What No One Tells You About Physician Mortgages

Physician Mortgage Loans: What You Need To Know

In recent years, banks have been targeting physicians for a type of loan not available to the public called a physician mortgage loan. Physicians have unique challenges with borrowing because they have high debt-to-income ratios. 

By reading the definitive guide we’ve pulled together here, you will learn:

  • Who qualifies for a physician mortgage?
  • Advantages and disadvantages of physician loans
  • What mortgage amount you will qualify for
  • Common mistakes with doctor mortgage loans and how not to make them

We designed this guide to provide insights from years of experience working with attendings and residents to make your decisions much easier. You have enough to worry about already.

So, spend time with this guide (and bookmark it) to better understand if a physician mortgage loan is the right for you when it comes time to purchase your home. Consider this a journey through the entire process of understanding and applying for a physician loan. 

If you simply just want to find the best physician home loan, click on your state below to find the best lender and rate near you.

Quick Pick: The lender that helped us get our physician loan was Doug Crouse, and we HIGHLY recommend working him.

As you know, physicians sacrifice an incredible amount of time and energy compared to other professions. While most of your other friends build their lives in their twenties, you work to complete your education and training.

You look around and it feels like everyone you know is settling down. Whether it’s getting married, purchasing a home, or starting a family – life is happening all around you. Meanwhile, you’re reviewing patient charts on a Saturday night.

But, being a physician is worth this time and sacrifice, and soon these days of the residency grind will be behind you. You will start making big life choices, even if you are getting a later start compared to everyone else.

And, when you’re ready to purchase a home, you should consider a physician mortgage loan. This is one of the many benefits of becoming a physician, and it’s worth your time to learn more about this mortgage product.

A physician home loan may not be right for every doctor, but it could be just right for you. 

You might have heard of physician mortgage loans, but weren’t quite sure how they worked – and if they would even be an option for you. Who exactly are these loans good for and how are they different compared to conventional mortgages?

What is a Physician Mortgage Loan?

A physician mortgage loan is a special mortgage product available to doctors. They don’t have quite as many restrictions compared to what lenders require from borrowers of conventional loans. If you have a decent credit score (around 700 or above), then you’ll find a physician home loan can make it faster and easier for residents and attendings to buy a home with little to no money down and avoid private mortgage insurance.

A top rated Physician Loan Specialist Neil Surgenor at TD Bank commented, “Physician mortgage loans are an amazing product allowing physicians to focus their time on paying down other higher interest and non-tax-deductible debt first while benefitting from the special rates with no mortgage insurance. Some lenders will require down payments and only offer ARM’s (Adjustable rate mortgages) while some of us offer 100% financing and fixed rates. ”

One of the many advantages of the physician loans is you can present an offer letter as a proof of future income if you’ve not yet started your position as a full-time attending physician. Or, you can present a copy of your transcript if you are still in training. 

Lenders base these loans on future earnings, which makes them extremely attractive to physicians who are finishing up their residency or having just graduated from medical school.

What is the difference between a Physician Mortgage Loan and a Doctor Mortgage Loan?

A physician mortgage loan and a doctor mortgage loan refer to the same lending product. However, did you know a physician mortgage loan is not just for doctors, as the name might lead you to think. Dentists and orthodontists can use many of these mortgage products, too. Some lenders will use this for veterinarians. But, this guide focuses on physicians.

Why Physicians Make Great Candidates for Mortgages

When you look at it on paper, it might seem a little curious why banks offer doctors a product like a physician mortgage loan.  When you’re a resident making the typical resident salary, you certainly don’t look as if you would qualify for a large mortgage. And, when you factor in the large amount of debt and small amount of savings, well, it looks like there’s no way you would qualify.

So why the special treatment?

Doctors receive this special treatment because they have a very distinct advantage: An enormous potential to earn money. The average salary of physicians now surpasses $200,000. A strong job outlook for the profession and the earning potential makes them a win-win for lenders.

These lenders also know doctors have opportunities for loan forgiveness through various federal and state programs. Lenders of these types of loans are also very familiar with the different federal medical student loan repayment plans (IBR, PAYE, REPAYE, for example).

Doctors also have lower default rates on loans versus other types of borrowers. There are some estimates that show doctors have a 0.2% default rate, which is much better than average consumers who default at a rate of 1.2%.

The prospect of future opportunities to loan to the physician offers another benefit to the physician mortgage loan lender. Once you develop a relationship with a bank for your mortgage, the likelihood increases of you working with the lender for additional loan products down the road. 

