Home loans tailored for the medical professional
A career in medicine is about as worthy a profession as you can find. After all, what’s more significant than saving lives, leading medical breakthroughs, and improving quality of life?
Yet a career in medicine can be challenging financially, especially if you graduated from medical school with lots of student debt and you’re trying to buy a house.
Some physician loans or “doctor loans” as they are often known, exclude student debt payments and may even allow you to buy with no money down.
That means you can celebrate the start of your new career from the comfort of your new home.
Benefits of a medical professional loan
Physician loans come with a number of perks:
- You may be able to get up to 100% financing
- If you don’t qualify for 100% financing, you may be able to put down as little as 3% or 5%, even on homes $850,000 and above
- Student loans are excluded from DTI if they will be in forbearance or deferment for 12 months after applying, which could make the difference between qualifying and not
- No mortgage insurance
- Open to U.S. citizens and to foreign nationals who have a Social Security Number, a valid passport and visa, and one year of credit history in the U.S.
- You may be eligible even if you recently started your own practice or are working in a 1099 capacity, as long as you have filed one full year of self-employed tax returns
The low down payment requirement and student loan exclusion can fast-track the homebuying process for creditworthy healthcare professionals.
Who is eligible for physician mortgage loans?
The term “physician loan,” though common, can be misleading.
Medical professionals in a number of fields may qualify for a physician loan, including:
- Medical doctor (MD)
- Medical resident or fellow
- Medical researcher
- Chiropractor (DC)
- Pharmacist (RPH)
- Podiatrist (DPM)
- Optometrist (OD)
- Opthamalogist (MD)
- Dentist (DMD)
- Dental surgeon (DDS)
- Osteopath (DO)
- Veterinarian (DVM)
If you work in a medical field but aren’t sure whether you qualify for a physician loan program, it’s worth contacting a lender that specializes in these loans.
Physician loans are a less common loan type, so go with a loan officer who knows what they’re doing.
Some lenders will have 100% financing options, while others require some money down, among other differences. Understand all the possibilities before you move forward.
How do I qualify for a physician loan?
Assuming you’re in an eligible medical role, you’ve passed the first hurdle in qualifying for a medical professional loan. But you’ll also need to meet the financial and employment criteria.
The specifics will depend on the loan program and lender, but may include:
- Credit score of 680 or higher
- May need a 3% down payment or more, depending on the program
- Student loans likely have to be in deferment or forbearance for at least 12 months after applying to exclude them from DTI
- You’re unable to qualify for a conventional or government-backed mortgage (FHA, USDA, or VA) because of student debt
- You are the primary income-earner for your household (meaning you earn more than 50% of the household income)
- You are currently employed or will begin a new job within 60 days, or you are still completing your residency or fellowship
- Cash reserve requirements, some of which may have to be liquid (meaning readily available, like cash)
- Some programs may require a minimum borrower contribution if you use gift funds toward down payment or closing costs
Home loans for doctors and other medical professionals may have property restrictions as well. You’ll likely have to buy a single-family house or a qualifying, warrantable condo, and the home must be your primary residence.
Lenders may not offer physician mortgages for manufactured homes, hobby farms, multifamily homes, investment properties, and second homes.
If you’re not sure whether you qualify for a physician loan, a loan officer can walk you through the guidelines and tell you what options are available. Even if you don’t qualify for a physician loan, you may be eligible for another type of low down payment mortgage.
Physician loan vs. conventional mortgage
To qualify for either a physician loan or a conventional loan program, you’ll need to fulfill underwriting requirements. These include meeting credit score and debt-to-income ratio (DTI) standards.
The biggest difference between the two is the credit and DTI requirements.
To qualify for a conventional loan, you typically need a credit score of 620 or higher and a DTI of 43% or less. A physician loan usually requests a much higher credit score of 680 or better. But the debt-to-income calculation is where the two really diverge.
For a conventional loan, lenders must calculate your DTI using all of your debts, including student loan payments. Lenders must assume a monthly payment of 1% of the loan balance for student loans in forbearance or deferred status. That’s $1,000 per month on a $100,000 balance.
Conventional mortgages can become inaccessible for medical professionals who leave medical school with six-figure student loan debt.
Here’s an example of a medical professional with $100,000 in student debt.
|Physician Loan||Conventional Loan|
|Future home payment||$3,000||$3,000|
|Car loan, credit cards||$1,000||$1,000|
|Student loan in deferment 12+ months||0||$1,000|
|Total qualifying debt payment||$4,000||$5,000|
|Qualifying debt-to-income ratio||40%||50%|
Lenders who offer physician mortgages can exclude your student debt when calculating your DTI, putting qualification in reach.
