your payments will change.
- Only for primary residences. You can’t use the loan to buy a second home or investment property.
- Risk of overleveraging. Say you bought a $400,000 house. If the market corrects and the home value declines, you’d still owe that $400,000.
- Condos or townhomes potentially not eligible. Many lenders will only offer loans for detached single-family homes.
Alternatives to a physician mortgage loan
A physician loan isn’t the only option available to doctors. If you qualify, you could get another low- or no-down payment loan, such as a:
- Conventional loan – As low as 3 percent or 5 percent down with PMI, with the option to choose a fixed interest rate loan. With this loan option, you might not be able to borrow as much as you could with a physician loan.
- FHA loan – As low as 3.5 percent down with at least a 580 credit score and FHA mortgage insurance. These loans may be a strong option if you have little savings set aside for a down payment. As with conventional loans, you may not be able to borrow as much as you might with a physician loan.
- VA loan – Available to eligible servicemembers and veterans for no money down and with no mortgage insurance. This option can be beneficial for physicians who also have military experience.
- 80/10/10 piggyback loan – Two loans for 90-percent financing (80 percent on the first loan and 10 percent on the second), plus a 10 percent down payment. Compare rates — this may be advantageous against a physician loan, depending on your situation.
Which lenders offer physician loans?
Many types of lenders offer physician mortgage loans, including big national lenders, independent mortgage companies and community banks. Among the lenders providing this kind of financing (some including commercial or practice loans) are:
- Bank of America
- BMO Bank
- Fairway Independent Mortgage Corporation
- Fifth Third Bank
- First National Bank
- Flagstar Bank
- Guaranteed Rate
- Huntington Bank
- Northpointe
- TD Bank
- Truist
- United Community Bank
- Valley Bank
“Spend some time shopping around and talking to loan officers,” says Tong. “For each of these different loans, learn how the process works, the total costs and terms involved and what to expect.”
If you are considering getting a mortgage, research lenders and consider reviews of several mortgage companies in your area. Your priority may be a low interest rate, but don’t forget to consider factors like customer service and local availability. Bankrate’s mortgage review hub can help you to narrow down the field of prospective lenders.
Physician loan FAQ
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Yes, it is possible to refinance a physician loan. Before doing so, consider whether interest rates have adjusted up or down since your loan originated. You’ll also want to weigh the cost of closing on a new loan against keeping your current one. Knowing when to refinance can save you significant money over the life of your loan.
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Not typically. Physician loans are usually designed for use on single-family properties that serve as the borrower’s primary residence. Check with lenders when shopping around on whether they will allow you to use a physician loan for an investment property.