It’s always good to note, though, that “doctor loans are a good idea for those with 15 years or less in their medical career. These physicians can take advantage of historical low-interest rates, higher loan-to-values with no PMI options, and keep liquid reserves for other needs or investment opportunities,” says Mike Fitzmeyer of SunTrust (now Truist). 

The high potential for income and debt forgiveness, combined with the lower default rate, make physicians ideal candidates. Even if they earn only $45,000 while in residency, future earnings give doctors a distinct advantage.

Advantages to Physician Mortgage Loans

There are multiple advantages to physician mortgage loans, which makes them worth your time to seriously consider. 

Zero Down Payment Requirements

A major advantage to a physician mortgage loan is the lower down payment threshold. For many borrowers, coming up with a down payment is often the biggest hurdle to overcome.

For some, saving up for the down payment takes years.  

According to Jonathan Brozek who specializes in home loans for physicians, “although a low or no money down option for a doctor loan sounds enticing, it’s reasonable to consider a down payment for 5-10% if you are financially capable to do so.  Among other reasons, the no down payment option may require an adjustable-rate mortgage which may not suit your financial plans.”

Speaking with Doug Crouse, who is an expert in doctor loans, he tells us how lenders who offer physician mortgage loans will accept 0% down – which rarely happens in today’s competitive mortgage world:  

Most mortgage products with 0% down come with huge fees or specific requirements, but not physician mortgage loans.  This means borrowers for doctor loans don’t have to save thousands of dollars before they’re ready to buy a home. 

This is especially compelling when you compare it to most conventional loans, which require a down payment of at least 3-5%.

Down payment comparison

Do Physician Loans Have Private Mortgage Insurance (PMI)?

If you’ve done any research so far on mortgages, you’ve probably come across the PMI acronym. This stands for Private Mortgage Insurance. It’s a way for the lender to charge a monthly fee to collect an “insurance” on you, in case you default on the loan. The thought is if you’re putting less than 20% down, then you’re a higher risk to loan money to. 

If you think PMI isn’t much of anything to worry about, then you may be surprised to hear how much you have to tack on to your mortgage. 

Annual PMI costs are typically between .3% and 1.2% of the mortgage. You will pay this amount until you have paid off 20% of your mortgage. This can take years to reach this point. 

Doctor mortgage loans have the advantage of not having to pay the PMI when a borrower puts down less than 20%. Whereas almost every other kind of mortgage lender requires PMI when the borrower has less than 20% equity in the home.

Private mortgage insurance

Student Loans and Your Debt to Income Ratio

While you’ve probably wished your student loans would disappear on their own, having them not factor into the financial equation could be the next best thing.

You may have assumed your all of your student loans would keep you out of the mortgage world for years. But with a physician mortgage loan, student loans are factored in a different manner.

One of the biggest reasons why doctors love physician mortgage loans is because banks don’t count your full standard payment on your student loans, they only look at what you are paying on your income driven repayment.

Debt to Income (DTI) is extremely important because it’s what lenders use to decide if an applicant is creditworthy. In most lending situations, lenders require you to have a DTI of 43% or less.

In a traditional lending situation, if you factored in the full payment on your student loans then most likely you wouldn’t qualify for a mortgage. But with physician mortgage loans, the banks are aware your loans could be well over 6-figures but your future income outweighs the risk.

Your other debts however – credit cards, lines of credit, vehicle loans, etc. – will all count towards your DTI. It’s important you take stock of your true financial situation – including all debts and obligations – before you take on a hefty mortgage.

Exempt from Caps on Loans

Most borrowers have limits on how much of a loan they can take out. There are also additional fees to borrowers if they go above the limit for jumbo loans. Jumbo loans are loans that are more than the Federal Housing Finance Agency conforming limit (meaning it conforms to Fannie Mae and Freddie Mac requirements). In 2019, the jumbo loan limit is $484,350.

Physician mortgages are exempt from the additional charges, as well as a cap on how much the applicant can borrow. This can be a huge advantage to the physician.

Physician Home Loan Rates

You may be wondering, since there are so many advantages to these types of loans, if a bank will use it as an opportunity to give you a higher interest rate. 

Actually, lenders who provide physician home loans often extend the same interest rates as they would to a jumbo loan.

This should help you as you begin to research physician mortgage rates. If you have quotes on the current rates for a jumbo loan from your lender, then a physician mortgage loan quote should be around the same interest rate.

Don’t be surprised if you are quoted a higher interest rate, compared to the ones you see as you’re researching on the internet.

Do Doctors Get Better Mortgage Rates?

Lenders don’t charge PMI on physician home loans and they are taking on borrowers with a high debt-to-income ratio. This means  they make up their losses by charging higher interest rates. A recent rate comparison found that doctor home loans had an average interest rate of 3.75% while a conventional home loan has a rate closer to 3.5%. 

