Physician Mortgage Loans Guide | Bankrate

Courtney Hale/Getty Images

What is a physician loan?

Physician mortgage loans help medical professionals become homeowners. These mortgages have 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: 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.
• 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.
• DTI ratio: Your debt-to-income (DTI) ratio measures your monthly debt payments compared to your monthly income. Most physician loans allow DTI ratios of up to 50 percent and don’t count student debt, while conventional mortgages usually allow DTI ratios of 36 to 45 percent, with student debt included.
• Credit score: Although physician loans have generous terms in many respects, you will need good credit to qualify: Often 700 or higher.

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, some lenders offer loan programs 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 up to 100 percent financing for as much as a $1 million loan.
• No mortgage insurance. Physician loans don’t charge private mortgage insurance (PMI), even without a down payment. This can save borrowers hundreds of dollars per month.
• 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 offer loans only 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 are:

• Bank of America
• BMO Bank
• Fairway Independent Mortgage Corporation
• Fifth Third Bank
• First National Bank
• Huntington Bank
• Northpointe
• Rate
• TD Bank
• Truist
• United Community Bank

Some of these lenders also provide commercial or practice loans.

Should I get a home loan for physicians?

You might benefit from a physician loan 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, 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: You can put as little as 3 percent down, and fixed rates are available, but you’ll pay PMI, and you’ll have a lower borrowing limit.
• FHA loan: If your credit score is at least 580, you may qualify to put as little as 3.5 percent down. You will pay FHA mortgage insurance, and as with conventional loans, you’ll have a lower borrowing limit than you might with a physician loan — but this is an option if your credit prevents you from getting a physician loan.
• VA loan: Eligible servicemembers and veterans aren’t required to make a down payment in most cases, and there’s no mortgage insurance, though there is a funding fee.
• 80/10/10 piggyback loan: In this arrangement, you’ll take out two loans: One that covers 80 percent of the purchase price, and another that covers another 10 percent. Then you’ll put down an additional 10 percent and avoid PMI costs. This may be a better option than a physician loan, depending on the rates you’re offered.

FAQ

• Can you refinance a doctor loan?

  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.

• Can you use a physician loan for an investment property?

  Not typically. Physician loans are usually designed for use on single-family properties that serve as the borrower’s primary residence.

• Do doctors get better mortgage rates?

  Doctors don’t get better mortgage rates simply because of their profession. However, because physician mortgages have more flexible income and DTI requirements, doctors may qualify for favorable mortgage rates without needing a strong financial background.