One of the biggest financial decisions physicians and dentists make involves buying, building, or renovating a house.
If you've gone through this process, you know there are a lot of decisions, documents, and details to navigate, which can quickly become overwhelming. On top of that, lenders have different requirements or options they offer.
Financial planning involves making good choices in six key money areas — The Six Money Decisions®. Physicians and dentists need to make decisions as to how they borrow, spend, and protect their money when it comes to finding a lender in the home-buying process. Mortgages are an effective way to borrow money and finance a home.
There are a variety of mortgages with different qualifying requirements. The physician mortgage loan (also known as the doctor mortgage loan) was created by banks in recognition of the unique challenges doctors face when borrowing money. Due to student loans, they have high debt-to-income ratios.
A physician (or doctor) mortgage loan is a specialized type of home financing. Compared to conventional mortgages, these loans offer more generous terms and looser qualifying requirements, making it easier for physicians and dentists to become homeowners despite their unique financial circumstances.
Before we explore doctor mortgage loans in detail, let's review the general guidelines for securing a home mortgage.
The first step in getting approved for any loan product is to get pre-approved with a loan officer. This enables the lender to review your credit report, including your score and credit history. They'll also examine your current income, employment, and assets to ensure you meet all the program requirements. It's never too early to get pre-approved – if you are considering buying a home, it's the right time to get pre-approved.
In addition to a credit score, banks also want to know these factors to give a pre-approval:
To emphasize a crucial first step: The best first step is to get a pre-approval and have a conversation with your loan officer. A pre-approval does not cost or obligate you to do anything, but it will be a chance to see if you are eligible to purchase a home or if it will give you time to get on the right path to homeownership.
Whether a physician has pristine credit or complicated credit due to owning a practice, what should you be aware of in terms of how credit affects eligibility for a mortgage?
Credit is a significant factor that dictates what type of financing a bank can offer you. Your credit score can impact whether someone can qualify for the physician loan program. It also determines the required down payment amount, if any.
A common occurrence for lenders is when buyers check their credit score on their credit card or app, which is different from the lender's model. For example, an individual believes they have a credit score of 800 based on their banking app, but the lender's model shows the individual to have a score of 730.
It's essential to know that the credit score you see does not use the same credit model that most lenders use.
Regardless of where you are in the process, if you think you will buy or refinance a house anytime in the next year, it's never too early to get pre-approved. The purpose of pre-approval is to see what you qualify for and whether you need time to improve your credit score before going through the loan process.
Let's say someone's credit score is low. A lender might notice that one of their credit cards is maxed out or that there is a high usage relative to their credit. Even if this person pays off their credit card every month, they could improve their score by paying it off before the end of the statement cycle.
A lender's credit score model prefers to see a zero balance over a maxed-out credit card because the amount of credit being used versus the amount of credit available is a critical factor.
There are five different criteria used in computing a credit score:
To further the example, the credit card user gets a ding for using 95% of their available credit. Two ways to solve this problem and improve their credit would be to either pay the balance off before it's due or ask the credit card company to increase your credit limit. This would lower the usage rate.
A conventional loan requires the buyer to pay for private mortgage insurance (PMI) if they put down less than 20% of the home's purchase price. It also calls for the use of current income to qualify and counts student loan debt. In contrast, the doctor loan program allows flexibility when qualifying with their student loan payments.
For a physician or a dentist who qualifies for the program, a physician mortgage loan may be a great option to purchase or refinance your home. The interest rates, flexibility, and underwriting in a doctor loan program can offer great benefits to those seeking to refinance or buy real estate.
| Feature | Physician Mortgage Loans | Conventional Mortgages |
| Down Payment | 0% to 10% | 3% to 20% |
| Private Mortgage Insurance (PMI) | Not required | Required with less than 20% down |
| Loan Limits |
Higher (typically $750,000 to $2M or more) |
Conforming limits ($766,550 in most counties, up to $1,149,825 in high-cost areas as of 2024) |
| Student Loan Treatment | Often excluded or treated favorably in DTI calculations | Included in DTI calculations |
| Income Requirements | More flexible; can use employment contract as proof | Stricter; requires proof of current and past income |
| Debt-to-Income (DTI) Ratio | More lenient | Typically max 36% |
| Property Types | Primarily for primary residences | Available for primary, secondary, and investment properties |
| Interest Rates | Can be 0.5% higher or lower than conventional rates | Market-based |
| Credit Score Requirements | Often more flexible | May allow lower scores |
| Loan Terms | More flexible | Generally conventional terms |
This chart highlights the key difference between physician mortgage loans and conventional mortgages, showing how physician loans are tailored to address the unique financial circumstances of medical professionals.
Mortgage insurance protects the lender if the borrower is unable to make their mortgage payments, which can increase your monthly payment. If you're going to put down less than 20% of the house price, you're subject to having and paying for primary mortgage insurance (PMI).
If you were to choose a conventional loan – a $800,000 house with 10% down, you'd probably have mortgage insurance for about $300 to $400 per month. In comparison, these additional mortgage insurance costs do not exist in a physician loan program.
Who qualifies for a physician mortgage loan?
The title of physician mortgage loans is a little misleading because these loans are available to physicians, dentists, and veterinarians. Eligibility typically includes:
These loans are primarily intended for purchasing and refinancing primary residences, so in most cases, you cannot use them to buy an investment property or vacation home. Some lenders offer more flexible options.
