The Doctor Loan: A Complete Guide to Physician Mortgages

Doctor Loan Physician Mortgage GuideAlmost everyone dreams of owning their home. And as a physician, it’s likely you share that dream. After all, you deserve it for spending years in medical school and training programs.

Yet, it seems like everyone you know who’s not a doctor is further ahead in life and already buying their first home. When you’re new in your career and still paying off student loan debt, home ownership can seem nearly impossible.

Luckily, there’s a way to pull it off. It’s called the doctor loan.

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.

Sound interesting? Of course, it does!

Let’s delve into how they work and what you need to know to make the right decision for you.


Doctor Loans vs. Conventional Mortgages

A doctor loan is a mortgage offered to physicians, dentists, and other medical professionals. They’re even available for residents!

It differs from a regular mortgage loan in a few keys 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?

Well, as a physician, you have a high debt-to-income ratio. Even if you earn a high salary early in your career, it’s likely that your total debt outweighs your annual income.

The DTI ratio is an important factor when it comes to getting a home loan. Unfortunately, most early-career doctors have an unfavorable DTI and, thus, are unable to get approved.

In some cases, a physician mortgage loan is the only way for young doctors to buy homes. Without them, many physicians would never be able to secure a mortgage.

Plus, 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.

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


How Much Can I Finance with a Physician Mortgage Loan?

So how much can you borrow on a doctor loan?

Loan amounts are determined by a variety of different 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. Each bank offers varying amounts of money through their physician home loan programs.

BancorpSouth Bank, for example, offers a $650k loan to doctors with a 640 minimum credit score. First National Bank provides a much higher loan option of $1.5 million. But, 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?

How much you can finance with a doctor loan or physician mortgage


Finding the Right 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 of the types of loan structures you’ll see out there:

Key Bank

Key Bank offers a doctor 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 from many banks.

KeyBank is unique in that they allow you to close on a house up to 90 days prior to the start of an employment contract. In other words, you can move into your home before you ever work a 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 flexible down payment options.

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 the physician mortgage:


Doctor Loan Pros and Cons

Buying a home is exciting. But signing your life away on a 30-year mortgage can be a bit terrifying.

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

Pros: The Benefits of Physician Mortgages

Here are a few of the 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 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. A physician 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 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!

Cons: 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 down into a practice, you may be forced to sell when you find a new job. If you’re forced to sell in a bad market, you could lose money on the home.

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 when you want to.

When you own a home, however, 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

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

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 for a Physician Mortgage Loan

Doctor Loans Physician MortgageIf you made it through medical school and a residency program, you probably have a good head on your shoulders. So when it comes time to buy your first house, don’t be foolish about it.

Do your research and keep these three tips in mind to save yourself from headaches and aggravation down the road:

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. This advice holds true for any aspiring homebuyers, but it’s especially true for doctors.

As someone who spent decades in school, it can be tempting to buy yourself 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.


Conclusion

As a young doctor, it’s easy to look at your peers’ lives and think that you’ve fallen behind. While you’re getting excited about your first day at work, they may have already purchased a home.

With a doctor loan, you can own your own home without having to save for a 20% down payment. And, you can probably get a bigger loan than most other people.

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.

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