Since doctors are not necessarily receiving a lower interest rate with a physician mortgage, there are a few items you must keep in mind. Some factors you can control, others are completely out of your hands.

For instance, your FICO score has quite a bit to do with the rate you will be quoted. The better your FICO score, the better your rates. The best thing you can do is pay your bills on time and pay down your debt. 

Shopping multiple lenders can also help your rates. It’s crazy to think that with such a big purchase like a home most people never shop around. You may be pressed for time but you will want to make time to get comparison quotes. You could literally save yourself thousands in interest just by talking to more than one lender. 

The economy and the Federal Reserve are big factors – and completely out of your hands. Depending on what’s going on with these two things can have a big impact on your rate. If you are researching your options ahead of time, you can start to see if rates are increasing or decreasing.

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Disadvantages to Physician Mortgage Loans

At this point you may be ready to sign on the dotted line for a physician mortgage loan. With fewer requirements, no down payment, and a bank willing to lend you whatever you need, it sounds like a pretty easy decision.

But not so fast. 

Before you agree to take on a doctor loan, you need to carefully consider all the pros and cons for these types of mortgages. 

Almost All Physician Mortgages Have Variable Interest Rates

Many lenders for the physician loans will quote you a variable interest rate, instead of a fixed interest rate. 

You were probably wondering where the lenders made their money with physician mortgage loans – and the answer is with the interest rate. It is very common to be subject to a variable rate for a physician loan. 

This is where it is important to complete your due diligence and compare multiple lenders. You will find lenders can vary as much as a full percentage point with the rates they are quoting.

You should give very careful consideration to taking on a loan with a variable interest rate. If you believe you could be in your home longer than 5 years, then you will either need to refinance at some point or stay away from a variable rate. Since today’s rates are still quite low, you would be taking a gamble by assuming you can refinance in the future. You are better off locking in a competitive fixed interest rate and avoid the headache in the future (plus wasted money). 

Usually, Have Higher Interest Rates

Not only is a variable rate common among physician mortgage loans, but most of the time the interest rate will be higher – versus a conventional loan.

One recent rate comparison found doctor home loans had an average interest rate of 3.75%, compared to a conventional home loan which had a rate closer to 3.5%. 

During your research, you will notice each bank has its own set of rules and regulations, and also its own interest rates. One bank may charge ¾ of a point or as much as a full percentage point difference, versus a conventional loan. 

You may think the small difference in rates isn’t much to worry about, but it adds up significantly over time. For instance, if you buy a $250,000 home with 0% down and with a 3.75% interest with a 30-year term, you’ll pay $179,673 total in interest. 

Compare the total interest paid to a conventional loan with a 3.5% interest rate over 30 years. The amount of interest you’ll pay over the years with the 3.5% is $154,140. That is $25,000 in additional interest you will pay, basically 10% of what you borrowed initially!

If you need the benefits of a physician mortgage loan but are concerned about the higher interest rate, remember – you can always refinance a doctor mortgage loan into a conventional mortgage once you’ve built up equity. Refinancing is not free (there are several fees involved) but can be a viable option later on.

Limitations with Condos and Primary Residence Requirements

If you are looking to purchase a condo then make sure the lender you’re working with will allow you to use a physician mortgage loan for this purpose. 

Most lenders for doctor loans will not finance a condo. This also includes non-warrantable condos, due to the higher risk they pose for the lender. 

In addition to not providing financing for condos, the physician mortgages are only for your primary residence. You typically can’t use these loans to purchase your vacation or rental properties.

How Much Can You Borrow For a Home Loan?

You need to have an honest conversation about how much house you can really afford.

Remember, just because you’re approved for a certain amount, doesn’t mean you should take on the amount you were approved to finance. This is a perfect example of what we refer to as “Lifestyle Inflation.”

The banks love doctors and they love making money off of you. This means you could easily qualify for a loan which you have no business purchasing.

Since you’re not counting your student loans in the DTI, you will be qualified to purchase a home which you may not truly be able to afford. 

Some financial advisors advocate for a 25% rule, others for a 28% rule, but either way, the idea is to divide your take-home pay – or net pay – by .25 (or .28, if you’re going by 28%), to get the number that best fits your budget.

As a physician, you have more options for a mortgage loan than most people. You will likely be able to secure a mortgage loan without a down payment, and without paying PMI. These are great benefits! Once you determine a monthly payment where you’re comfortable, consider also the length of the loan.

