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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 mortgage lenders have come up with a special type of loan tailored to medical professionals called a physician mortgage loan, or doctor loan.
What are physician mortgage loans?
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.
Benefits of physician mortgage loans
Physician mortgage loans can do a lot for helping medical professionals hoping to buy a home. They come with:
Low down payment requirements
With a physician mortgage, you can buy a home with as little as no money down. This may allow you to borrow more and afford a higher-priced house without worrying about a big down payment. It can also help you buy a home sooner if you have little in savings.
No private mortgage insurance (PMI)
Private mortgage insurance (PMI) is typically required if you make a down payment of 20% or less, but that's not the case with physician loans. According to Freddie Mac, this typically adds anywhere from $30 to $70 to your monthly payment for every $100,000 you borrow.
Flexible debt-to-income ratios
Physician loans typically require a debt-to-income ratio of 45% or less, which is higher than some other loan programs. It also won't take student loans into account when calculating this number (more on this below).
Special consideration for student loans
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 when looking at your debts. This can be helpful for physicians, who often have to take out very large loans to pay for their advanced education.
Physician mortgage eligibility requirements
Although the name suggests these loans are only available to doctors, many lenders offer the same loans to other high-income professionals. Eligibility for physician mortgage loans typically extends to:
- Dentists
- Podiatrists
- Veterinarians
- Optometrists
- Accountants
- Attorneys
- Certified registered nurse anesthetists (although there are other home loans for nurses, too)
- Advanced practice clinicians
Beyond being in one of these professionals you'll also need to:
Have your income and employment verified
A signed employment contract is often accepted as proof of income, as long as it indicates the amount of your current or expected future salary. Most traditional borrowers have to supply pay stubs or two years of tax returns. You'll also need proof of your medical or other degree.
Meet credit score requirements
While physician mortgage loan requirements tend to be more flexible than other loan programs, that's not the case when it comes to credit scores. Though the exact number varies by lender, you'll usually need a credit score of 700 or higher to get a physician mortgage. This is higher than most other loan programs (FHA loans allow down to 500 credit scores in some cases).
How to apply for a physician mortgage loan
If you're a medical professional, a physician mortgage might help you buy a home. Follow these steps if you're interested in applying for a physician mortgage loan:
Find lenders specializing in physician loans
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.
Required documentation
You usually won't need as much documentation with a physician mortgage as you would with another kind of loan. You won't need tax returns or W-2s, but instead, a signed employment contract indicating your current and future income, proof of your degree, and student loan statements showing you're current on your payments.
Application process
Once you find a lender, you'll fill out their application, agree to a credit check, and submit the required documents. Once your loan moves through underwriting, you will pay your closing costs and sign your loan documents.
Closing costs typically include lender fees, attorney fees, title insurance, and taxes, and they average about 3% of the mortgage amount.
Comparing physician mortgage loans with conventional loans
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.
Here's a look at how physician mortgage loans vs. conventional loans measure up:
Key differences
Physician mortgages often require no down payment, and they come with no PMI either. With conventional loans, you'll owe PMI if you make a down payment of less than 20%.
You'll also need lots more documentation with conventional loans, including W-2s, tax returns, pay stubs, bank statements, and more. On the bright side, you may be allowed to have a lower credit score and still qualify.
Physician loans also treat student loans differently, often excluding them from your total debt-to-income ratio. This can make it easier for medical professionals to qualify, despite high student loan balances.
Pros and cons
We've already touched on the benefits of physician mortgage loans, but there are drawbacks to weigh, too.
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.
Additionally, 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.
Physician mortgage FAQs
A physician mortgage loan is a special type of mortgage designed for doctors and medical professionals. They often have low (or no) down payment requirements, no PMI, and exclude student loans from debt-to-income ratio calculations. This can make it easier for doctors to qualify for a mortgage.
Medical doctors, dentists, and other healthcare professionals with an MD, DO, DDS, or DMD degree are usually eligible for physician mortgages.
Low down payments, no PMI, flexible debt-to-income ratios, and special consideration of student loan debt are just a few of the benefits of physician mortgage loans for doctors.
You'll need to look for lenders specializing in physician mortgage loans, as not all companies offer these. They can guide you through the application process and required documentation.
Physician mortgage loans often have more favorable terms for doctors, but may have higher interest rates compared to conventional loans. They also may require higher credit scores.
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