What You Need to Know About Physician Mortgage Loans

Going to medical school is expensive, so many physicians are left with substantial student loan payments after they graduate. And because doctors have to work through a long residency process with a lower income than their normal salary will eventually be, some doctors have difficulty coming up with down payments to buy the type of home they could easily afford based on their projected earnings.

Lenders have recognized the unique financial situation that doctors find themselves in and, as a result, some lenders offer physician mortgage loans.

Physician home loans have different eligibility requirements than most conventional mortgages. They can be easier for doctors to qualify for because they specifically cater to the needs of physicians.

On this page:

• How Physician Mortgage Loans Work
• Eligibility Requirements
• Lenders That Offer Physician Mortgage Loans
• Tips for Choosing a Lender
• Common Terms of Physician Mortgage Loans
• Pros & Cons

How Do Physician Mortgage Loans Work?

Physician mortgage loans, aka doctor mortgage loans, are a type of mortgage that can help you get into a home faster if you’re a doctor. They can allow you to get a loan at a better rate and with a better term than you otherwise might be eligible for.

Physician mortgage loans are loans designed specifically to accommodate the unique financial situation of medical professionals. The loans allow you to buy a home even if you have a lot of educational debt.

Why Lenders Offer Physician Mortgage Loans

While other lenders might disqualify you because of your high student loan balance, lenders offering physician mortgage loans recognize that student loans are a part of life for doctors.

Lenders offering physician mortgage loans recognize that doctors are typically low-risk borrowers not just because they make a lot of money but also because there’s always demand for qualified doctors.

Since these mortgage lenders feel physicians present less risk compared with the average homebuyer, lenders can afford to be more generous about which doctors qualify and what is required in terms of down payment and debt-to-income ratio.

Eligibility Requirements for Doctor Mortgage Loans

With physician mortgage loans, student loans may not be counted in your debt-to-income ratio if you have deferred payments, or the lender may have other policies that allow you to qualify despite substantial educational loans.

Many physician mortgage loans also allow for low or no down payments, because new doctors may not have access to a lot of cash when they first leave their residency, but they’ll soon be making more.

However, lenders do still have some qualifying requirements you’ll have to meet to obtain a physician home loan. Typically, for example, you will need all of the following to be able to obtain this type of loan to buy a first home:

• Proof you have a medical degree and are a licensed physician
• Proof of current employment or a signed offer of employment showing you’ll be starting work as a doctor within a short time period
• A credit score of around 700 or higher
• Limited debt aside from your student loans

Most physician loan lenders do not count your student loans at all when looking at your debt-to-income ratio, or the amount of debt you have relative to your income.

Your DTI is an important metric because conventional lenders won’t give you a loan if your monthly debt payments are more than 43% of your income. Other lenders do consider loan payments but will calculate your DTI based on the amount you pay under an income-driven repayment plan.

Whatever approach mortgage lenders take, the key is that all physician mortgage loan lenders are willing to overlook the fact that doctors have such high student loan balances when deciding whether to grant them financing.

Lenders That Offer Physician Mortgage Loans

There are many lenders that offer doctor mortgage loans. Here are a few possible options to consider:

• KeyBank: KeyBank offers physician loans to medical doctors, dentists, and veterinarians. Qualifying medical professionals can borrow up to $1.5 million with no down payment required. Interest rates for KeyBank’s physician mortgage loans are either fixed or variable, and borrowers are not required to pay private mortgage insurance, even with a $0 down payment. Loans are available for owner-occupied properties, including single family homes, condos, and planned unit developments.
• BBVA Compass: Medical residents and practicing physicians may be eligible for BBVA Compass Professional Mortgage Loans. Eligible doctors can borrow up to $1.75 million and can purchase a first home with no down payment by borrowing 100 percent of the home’s value. No private mortgage insurance is required. BBVA will exclude deferred student loans when determining if you can qualify for the loan in most circumstances, which makes loan approval much easier.
• Citizens One Doctor Loan Program: Medical doctors, doctors of osteopathic medicine, doctors of dental surgery, and doctors of dental medicine are all eligible for the Doctor Loan Program from Citizens One. Private mortgage insurance is generally not required even when no down payment is made, and student loan debt that is deferred can be excluded when determining eligibility.
• Fifth Third Bank: Established doctors can finance up to $750,000 with no down payment or can borrow as much as $1.5 million with a low down payment. Eligible borrowers can choose a fixed rate loan or adjustable rate loan. Private mortgage insurance is not required. Residents, fellows, and new physicians are also eligible to borrow, but their loans are capped at $1 million if they have a small down payment.
• SunTrust Bank: Doctors, dentists, physicians, licensed residents, and fellows are all potentially eligible for the Doctor Loan Program from SunTrust. Qualifying healthcare professionals are able to obtain up to 100 percent financing for loans valued at up to $750,000. Borrowers have a choice of fixed rate or adjustable rate loans.