The applicant in the example may not qualify for a conventional loan, since the DTI is a very high 50%. But excluding student loans brings her DTI to 40%, which is within approval standards.
You still need to meet the credit, income, and employment requirements — and if you’re applying with a co-borrower, their student debt will factor into DTI.
But assuming you have strong credit and steady income, or an employment contract that shows you will start a new job within 60 days of closing, the student debt exclusion can seriously improve your chances of buying a home.
Physician loan vs conventional private mortgage insurance (PMI)
Another difference between conventional and medical professional loans is the private mortgage insurance (PMI) requirement.
If you put down less than 20% for a conventional mortgage, you’ll owe PMI until you have 20% home equity.
But some physician mortgages don’t require the borrower to pay mortgage insurance at all, regardless of how much you put down.
That could mean significant savings, especially if you buy a high-end home. Annual PMI rates can go up to 1.5% of your loan amount each year. If you buy a $700,000 home, you could end up paying $10,500 a year in PMI premiums.
Physician loan interest rates vs conventional loan rates
You may have a higher interest rate on a medical professional loan than a conventional mortgage. The lender is taking on more risk by excluding your student debt from the DTI calculation and allowing a minimal or 0% down payment.
Medical professional loans are often adjustable-rate mortgages (ARMs). Your interest rate is fixed for an initial period then adjusts for several years.
Conventional loans typically come with the option for a fixed-rate or adjustable-rate mortgage.
If the adjustable rate makes you nervous, know that there is a cap on how high your interest rate can go. Your lender can calculate your maximum potential monthly payment so you can decide whether you’re comfortable with the amount before you close on the loan.
Say you receive a loan with a 5% lifetime cap. It can never rise more than 5% above the initial rate.
- Example Rate: 4%
- Example lifetime cap 5%
- Maximum rate possible: 9%
If you’re worried about rate increases, simply calculate your payment based on the maximum rate. If that would be manageable until you can refinance into another loan, then an adjustable rate loan is nothing to be afraid of.
Refinancing to a fixed-rate loan before the adjustable-rate period kicks in is also an option.
Which is better: physician loan or conventional loan?
There’s no set answer to whether a physician loan or conventional mortgage is better. If you have substantial student loan debt, a physician loan may be your only option for buying right now.
But if you’re not in a hurry to own, you might continue renting while you pay down your debt, then buy when you can qualify for a conventional loan. A conventional mortgage gives you more flexibility in the types of properties you can buy, and making your mortgage payments will certainly be easier with lower student loan debt.
On the other hand, owning a home is an important step toward building wealth and stability, and a medical professional mortgage can help you do that sooner.
If you opt for a conventional mortgage, know that lenders can only let you borrow up to the conforming loan limit for your area. In 2021, conforming loan limits range from $548,250 to $822,375.
So if you have your eye on a luxury home, you may want to consider a jumbo loan. These are typically private mortgages that allow large loan balances but can require more money down.
I have a new job, future job, or am completing residency/fellowship
Many physician loans allow you to use current residency/fellowship or future employment to qualify.
Typically, you have to be within 10 years of completing your original residency or fellowship.
If you are within 60 days of starting a salaried or W2 job at a hospital, you can use your future income to qualify.
What if I just started my own practice or receive 1099 earnings?
Most lenders and programs require at least one year of filed tax returns to qualify if you have your own practice or get paid 1099 (contractor) earnings.
This could be an issue for dentists and other medical professionals who typically start their own practices. But, if you have more than a year under your belt, you may qualify.
Preferably, you have two years of filed tax returns showing profitability of the business.
Physician loan FAQs
Some lenders offer physician loans for medical professionals who do not qualify for conventional mortgages or government-backed loans because of their student loan debt. These programs exclude the borrower’s student loan debt from their debt-to-income ratio, which can be critical for qualifying.
Not all banks, credit unions, and private mortgage lenders offer doctor loans. Your best bet is to contact lenders directly to find out whether they have a physician loan program or mortgages for other medical professionals.
Physician home loans vary by lender, but some have 0% down payment requirements or other low down payment options. Typically, physician loans — which may be available to a variety of medical professionals, not just MDs — exclude the borrower’s student debt from their debt-to-income ratio.
I’m ready to apply
A physician loan can help you skip over years of paying down student debt before you qualify for a mortgage. That means you can buy a home and use it to start building wealth while you’re completing your residency or fresh out of medical school.