A Complete Guide to Doctor Mortgages [& How Get One]

If you’re a physician who’s still paying off your student loan debt, home ownership can seem nearly impossible.

Luckily, physician loans are a solution designed to help you do just that.

This loan allows doctors to purchase homes with very little money.

It requires a tiny down payment and allows you to forego expensive mortgage insurance.

We’ll explore how they work and tell you everything you need to know to decide if they’re the right option for you.

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Key Takeaways

• Physician loans, also known as doctor loans, are a type of mortgage loan offered to physicians and other high-paying professionals.
• They offer loans with low or no down payment in exchange for a somewhat higher interest rate.
• Although a great commitment, a physician loan is an excellent way to pay off student debt and buy a home.

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What Are Physician Loans?

Physician loans are a type of mortgage available to physicians and other high-paying medical and sometimes non-medical professionals.

They are notable because the mortgage lender offers a mortgage with a much lower down payment and fewer restrictions in exchange for a somewhat higher interest rate.

A physician mortgage loan is a special type of mortgage specifically designed to let high-income professionals, such as physicians, secure a mortgage with a smaller down payment and fewer restrictions compared to a conventional mortgage.

Physician mortgage loans are specific in that physician loan lenders opt to ignore a high debt and a lack of savings, knowing that the borrower’s projected high income makes it highly unlikely for them to lose the property or become unable to repay the debt.

Who’s Eligible for a Physician Loan?

Despite the name, medical doctors are not the only ones eligible for physician loans.

The exact terms and conditions vary between mortgage lenders, but they typically extend to other medical professionals, such as dentists, veterinarians, optometrists, podiatrists, etc.

Sometimes, they may even include high-paying professionals in non-medical fields, such as lawyers or accountants.

Doctor Loans vs. Conventional Mortgages

Physician loans have a higher interest rate but a lower down payment, which is especially helpful for newly graduated physicians.

Physician loans differ from a regular mortgage loan in a few key ways:

• You can put little or no money down
• No private mortgage insurance (PMI)
• The interest rate is slightly higher than that of a conventional loan

At first, paying more interest may seem counterintuitive.

Why would you want to exchange a low down payment for a higher interest rate?

As a physician, you have a high debt-to-income ratio.

Even if you earn a high salary early in your career, your total debt likely outweighs your annual income.

The DTI ratio is an important factor in getting a home loan.

Unfortunately, most early-career doctors have an unfavorable DTI and, thus, are unable to get approved.

Doctor loans are a type of “jumbo” loan.

These loans allow for higher balances than FHA or conventional loans, which enables you to buy a bigger, more expensive house.

Physician loans have higher interest rates. But, you can refinance to a traditional mortgage with a lower interest rate later if necessary.

Related: What to Know About Home Loans During Residency or Fellowship

How Much Can I Finance with a Physician Mortgage Loan?

Banks assess financing criteria and maximum loans differently, but most offer mortgages worth over $1 million.

Loan amounts are determined by a variety of criteria, including:

• Income
• Debt
• Credit score
• Lender
• House condition

Different banks assess your debt-to-income ratio differently.

They also have different credit score requirements and offer varying amounts of money.

Cadence Bank, for example, offers a $1.5 million loan to doctors and other medical professionals.

First National Bank also provides a loan option of $1.5 million. However, applicants must maintain a 700 minimum credit score to qualify.

Many banks also offer construction loans, offering money to doctors who want to build a new home or buy a fixer-upper.

For example, Citizens Bank will give you up to $2 million for construction if you meet their minimum credit requirements (which aren’t published publicly).

Do you have the credit to buy a house? Find out here: What’s Your Financial Health Score?

Finding the Right Bank

Some national and regional banks offering physician loans in the US include Key Bank, Flagstar Bank, Citizens Bank, Fulton Mortgage Company, First National Bank, Truist Bank, Loan Depot, and Cadence Bank.

There are a variety of national and regional banks that offer physician mortgage loans.

Every bank has its own mortgage terms, structure, and requirements. Here are a few examples:

Key Bank

Key Bank offers a physician loan of up to $750k with no money down. The more money you put down, the more you can borrow.

• With 5% down, you can borrow up to $1 million
• With 10% down, you can borrow up to $1.5 million
• With 15% down, you can borrow up to $2 million
• With 25% down, you can borrow up to $3.5 million

This is a scale and structure that you will find in many other banks.

KeyBank is unique in that it allows you to close on a house up to 90 days before the start of an employment contract.

In other words, you can move into your home before you even work for a single day!

Flagstar Bank

Flagstar Bank offers a similar structure to KeyBank. But, their loan allows you to mortgage up to $850k with no money down.

The maximum you can mortgage through Flagstar Bank is $1.5 million, but you’ll need to put down 10% to borrow that much.

If you have 5% to put down, you can borrow up to $1 million.

Flagstar offers loans to all kinds of medical professionals, not just doctors.

This loan is available to nurse practitioners, veterinarians, and other types of healthcare specialists.

Citizens Bank

With a physician loan from Citizens Bank, residents and fellows can borrow up to $600,000 with a flexible down payment.

Practicing physicians can borrow up to $3 million, with varying down payment options.

The Citizens Bank loan is specifically for MDs, Dos, DMDs, and DDSs.

Shop Around to Find Your Best Loan Terms

Dozens of banks and mortgage lenders offer doctor loan products. Before you select one, do your research.

