Given how long medical students spend at university, home ownership for these professionals can seem like a distant dream.
After years of studying, you still have to work on managing student loan debt.
However, before you relegate your real estate investment plans to the back burner, it’s worth investigating whether you can qualify for doctors’ home loans.
This article provides a guide to mortgage options for medical professionals. We will talk about benefits, qualification criteria, and more.
Key Takeaways
- Physician loans facilitate homeownership with low down payments and flexible debt-to-income ratios.
- Doctors, medical residents, dentists, and veterinarians can qualify for these specialized loans.
- Benefits include higher loan limits and reduced reliance on student loan debt for DTI calculations.
- Potential drawbacks: variable interest rates and restrictions on the types of properties you can buy.
Table of Contents
What Is a Doctor Home Loan?
A doctor home loan is a type of mortgage that’s exclusively meant for medical professionals. It’s sometimes also called a physician mortgage loan.
How Physician Home Loans Work
Traditional mortgage lenders tend to shy away from helping new doctors kickstart their home-buying journey.
The main reason is that doctors typically have a higher debt-to-income ratio (DTI) due to spending a longer time as university students.
Doctor home lenders take the opposite view.
These lenders understand that an aspiring medical practitioner has a higher debt burden than other professionals.
The potentially lucrative medical career ahead of them also plays a role for the lender granting these loans.
Thus, instead of being put off by the potential doctor’s higher student loan debt, doctor loan providers offer them a pathway to home ownership.
Benefits of Physician Mortgage Loans
Unlike conventional mortgages, physician mortgage loans have less stringent borrowing terms.
This arrangement translates to the following benefits:
Low to No Down Payment
When you apply for a conventional mortgage, you typically have two options for securing the loan. You can:
- pay private mortgage insurance (PMI), which the mortgage lender can claim in the event of a default; or
- make a minimum 20% down payment to avoid paying PMI, in which case the lender won’t view you as a risky bet.
Doctor mortgage payments work differently in that you can provide a lower down payment and avoid PMI.
As if lower down payments weren’t enough, some physician loan lenders are inclined to entirely waive the down payment.
Higher Loan Limits
Traditional home lending institutions impose caps on the loan amount you can secure to finance a home purchase.
These limits are meant to comply with the conforming loan limit values set by the Federal Housing Finance Agency.
Depending on the area you intend to buy into, the maximum you can borrow will be either $766,550 or $1,149,825.
Doctor loans usually offer more flexibility.
Low Debt-to-Interest Ratio Calculations
When obtaining a mortgage the traditional way, you must have a 45% DTI or lower, a tall order if you’re a medical student.
Doctor mortgage lenders tend to be more lenient about the above requirement.
The reason is that they don’t use the total sum of your student loan debt when calculating your DTI.
Instead, they base your DTI on the monthly payment you make towards fulfilling your student loan repayments.
This arrangement means that if your monthly payments are low due to a modest starting income, your DTI will be low, too.
Physician Loan Drawbacks
There are drawbacks to financing a home purchase through doctor loans that you should be aware of. They include:
High Interest Rate
Unlike a conventional loan, which lets you borrow at a fixed interest rate, your doctor loan may include a variable interest rate.
Since such rates aren’t fixed, they could potentially increase over time.
Restrictions on Residences You Can Buy
If you’re fresh out of medical school or haven’t spent a long time as a resident doctor, expect some lenders to restrict the types of property you can buy.
From their point of view, a newly-minted medical professional probably shouldn’t be applying for a doctor loan to buy a condo or vacation home.
Your student debt and low monthly income will also factor into their decision to restrict your purchasing options.
Qualification Criteria for Physician Loans
You’re eligible to obtain a physician loan if you work as one of the following professionals:
- medical doctors
- medical residents
- dental medicine practitioners (dentists)
- veterinary medicine practitioners
Other eligible physicians include podiatric medicine practitioners and osteopathic medicine practitioners.
Additional factors that a mortgage loan officer will consider while deciding to grant you a doctor mortgage loan include:
- A proof of your medical education (e.g., a degree)
- your credit score (minimum 700)
- debt-to-income ratio no higher than 45%
Please note that the above requirements aren’t ironclad, as physician loan lender requirements vary.
Lenders That Offer Physician Mortgages
There are commercial banks that provide mortgages specifically geared toward medical workers, including:
- Bank of America
- Huntington Bank
- First National Bank
- BMO Bank
- United Community Bank
- Flagstar Bank
- North Pointe; and
- Valley Bank
You can also apply for a loan through a specialist institution, such as the Physician Bank.
Alternatives to Physician Mortgages
If you’re looking for alternatives to physician loans, try one of these options instead.
Conventional Mortgage
A conventional mortgage is the best option if you’d like to avoid variable interest rates
You can get a low fixed rate ranging between 3% and 5% (though you’ll have to factor PMI into the equation).
It’s also an excellent choice if you don’t intend to borrow a significant sum.
Federal Housing Administration Loan
You’ll need a minimum credit score of 580 and some savings to apply for these government-provided loans.
The savings will go toward a down payment for the house.
Veterans Benefits Administration (VA) Loan
You must have served in the military or currently be in active service to obtain a VA loan.
Surviving spouses may also qualify for VA loans under certain conditions.
The above options are best for doctors with decent credit scores and money in the bank.
In other words, you’ll need to be further along in your career to utilize them.
Frequently Asked Questions
Is It Possible to Refinance a Physicians Loan?
Yes, you can refinance your physician mortgage. If your lender borrows you the money based on variable rates of interest, you’ll need to refinance eventually.
Doing so will help you keep the cost down later on in the loan’s lifetime. Refinancing will also be a viable option if your property goes up in value.
What Is a Debt-to-Income Ratio?
The debt-to-income ratio refers to the figure you get when dividing your total monthly debt by your monthly income.
Lenders use this figure to gauge how well you’re able to meet up with the monthly payments required to repay the money you plan to loan.
How Long Will It Take to Process My Medical Doctor Loan Application?
The time it takes to process your loan varies from one lender to the next. Some lenders offer a streamlined process that can be finished in a few weeks.
Others may require up to 90 days to process your application.
Final Thoughts
Thanks to doctors’ loans, a high student loan debt won’t preclude you from obtaining financing for your first home.
If you’re in the process of weighing the pros of this financing method against its cons, one of our financial advisors can help.
Contact us to learn whether you qualify for a physician’s mortgage and ask for assistance with strategies that can help you manage high-interest-rate payments.
