Physician mortgage loans: A mortgage option for doctors
Key takeaways
- Physician mortgage loans are designed to help medical professionals become homeowners.
- These loans often have looser requirements, such as higher acceptable debt-to-income ratios, and more generous terms, such as no down payments.
- While most physician loans are geared toward primary residences, some lenders offer loans for other purposes, such as establishing a medical practice.
What is a physician loan?
Physician mortgage loans are a special kind of financing aimed at helping medical professionals become homeowners. These mortgages have more generous terms and looser qualifying requirements than most conventional loans.
Due to high levels of college and med school debt and limited savings, thanks to years spent in training, early career doctors may struggle to qualify for a traditional mortgage. However, many have high incomes that make them good candidates for a home loan. This is where physician loans come in.
How do physician loans work?
Physician loans work the way normal mortgages do, in that you must qualify for the loan and pay it back on a monthly basis. However, they have less stringent requirements around savings and debt — for example, many don’t count student loans as part of the borrower’s debt load. And while many lenders prefer a borrower to have at least two years of stable employment, a doctor may qualify for a physician loan with a signed employment contract or transcript.
In addition, physician loans are often adjustable-rate mortgages, with interest rates that can fluctuate during the loan term. If rising rates become an issue, you can refinance a physician loan.
Physician loan requirements
Physician loans’ requirements set them apart from regular mortgages:
- Down payment: Physician mortgage loans usually do not require a down payment; lenders can offer up to 100 percent financing.
- Loan size: These loans tend to have high limits, typically $1 million or more, depending on the mortgage lender. You may receive a higher limit if you’re able to make a down payment.
- Private mortgage insurance: Private mortgage insurance (PMI) is a cost most 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.
- DTI ratio: Your debt-to-income (DTI) ratio measures your monthly debt payments compared to your monthly income. Conventional mortgages usually allow DTI ratios of 36 to 45 percent. Most physician loans allow DTI ratios of up to 50 percent and typically don’t count student debt.
Who qualifies for a physician home loan?
Physician mortgages are often aimed at 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 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.).
You can qualify for a physician loan even if you’re currently a resident or on fellowship.
What can you use a physician loan for?
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.
While most are geared toward mortgages, there are other types of physician loans that can help you establish your practice. These can max out at $5 million.
Pros and cons of physician loans
While physician loans can open doors for recent graduates, this loan type isn’t right for everyone.
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 prove 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 typically have adjustable rates, which means the payment can change over time.
- Only for primary residences. You can’t use the loan to buy a second home or investment property.
- Risk of overleveraging. Making a small — or no — down payment always carries the risk of becoming underwater on your mortgage. Say you bought a $1,000,000 house. If the market corrects and the home value declines, you’d still owe that $1,000,000.
- Condos or townhomes potentially not eligible. Many lenders only offer loans for detached, single-family homes.
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
- Huntington Bank
- Northpointe
- Rate
- TD Bank
- Truist
- United Community Bank
If you’re considering getting a mortgage, research several lenders in your area. Your priority may be a low interest rate, but don’t forget factors like customer service. Bankrate’s mortgage review hub can help you to narrow down the field of prospective lenders.
Should I get a home loan for physicians?
Physician home loans can be a good option for many medical professionals. You might benefit from this type of mortgage if:
- You’re looking for a primary residence and plan to remain in the same location for at least a few years.
- You’ll have time to care for and maintain the home despite long shifts.
- You can comfortably afford a higher monthly mortgage payment if your interest rate increases.
A physician home loan might not be the right choice for your situation if:
- You’re moving to a new location for residency and plan to leave right after. In this case, it’s probably better to rent.
- You want a fixed-rate mortgage.
- You want to purchase a multi-family property, or a condo, townhouse or investment property.
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 little as 3 percent down with fixed rates available, but you’ll pay PMI, and you’ll have a lower borrowing limit.
- FHA loan: As little as 3.5 percent down with at least a 580 credit score and FHA mortgage insurance. As with conventional loans, you’ll have a lower borrowing limit than you might with a physician loan.
- VA loan: No money down, in most cases, for eligible servicemembers and veterans, and no mortgage insurance.
- 80/10/10 piggyback loan: 10 percent down, plus two loans for a total of 90-percent financing: 80 percent on the first loan and 10 percent on the second. This may be a better option than a physician loan, depending on the rates you’re offered.