Tips for Choosing a Lender for a Physician Mortgage Loan

You should always research mortgage lenders carefully to find financing with the best possible terms. Focus on the interest rate, down payment requirements, qualifying requirements, and whether you are required to buy private mortgage insurance (PMI) if you make a low down payment or no down payment.

PMI protects the mortgage lender in case you’re foreclosed on if you put less than 20% down by ensuring the lender recoups all funds outstanding after a foreclosure. When required, you pay for it as a borrower, even though it doesn’t protect you, so being able to avoid PMI can provide you with significant savings.

Looking at the big picture when it comes to fees, interest rates, down payment requirements, qualifying requirements, and private mortgage insurance will help you to get the most affordable loan that’s right for your situation.

What are the Common Terms of Physician Mortgage Loans?

Physician mortgage loans usually offer very favorable terms to doctors and their families. Some of the common terms of physician mortgage loans include:

• Low down payment requirements: You may be able to qualify for a loan with five percent down or sometimes even with no down payment at all. Traditionally, conventional mortgage lenders want to see a down payment of 20 percent or you’ll face a higher interest rate. Many physician loan lenders even allow you to make a low down payment or no down payment without paying private mortgage insurance, which is generally required if you put less than 20 percent down on a conventional loan. Avoiding the costs of PMI can save you money.
• Easy qualifying requirements: If you can show an employment contract that will go into effect within 60 to 90 days and if you have a reasonably good credit score (700 or above), you should be able to qualify for a physician mortgage loan—even if your income is not currently very high because you are still in your residency or you have a lot of debt.
• Flexibility: Doctors have a choice of many different lenders offering  mortgage loans, including both fixed rate and variable rate loans. Lenders are willing to work with you when you apply, so you can get a loan that works for your financial situation.
• High borrowing limits: Doctors can often borrow $1 million or more for a doctor mortgage loan.

What are the Pros and Cons of Physician Mortgage Loans?

Physician mortgage loans have many advantages along with some disadvantages. Some of the pros of physician mortgage loans include:

• Access to a better mortgage: You can usually get much more favorable terms on your home loan with a physician mortgage loan compared with the terms you may get from other mortgage lenders.
• The ability to buy a home sooner: You don’t have to wait to pay off your student debt or build up a big down payment before you purchase real estate.

Some of the disadvantages include:

• The risk of buying a home you can’t afford: While a lender may assume you can afford to make high mortgage payments because of your salary as a doctor, you don’t want to take on more financial responsibility than you can handle. Easy qualifying requirements and low down payment requirements make it more tempting to buy a costly first home, even if that’s not always the best financial decision in the long run. Consult with your financial planner to determine how much you can afford to spend on real estate.
• The possibility of ending up underwater: If you put down a very low down payment, you could end up owing more on your house than your home is actually worth. This could make it impossible to refinance your home if rates drop. And if you need to move for any reason, you might not be able to sell your home for enough to pay off your loan. You’d need to bring cash to the table to make up the difference.

Bottom Line

If you’re a doctor and can qualify for a physician home loan, this type of financing is definitely worth looking into. It can help you get into a home faster and can provide you with better terms than a traditional mortgage while also making medical school debt repayment more manageable.

However, you want to be careful to consider your entire financial situation when deciding if you are really ready to purchase your first home. Just because a bank is willing to lend you a fortune for expensive real estate doesn’t mean you should always buy it — especially if paying your loans off quickly is also a priority.