Learn about borrowing limits and understand exactly how much interest you’ll pay.

Here are just some of the many other banks that offer a physician mortgage:

• Fulton Mortgage Company
• First National Bank
• Truist Bank
• Loan Depot
• Cadence Bank

Doctor Loan Pros and Cons

The upsides of physician loans include much better terms and conditions than conventional loans overall, while the downsides boil down to a lack of flexibility and potential risk, similar to all mortgages in general.

Before committing to a doctor mortgage loan, make sure you weigh the pros and cons so you know exactly what you’re getting into.

The Benefits of Physician Mortgages

Here are a few great things about doctor loans:

1. No Waiting

Most physicians are at least thirty years old by the time they start practicing medicine.

While you were in med school, your peers were working and saving money to buy their first houses. So, you’re likely a little bit behind!

If you start saving now, it’ll take at least a few years before you have enough to buy a home with a conventional mortgage.

Aphysician loan allows you to buy one sooner than you’d be able to otherwise.

2. No PMI

Traditional mortgages require a 20% down payment. If you put less money down, you’ll have to pay private mortgage insurance.

With a doctor loan, you don’t have to pay PMI.  Mortgage insurance is waived, even if you make a $0 down payment!

3. Debt Forgiveness

With high student loan debt and little income to show for it, new doctors tend to have a high DTI ratio. Most lenders look for ratios of less than 43%.

If you earn $10,000 per month, your monthly bills should not exceed $4,300.

For traditional mortgages, your monthly debt includes your student loans.

A doctor loan, however, doesn’t factor student loan payments into your debt.

Your credit cards, car loans, and other outstanding debts are factored in, but student loans are overlooked.

4. Bigger Loans

Lenders expect that, as a doctor, you’ll earn a higher income and have greater job stability.

As a result, they’re often willing to lend you more money than they give to other people.

With a higher loan, you can purchase a bigger house in a more desirable area.

It’s a fantastic opportunity to start investing in real estate early in your career.

5. No Renting

Renting is the easiest way to waste money while you save for a house. Depending on where you live, paying rent makes saving significantly harder.

When you own a home and make a monthly payment, you start building equity in the property.

This helps you build wealth for retirement instead of giving your money away.

It’s never too early to start planning for retirement. Let Physicians Thrive help you map out your future!

The Downsides of Doctor Loans

Here are a couple of not-so-great things about physician mortgages:

1. Higher Interest Rates

If you take out a doctor loan, be prepared to pay a slightly higher mortgage rate than you would on a traditional loan.

While you’ll avoid the 20% down payment, you may end up paying thousands of dollars in interest over the loan’s lifetime.

Again, you may opt to refinance later or increase your monthly mortgage payment to pay the loan off sooner.

2. Potential Losses

Early career doctors tend to leave their first jobs very quickly. Statistics show that 12.4% of second and third-year doctors leave their practice for a new job.

If you buy a house before settling into a practice, you may be forced to sell when you find a new job.

If you’re forced to sell during a bad market phase, you could ultimately lose money.

Unless you plan to live in the home for a long time, think twice before you jump into a mortgage.

3. Less Flexibility

While renting is a great way to waste your money, it allows you some flexibility in life.

As a tenant, you have the option to move and rent a new place whenever you want to.

When owning a home, you lose a lot of flexibility and freedom. It’s harder to pack up and move into a new place whenever you feel like it.

4. Closing Costs

To seal the deal on a mortgage, you have to pay closing costs. They typically range from 2% to 5% of the home’s total price.

Even if your physician mortgage loan allows you to put $0 down, you still have to pay closing costs.

Things to Keep in Mind Before You Sign Up for a Physician Mortgage Loan

Before committing to a mortgage, make sure to inform yourself about all possible offers and plan carefully to see if what you currently need is worth getting a mortgage over.

Do your research and keep these three tips in mind to save yourself from headaches and aggravation down the road before deciding to commit to a physician mortgage:

1. Shop Around

Look at different loans from different lenders to learn about your options.

Compare interest rates and terms to find the best deal. Some lenders will even let you close before you start working as long as you have a contract to prove future earnings.

2. Decide How Long You Plan to Stay in the Home

If you’re not sure that you want to stay in your city or town, don’t buy a home there.

Unless you’re planning to live in your home for at least a few years, a mortgage may not be worth your trouble.

3. Don’t Buy More House Than You Need

Think about how much space you really need and how much money you can afford to spend.

As someone who spent years in school, it can be tempting to buy yourself a dream home as soon as you get your first job.

But this isn’t always the best decision. Should the real estate market take a turn for the worst, you’ll have a harder time selling a big, lavish house than a smaller, more modest one.

Is your income protected in case of emergency?

Read our Disability Insurance Guide for Physicians and our Mortgage Disability Guide to learn more.

Final Thoughts

With a doctor loan, you can own your own home without having to save for a 20% down payment.

For many physicians, these loans are the best (or only) way to purchase a house.

Just remember to do your homework before you make any final decisions.

Shop around to compare lenders and interest rates to make sure you’re getting the terms you deserve.

If you’re strapped with student loan debt, the worst thing you can do is lock yourself into a mortgage that you can’t afford.

Here at Physicians Thrive, we can help with all your financial planning needs and help you see if a physician mortgage loan is the right choice for you!

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