Physician Loans: Are They A Good Mortgage Option For Doctors?

Did you know there are loan programs designed specifically with doctors in mind? Physician loans are special home loan options for medical doctors that can help them buy a house before they would otherwise be able to.

Want to find out if a physician loan is right for you? Read on to learn more about how this type of mortgage works and what it can do for you. It’s important to note that Rocket Mortgage® doesn’t offer physician home loans, but we do offer alternative mortgage programs to keep in mind. We’ll review those below, too.

What Is A Physician Loan? 

A physician loan or “doctor loan” is a mortgage specifically for medical professionals that usually doesn’t require a down payment. With other loan types, lenders often want borrowers to pay private mortgage insurance (PMI) if they’re making a down payment of less than 20%. Physician loans make it possible to skip paying for both a down payment and PMI if you happen to be a doctor.

Physician loans are meant for new medical professionals, like new graduates and medical residents, who are just entering the field. Doctors are often at a disadvantage when applying for a regular mortgage early in their career because they usually have a large debt-to-income ratio (DTI) after medical school. They may not be able to provide proof of employment and income if they’ve just graduated or started their residency.

Physician home loans take all of this into account and make some special allowances for the unique circumstances of a medical career. It may seem unusual for a lender to allow borrowers to take on a mortgage when they have a large amount of student loan debt and are just starting out in their careers, but they have doctors’ career trajectories in mind.

Despite lacking significant income early on due to medical school debt, doctors have the potential to earn more money in the future and are less likely to default on their loans. With this in mind, lenders are more willing to make a few compromises.

How Do Physician Loans Work?

Physician loans work differently from conventional mortgages in a few ways. The main benefit of having a doctor mortgage loan is that with it, physicians are able to buy a home earlier than they would with a conventional loan.However, unlike conventional loans that can have fixed and adjustable interest rates, physician mortgages are only available as adjustable-rate mortgages (ARMs).

With an ARM, you typically pay a lower, fixed interest rate for the first few years of the loan. Even though this initial period is temporary, it can give borrowers the opportunity to pay down other debts, like student loan repayments.

A down payment of 0% – 10%, no PMI requirement and flexibility with employment and DTI make physician loans an easier and more affordable option for new medical professionals.

Let’s break down the details of how exactly a physician loan works.

Private Mortgage Insurance (PMI)

PMI exists to protect your mortgage lender if you stop making payments on a loan. Usually, if you make a down payment of less than 20% when buying a home, your lender will require that you pay PMI.

It’s based on insurance rates, so it varies, but PMI typically costs 0.1% – 2% of your loan amount per year. That could be hundreds of dollars extra on a monthly payment, depending on the size of the loan.

Physician loans aim to give new doctors the opportunity to focus on paying off their medical school debt, so they don’t require borrowers to pay for PMI at all, even if they didn’t make a down payment on the house.

Debt-To-Income Ratio (DTI)

Your DTI is a percentage that measures how much money you spend on debt versus how much money you have coming in.

For most conventional loans, it’s required that your DTI is 50% or lower. Mortgage lenders check your DTI because they want to work with borrowers who have little debt and can more easily manage their monthly payments. If a borrower has a high DTI, they’re considered risky to the lender.

For a new doctor, it may be difficult or even impossible to achieve a DTI of 50% or lower due to accumulated medical school debt. Physician home loans take this into account and are more relaxed with DTI restrictions.

Credit card debt, car loans and other expenses are still examined, but lenders expect recent medical school graduates to have debt, so a higher DTI is not always a dealbreaker.

Physician Loan Borrower Qualifications

In order to qualify for a physician loan, you’ll have to have a medical degree that meets the lender’s specific borrower requirements. Lenders may offer loan programs for medical professionals with the following degrees:

• Doctors of Osteopathic Medicine (D.O.)
• Doctor of Science (D.S.)
• Medical Doctor (M.D.)
• Doctor of Dental Medicine (D.M.D.)
• Doctor of Dental Surgery (D.D.S.)
• Doctor of Podiatric Medicine (D.P.M.)
• Doctor of Veterinary Medicine (D.V.M.)

Lenders require more than a degree to qualify borrowers for a mortgage. Borrowers typically need to provide proof of employment and income. Physician loans are flexible with these eligibility requirements because they understand new doctors may be working in an internship, residency or fellowship.

Physician loan lenders will usually accept a contract of employment to verify a doctor’s income if they do not have pay stubs or W-2s that reflect their current position.

Physician Loan Property Qualifications