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Physician mortgage loans: How they work and who qualifies
Doctors are known for making a healthy salary, but surprisingly, it’s not so easy for them to qualify for a mortgage loan. The reason comes down to how debt is treated by most lenders. To show you can comfortably make a mortgage payment, you must fall under a certain debt-to-income ratio (DTI) — usually 45% to 50% for conventional loans.
But doctors have a lot of loans. In fact, according to October 2023 data from the Association of American Medical Colleges, 84% of medical school graduates have $100,000 or more in education debt. Over half have $200,000 or more. For most, that pushes them far over the DTI most loan programs allow and can make it challenging to buy a house. Fortunately, some lenders offer an alternative: physician mortgage loans.
Learn more: How much money do I need to buy a house?
In this article:
What are physician mortgage loans?
Physician loans are mortgages designed specifically for doctors and others in the medical field. Compared to traditional mortgage loans, they allow for certain leniencies that align more with the financial circumstances of doctors and medical professionals.
For example, they may allow for higher DTIs or treat student loan debt differently when calculating a borrower’s total DTI ratio. They also may allow for smaller (or no) down payments and waive private mortgage insurance (PMI). They can offer alternative income and employment verification methods, which are ideal for new physicians still in residencies or other situations that don’t provide regular pay stubs or W-2s.
Pros and cons of physician loans
Physician home loans have several benefits for medical professionals looking to buy a home. First and foremost, they can make it easier for doctors — particularly those with high student loan payments — to qualify for a mortgage loan.
They also usually require smaller down payments and don’t come with PMI, which adds anywhere from $30 to $70 per month to your monthly mortgage payment (per $100,000 borrowed), according to Freddie Mac.
In some cases, physician loans may offer higher loan amounts. For example, Fifth Third Bank offers physician loans for up to $2 million.
The downside is that you may pay a higher interest for one of these loans since they come with more lenient requirements and don’t require a large down payment. They’re also not a widely available loan product, so you may need to do some research to find the right lender to apply with. Additionally, they are usually only available for buying primary residences.
To start shopping for physician mortgage loans, check out Yahoo Finance’s reviews of these mortgage lenders that offer physician loans:
Who qualifies for physician mortgage loans?
Despite the name, physician loans aren’t just for doctors. While the exact employment requirements vary by lender, a wide range of healthcare professionals are usually eligible.
This may include:
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Dentists
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Veterinarians
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Podiatrists
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Dental surgeons
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Osteopathic doctors
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Ophthalmologists
Those with Medical Doctor (MD) and Doctor of Science (DS) degrees are also eligible. You may also be able to apply if you’re still a medical resident or completing your fellowship. Lenders typically require an employment contract showing your current and future earnings.
Physician loan mortgage rates
Rates on physician mortgages are often higher than on conventional mortgages, as they have low (or no) down payment requirements — meaning you have less money on the line if you default on payments. Physician loans aren’t standardized like conventional loans, so the lender isn’t guaranteed to be able to sell the loan after closing. This makes them riskier than other mortgage options, which lenders often compensate for with higher interest rates.
Additionally, the rates on doctor loans are typically adjustable, so the rate — and your monthly payment — can increase or decrease over time. Lenders will often put caps on how much your rate can increase at each adjustment, as well as over the life of your loan, so it’s important to understand these limits before closing on your loan. You’ll want to budget for these potential cost increases or at least have a good emergency fund in place just to be safe. But remember that an adjustable-rate mortgage also means your rate could go down if market rates decrease, so this loan type has potential benefits too.
Dig deeper: Adjustable-rate vs. fixed-rate mortgage
Alternatives to physician home loans
If you can’t find or qualify for a physician mortgage, that doesn’t mean you can’t buy a home. There are other types of mortgage loans you can explore. These include:
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FHA loans: You’ll need at least a 3.5% down payment for these loans and be willing to pay both an up-front and annual mortgage insurance premium. You will usually need a DTI of 43% to 45% at the most, though you may be able to go higher if certain compensating factors apply, like a large down payment or a flush savings account.
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VA loans: If you’re a military member, veteran, or spouse of one, a VA loan might be a strong option. These require no down payment, and you’ll need a DTI of 41%.
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Conventional loans: A conventional loan is also an option. You can make a down payment of as little as 3%, but be prepared to pay PMI. Your DTI can be as high as 45% to 50%.
If you’re unsure of your loan options, consider talking to a mortgage broker. They can shop around for mortgages on your behalf. Usually, these professionals get paid a commission from the lender you eventually choose to work with.
Learn more: What percentage of your income should go toward a mortgage?
Physician mortgage loan FAQs
Do doctors get low mortgage rates?
It depends on what mortgage product they use. Physician loans usually have higher mortgage rates than other loan options because they require low down payments or sometimes no money down at all. If you qualify for a VA or FHA loan, though, you may get a lower interest rate.
Why is it hard for doctors to qualify for mortgage loans?
It can be hard for doctors to qualify for mortgage loans because they often have a lot of student loan debt, which negatively impacts their DTI ratios. Physician loans are a type of specialty mortgage that can make qualifying for a mortgage easier for medical professionals.
What debt-to-income ratio do you need for a physician mortgage loans?
It varies by lender, but physician loans often allow you to have a higher debt-to-income ratio than other loan options. In some cases, the mortgage lender may exclude student loan debt from your DTI calculations.
Is a physician loan a conventional loan?
Physician loans are mortgages designed specifically for medical professionals. They are not conventional conforming loans, which have standardized eligibility requirements set by Fannie Mae and Freddie Mac.
This article was edited by Laura Grace Tarpley
