Potential Drawbacks of Physician Loans
Just because you’re a doctor doesn’t mean a physician loan is the best choice. These mortgages come with several potential disadvantages:
- Can only be used for primary (and sometimes secondary) residences: Physician mortgage loans are not available for investment properties.
- Potentially higher interest rates than conventional loans: Interest rates on physician mortgage loans may be higher to compensate the lender for a lower down payment and the increased risk due to no PMI.
- Interest rates are often adjustable: Some physician mortgage loans may only offer adjustable rates rather than fixed rates.
- Only available to those with good credit: Physician mortgage loans require borrowers to maintain a good credit score of around 700 to 720 to qualify.
Physician Loan Interest Rates
A physician mortgage loan is lenient on the down payment requirement and the lack of PMI, so lenders may increase interest rates to compensate for the additional risk. Physician mortgage loans tend to carry slightly higher interest rates than conventional mortgages. However, exact interest rates will vary by lender, and some lenders charge the same rates as conventional conforming or conventional jumbo home loans.
Am I Eligible for a Physician Mortgage?
For most doctor loans, you must be a licensed medical doctor with an employment contract or be in a medical residency program. Medical residents will qualify for smaller mortgages based on their reduced income while in residency. Licensed physicians can qualify for up to $2 million.
Applicants should have good credit (above 700 at a minimum) and be able to meet the lender’s debt-to-income ratio requirements. Typically, this is 45% or less for doctor mortgage loans.
“One benefit to physician mortgage loans is that any student loan payments that are deferred or on an income-based repayment plan are not counted toward your debt-to-income ratio the same way they would be on other loans,” says Crouse. That means the average $202,453 in student loans held by new doctors won’t be as much of a hindrance to getting approved for a physician mortgage.
While physician mortgage loans are targeted toward doctors, other high-earning professionals with advanced degrees, such as attorneys, may also qualify for these loans.
How To Apply for a Physician Loan
The process for applying for a physician mortgage loan is similar to applying for most mortgages. Start by finding and researching lenders. Start your search early, as not all banks offer this financial product.
Compare the rates and terms of other loan products (conventional and FHA loans, for instance) to make sure you’re pursuing the type of mortgage that makes the most sense for your situation. Once you’ve narrowed your list down to a few lenders, check their rates and fees. You can even get pre-approved with multiple lenders, then ask each one if they can beat the offer of the others.
Gather the necessary documents for a full application. For a physician mortgage loan, this includes proof of enrollment in or graduation from medical school as well as an employment contract or proof of medical residency.
To make sure your application process goes smoothly and quickly, change as little as you can about your financial situation before your mortgage closes. Don’t take on any additional debt, and continue making payments on your other loans on time.
Comparing Physician Mortgage Lenders
Comparing lenders involves more than checking whose interest rate is the lowest. While the interest rate is an important factor, it’s not the only one. Pay special attention to any fees the lender tacks on as well as whether you can buy points to knock down the interest rate.
Loan terms will vary from lender to lender, so be sure you’re comparing apples to apples. For example, a 5-year adjustable-rate mortgage (ARM) may have a lower initial interest rate than a 30-year fixed rate, but you may not want to deal with the rate adjustment or with refinancing to get out of it later. Loan limits may differ, too — what’s too high of a loan amount for one lender may be acceptable for another. Get a feel for the lender’s commitment to customer service by reading reviews, preferably from others who have physician mortgages. Is it difficult to get a human on the phone when you need to speak with someone directly? How willing is the company to help when problems arise?
Get a feel for the lender’s commitment to customer service by reading reviews, preferably from others who have physician mortgages. Is it difficult to get a human on the phone when you need to speak with someone directly? How willing is the company to help when problems arise?
Alternatives to Physician Loans
While physician loans come with their advantages, they aren’t ideal for everyone. In some instances, alternative loan products may be preferable.
For example, if your credit score is lower than 700, you may qualify for an FHA loan, even if your score isn’t high enough for a physician loan. If you or your spouse served in the U.S. Armed Forces, a VA loan could be another good mortgage option. It doesn’t require you to put any money down or pay PMI, and it has more relaxed credit score requirements. If you have enough cash for a decent down payment, a conventional mortgage may offer a slight advantage on the interest rate.
Frequently Asked Questions About Physician Mortgage Loans
Many physician mortgage lenders do not require a down payment, as long as your loan is less than $1 million and your credit score is high enough. If you are required to make a down payment, it’s typically only 5% to 10%
Most physician-loan lenders require a minimum credit score of 700 to 720.
Yes. Because residents have lower incomes than doctors, you may only qualify for a smaller mortgage amount as a resident than if you wait until after residency to purchase a home.
Physician home loans are for future-high-earning individuals whose educational debt may otherwise disqualify them from a mortgage. This can apply to attorneys, dentists and other professionals. Doctors of Philosophy may qualify if they can prove their income is high enough.