Physician Mortgage Loans Guide

By PropertyClub Team
Aug 30th 2022
While it may seem like the stability and high earning potential doctors enjoy would be enough to apply for a home loan without any issues, this isn't always the case for those just getting started in the field. So, lenders have developed a specific type of loan that caters to this demographic called a physician mortgage loan.

hash-markWhat is a Physician Mortgage Loan?

A physician's mortgage loan is a type of loan product only available to doctors and other high-earning professionals. Although the name suggests they are only available to physicians, they are often extended to various professionals, including dentists, podiatrists, veterinarians, optometrists, and registered nurses. Even attorneys and accountants sometimes qualify for physician mortgage loans.

These loans are a bit more forgiving of high-income to debt ratios and lack of savings that are common for doctors and other professionals when they first leave school because of the high earning potential and stability of their career path. So, this is often a viable alternative for young doctors and other professionals who may not qualify for a conventional mortgage because of student loans and other debts.

hash-markPhysician Mortgage Loans Explained

Physician mortgage loans are not much different from conventional mortgages, except they feature terms that may be more favorable to young professionals. For instance, private mortgage insurance isn't required, even if you put down less than 20%. Plus, you can still qualify for a decent interest rate, even with a high debt-to-income ratio. 

You must submit proof of your medical degree and a contract from the hospital or other institution you work for indicating your present or future salary. You'll also need a good credit score and actively pay your student loans. But, as long as everything checks out, you won't have difficulty qualifying for the loan.  

hash-markPhysician Mortgage Loans Advantages

1. Less Money Down 

A considerable advantage of a physician mortgage loan is that you can often qualify for a home with little money down. This can often be a lifesaver for young doctors and other professionals who want the stability that homeownership provides but don't have much savings due to student loan debt. 

2. No PMI 

Another significant benefit of a physician mortgage loan is that PMI typically isn't required even if the down payment is less than 20%. So, you don't have to worry about adding this additional fee to your monthly mortgage payment.

3. Higher Loan Limits

Physicians' loans often offer higher loan limits than a conventional loan because they will consider your future earning potential, not just what you currently make.

4. Easier Qualification

The qualification process for a physician's loan is often much easier than a conventional loan, as long as you can supply the necessary documents. Doctors and other high-level professionals are statistically less likely to default on their mortgages, so the underwriting process is less stringent. 

hash-markPhysician Mortgage Loans Disadvantages

1. Easy to Get in Over Your Head

Just because you can qualify for a loan doesn't mean you should. If you still have significant student loan debt and other expenses, it can be easy to get in over your head by adding a mortgage. So, it may be better to rent for a few years while you work your way up if you aren't quite ready for the responsibilities of home ownership. 

2. Terms May Be Unfavorable

Not all physician loans are necessarily favorable for the borrower. Most of the time, they feature variable rates, which means the rate may increase at a certain point. Plus, some lenders only offer physician loans to finance single-family homes, so you may have difficulties if you're looking to purchase a condo. Be sure to read the fine print and know what you're accepting before you agree to anything. 

3. Interest Rates May be Higher

Most physician's loans also carry higher interest rates than a conventional mortgage. Depending on your credit score and other considerations, the rate may only be 0.25 - 0.5% higher. But the bank will want some incentive for taking on the additional risk.

hash-markPhysician Mortgage Loan Alternatives

1. FHA Loans

FHA loans are another alternative if you don't have the money for a full 20% down payment. You can get an FHA loan for as little as 3.5% down and a 550-credit score. You may be forced to pay a higher interest rate and a PMI premium, but this is an option if you don't meet the credit requirements of a physician's loan. 

2. VA Loans

VA loans allow you to get a mortgage for 0% down with a credit score as low as 580. But they are only available to retired or active duty military personnel. So, you must have served in the armed forces to qualify for a VA loan. 

3. Save for a 20% Down Payment

Another option is to rent after school and save for a 20% down payment. You won't get the same forgiveness of your debts as you would with a physician's loan. But if you've managed to pay down your debts and have excelled in your career, you may be approved for a better rate. 

4. Get a Conventional Loan with PMI

You could also get a conventional mortgage with a down payment that is less than 20% and pay private mortgage insurance. This may get costly if you're still paying student loans and now taking on a mortgage payment with insurance premiums added on top. But if you feel you can afford it, this is a smart way to avoid a variable interest rate. 

5. Refinance from an Existing Physician's Loan

The final option is to start with a physician's loan shortly after you graduate and then refinance later. That way, you can get into a home with less money saved and establish yourself before switching to a fixed-rate loan. 

hash-markPhysicians Loans Bottom Line 

Physicians' loans offer a variety of benefits to doctors and other professionals who are at the beginning of their careers and need more flexible terms to qualify for a home loan. But the flexibility often comes at a cost, and they may not offer the best conditions for the long term. So, research carefully and review all your options before applying for a physician's mortgage.