Rates are very complicated, but to give you the most straightforward answer, banks are competitors against one another. You can compare it to buying a stock where prices fluctuate depending on the market. Similarly, gas prices fluctuate due to supply and demand and the time of year.
For the most part, any lender that offers a similar product has rates that are comparable to one another. There will be days when one lender may be priced a little ahead of another because the bank is trying to compete by offering you a loan at the best price.
When you see headlines about the government or the Federal Reserve lowering rates, there is a common misconception that people think this affects mortgage rates. When the Federal Reserve lowers the prime rate, they're lowering short-term interest rates like your home equity line or credit card. Meanwhile, mortgage rates are long-term, 30-year loans, 15-year loans, or 20-year loans, meaning there is no direct correlation between rate cuts and mortgage rates.
Banks typically collect extensive information throughout the lending process, including pay stubs. How can a physician get a doctor loan with a resident's pay stub or no pay stub during the transition?
Again, the great thing about the doctor loan is the flexibility in underwriting, and part of that, related to income, is future income can be used to qualify you.
However, that future income does have to start within 90 days. And that is very helpful for somebody coming out of training, out of residency or fellowship. They're going to complete training on June 30th, and maybe they have a new contract to start a position on September 1st with whoever employer they've agreed to work with.
They can close on a new home up to 90 days before that start date, which gives them time, post-training, to move into their home, get settled, qualify for that new home, using their new income to do it, and then have a couple of months between training before they start back to work.
You need to close within 90 days, but that doesn't mean you can't start shopping for a house or applying for a loan in March, April, or May. That's when the home-buying season is blossoming. It's okay to go ahead and start looking as early as March, April, or May, depending on what income you need to qualify.
If you need that new income, then the loan officer will do a pre-approval for you, assuming that your closing date will be within 90 days of you starting to earn that income.
Many lenders offering physician mortgage loans will consider future earning potential and may exclude deferred student loans from the debt-to-income ratio calculation.
Banks do allow gifts, but there are restrictions regarding the gift amount, who can give the gift, and more. The giver must be a relative of the doctor who applies for a physician mortgage loan and most conventional mortgages.
Federal Housing Administration (FHA) loans differ in that the giver can include family members, friends, labor unions, employers, and charitable organizations that contribute toward a down payment. Banks often require a down-payment gift letter to explain who the giver is and what the money is for.
A gift can be given to the buyer to satisfy future mortgage payments or used for the down payment. When you close on a house, banks need assurance you have enough money in the bank to pay that mortgage. Doctors coming out of residency or fellowship may not have enough cash built up for the monthly mortgage payment.
As mentioned above, the physician loan program requires 0 or 10% of the money to be paid down. Therefore, a gift could be beneficial for you to put in your checking account to show you have enough stability to pay the bills, even with low income during training or no income during the transition from training to practice.
In this case, having a few thousand dollars in your savings account may be better than a few thousand dollars for a small down payment, especially if you have not built a solid emergency fund yet.
When considering a physician mortgage loan, it's crucial to carefully weigh the pros and cons and compare them with conventional loan options to determine which is the best fit for your financial situation and long-term goals.
The benefits of the doctor mortgage loan might seem quite attractive to you by now, but you must be aware of other features or requirements you likely won't see on a bank's website where they are advertising the program.
The ease of securing a physician mortgage with no PMI or money down can be tempting. It can also lead to buying too much house, which could prevent you from saving for emergencies or other financial goals.
At times, rates and fees are slightly higher than those of a conventional loan — banks don't operate for free.
Even if you want to take out a physician loan, the bank could determine that you must pay at least 20% down as you go through the loan process. This can happen for many reasons, one being a low appraisal value, resulting in the bank requiring you to put more down to cover the unanticipated gap. If this happens, a conventional loan may make more sense for you.
A VA loan may be better for you if you're in the military.
The physician mortgage loan may be restricted for condos; even townhomes can also fall into the condo category.
The lender might require you, the borrower, to open a bank account from which the monthly mortgage payment is paid by auto-draft (they want to keep you coming back).
As the 6 Money Decisions® graphic (below) shows, the type and amount of mortgage you acquire absolutely affect your overall financial plan.
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Will the cost of your house allow you to save for your kids' education or reach other financial goals you have in mind?
Of course, your student loan repayment agreement can be a huge factor in the amount of house you can afford. Though the physician mortgage loan program offers flexibility with your student loan payment plan, it's not advisable to allocate all your cash flow to pay off your education and house debt.
Working with a trusted financial planner can be helpful in making decisions confidently with your money. They can guide you through the loan process and work with your mortgage lender to devise a thoughtful strategy to tackle your debt and save for your future.
If you are considering taking out a mortgage or refinancing your home, connect with our team of advisors to get started crafting a financial plan.
CRN202711-7616820
Jordan Bilodeau, CFP®, is a Partner and the Director of Planning & Strategy at Spaugh Dameron Tenny, where he leads firmwide planning initiatives and helps clients navigate complex financial decisions. With experience in portfolio design, tax strategies, and business succession planning, Jordan works with executives, physicians, dentists, and successful retirees to coordinate every aspect of their financial lives. He holds the CERTIFIED FINANCIAL PLANNER® designation and has a Master’s degree in Wealth and Trust Management, providing tailored guidance for clients.
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