How They Work, Pros and Cons

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  • New doctors with a lot of student loan debt and no savings can have trouble qualifying for a conventional mortgage.
  • Physician mortgage loans provide an alternative that overlooks these factors.
  • These specialty home loans are available from many, but not all, traditional lenders.

You might think having a medical degree makes getting a home loan a snap. Not necessarily. Traditional home loans penalize you for having a high debt-to-income ratio, something medical professionals, especially recent graduates, typically have because of student loans. Other negatives for physicians include little to no savings, and in many cases, no permanent job yet.

On the other hand, doctors are among the most financially stable professionals in the workplace. Once established, they tend to have higher incomes, less overall debt, and, importantly, very low default rates when it comes to home loans. Realizing this, banks and other lenders have come up with a special type of loan tailored to medical professionals called a physician mortgage loan, or doctor loan.

What is a physician mortgage loan? 

A physician mortgage loan is a specialized loan offered only to medical and certain other professionals. They essentially ignore high student loan debt and low or no savings, especially early in the borrower’s career.

The reason these negatives are temporarily overlooked is because doctors and other professionals typically become high net-worth individuals, with little debt, substantial savings, and very rarely lose their homes to foreclosure. 

Although the name suggests these loans are only available to doctors, many lenders offer the same loans to other high-income professionals including:

  • Dentists
  • Podiatrists
  • Veterinarians
  • Optometrists
  • Accountants
  • Attorneys
  • Certified registered nurse anesthetists
  • Advanced practice clinicians

How do physician mortgage loans work? 

Physician mortgage loans are structured similarly to conventional loans but are much more accommodating to doctors and other high-income individuals given their uncommon financial circumstances. For that reason, most of the accommodations have to do with getting approved.

For example, doctors can put down less than 20% and still avoid private mortgage insurance. PMI protects the lender against you defaulting on the dent and is typically required for loans with a less than 20% down payment.

Another feature of physician mortgages is that they typically ignore the total owed on student loans and only consider the amount of the mortgage’s monthly payment. A signed employment contract is often accepted as proof of income. Most traditional borrowers have to supply pay stubs or two years of tax returns.

Higher loan limits are available with physician mortgage loans than with conventional mortgages. As much 100% on a $1 million loan and 90% on a $2 million loan is typical.

Generally speaking, it’s easier to qualify for a physician mortgage than other home loans. Each lender has its own standards, but in general you should be able to qualify if you have:

  • Proof of your medical or other degree
  • A signed contract indicating the amount of your current or expected future salary
  • A credit score of 700 or higher
  • Student loans in good standing (even though the balance will not be considered)
  • A debt-to-income ratio of 45% or less (not including student loans)

With regard to costs associated with a physician mortgage loan, the most important factor comes before a loan application is made. Because banks will usually lend you more than you need or can even afford, it’s up to you to decide the appropriate amount.

As for closing costs, which include lender fees, attorney fees, title insurance, and taxes to name a few, they average about 3% of the mortgage amount.

Shmuel Shayowitz, president and chief lending officer at Approved Funding, cautions that just because a physician mortgage is available, it’s important for new doctors to carefully consider all of their options before getting one.

“Merely obtaining a physician mortgage loan just because someone is a physician might result in worse rates or terms if the person otherwise qualified for conventional financing,” Shayowitz says.

Benefits and drawbacks of physician mortgage loans 

Like most things, physician mortgage loans have pros and cons. Consider these carefully before you decide between a physician mortgage loan and an alternative. 

First, consider the advantage of putting no money down versus the downside. Not only can this put you at risk of buying more house than you can afford, it can also immediately put you “underwater,” meaning you owe more on your home than you could get if you sold it.

An average credit score requirement of 700 may preclude you from the home of your dreams before the amount of the down payment even comes up. Another factor that is often overlooked is that most physician mortgage loans usually have an adjustable interest rate instead of a fixed rate.

Thanks to potential 100% financing, higher loan limits are possible, albeit with higher interest rates. Flexible job-requirement qualifications could allow you to close on your new home up to 90 days before you start. To cement your relationship with your lender, you may be required to open a checking or savings account (or both) with them.

Where to get a physician mortgage loan

Many banks and traditional lenders offer physician mortgage loans. Wrenne Financial Planning has compiled one list of such lenders, but the easiest way to find out is to call or visit the website of lenders in your area to determine if they offer this product.

Shayowitz notes that many banks have curtailed these types of loans.

“A person should be very mindful in doing their due diligence to make sure the benefit they are seeking while pursuing the doctor loan is, in fact, something of value for their particular circumstance,” he says.

Physician loan alternatives

If you don’t believe a traditional physician mortgage loan is right for you, there are alternatives: 

    • Conventional 20% down loan: If you qualify, a conventional 20% down mortgage may offer the best options in terms, rates, and fees. Student loan balances will be considered.
    • Conventional less than 20% down loan: Although rates and fees are higher than with a 20% down loan, they may be less than with a physician loan. Down payments between 3% and 5% are common.
  • FHA loan: These loans are available to those with credit scores as low as 550, and down payments can be as low as 3.5%. They carry higher rates than 20% down loans and an upfront mortgage insurance premium of 1.75%. There is also a separate monthly mortgage insurance premium.
  • VA loan: If you qualify for VA benefits through prior or current military service, they offer no down payment and no mortgage insurance requirements. Rates are about the same as thos for FHA loans.

The bottom line

Physician mortgage loans offer a no-down-payment option to doctors and other professionals just starting their careers. They ignore student loan debt and even forgive the fact you are just getting started and have not amassed a significant amount of cash.

These loans are not for everyone. Lower interest rates and better terms are available for those who qualify. Consider alternatives, compare them with the terms for a physician mortgage loan, and choose the option that best fits your plans and long-term goals.

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