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Adjust For Your New Financial Picture

You have to go through all of your monthly expenses – not just your monthly debts – and see how much a mortgage payment impacts your monthly budget. Will you be able to comfortably make this payment, as well as continue to pay for your student loans and credit cards? If you don’t have a budget or are not tracking your spending, you need to read our definitive guide on why doctors need to budget too. 

This is a great time to evaluate your other financial goals. You need to determine up front how a new mortgage will impact your monthly spending.

There are several other categories which could be impacted by a new mortgage.  Make sure your house payment still allows you to fund your emergency savings account, your retirement funds, or your children’s college education.

Don’t forget your life insurance needs too! Hopefully, you are set with your term life insurance coverage. You will need to evaluate it and adjust it, based on the amount of your new home loan. Most likely you are going to need to increase the amount you already have. You want to make sure your family is covered if there was a worst-case scenario, and you were no longer there. 

Whatever your goals are, you want to make sure your mortgage will allow you to stay on track, and not take you further away from what you want to achieve.

Think you will have to give up your daily Starbucks in order to become a homeowner? Click here to calculate how much of a home you can really afford. 

Longer Time to Build Up Equity

It’s hard to deny how attractive the thought of zero down payment can be. This alone can make a physician mortgage loan your preference. But there’s a downside to getting into the loan so easily.

You will start off with zero equity in your home.

It will take you a few years to build up a decent amount of equity in your home. Most of us can remember a time when the housing market tanked and millions were left underwater in their home values. It’s hard to imagine now, with the housing markets as strong as they’ve been, but it won’t always be this aggressive.

It makes it harder on you to sell a home when you haven’t built up equity. If you need as much money as possible from the sale, then it’s tougher for you to sink money into renovations or staging or realtor fees. By the way, if you need help finding a realtor, we recommend reaching out to Dr. Moves to get connected with a realtor for free.

By not having any equity in your home, you’re putting yourself in financial danger if you happen to need to sell your home quickly. A quick home sale could be needed for many different reasons – job changes, divorce or even a move to a better school district. 

Whatever the reason for quickly moving is, you do not want to feel trapped in your home by not having any equity.

My Experience With a Physician Mortgage

You might be curious as to why I’m so passionate about making sure you have a realistic point of view for physician mortgages. I’ve personally used a physician mortgage when my wife and I moved our family from Las Vegas to San Diego in 2018.

There were a few major factors in our decision to go the physician mortgage route. The largest reason by far was the ability to put less than 20% down on the new home loan.  Fortunately for us we actually had the 20% down. Unfortunately, it was all tied up in the equity of our home in Las Vegas. We decided we wanted to move without selling our current home, since we had two toddlers and life was about as crazy as possible.

Once we made our big move and sold the house in Vegas, we were able to make a large one-time principal paydown. The physician mortgage option gave us the flexibility to help us during this transition.

We also used the services of Doug Crouse. You’ve probably seen his name here on the site or through our podcasts. He’s a good friend to the show but also really knows how to navigate through the physician mortgage process. He helped us lock into a 5% fixed rate on a 30-year loan (we’ve since modified since the rates are improving). He communicated with us through every step and really made it go as smoothly as possible for us.

My biggest piece of advice that I would give (or what I would do differently next time) is to have your paperwork extremely organized. The most complicated part is getting all the financial info together – and I’m a Financial Advisor! Get everything in one place so you can access it easily. It’s not just information on your new mortgage either. Make sure you have all the information ready to go for all of your assets and liabilities. 

If you can get your finances organized and work with someone like Doug, then the process for a physician mortgage will be much easier. 

Find a Physician Mortgage In Your State

Who Qualifies for Physician Mortgage Loan?

Physician mortgage loans can offer quite the opportunity to a doctor, but you will still have to show you are qualified to take on the responsibility of the loan. What factors are the lenders looking at the most when you apply for these types of mortgages?

Down Payment Requirements

As a physician, you are generally eligible to finance 80-100% of the loan. This is a tremendous benefit because saving the traditional 20% of a home purchase price can take years.

“Outside of rural development or a veteran (VA) loan, most people cannot get 100% financing for a mortgage loan,”  according to Doug Crouse. With the best physician mortgage loan, you can generally borrow up to $750,000 with no money down.

Because of the statistics showing how much less doctors default on loans than the general public, most lenders can price physician loans the same as a mortgage loan with, say, someone he needs to make a 25% down payment and have an 800 credit score.

Credit Score

Credit is a very large part of the qualification process for the loan. 

Physicians will need a credit score of around 700 – although some lenders will offer a product to those with a score as low as 680. The higher your credit score, the better your interest rate. Borrowers with a credit score of 760 or higher will receive the best interest rate possible. 

There is a term referred to as the Debt Utilization Ratio, and it’s a very important factor with your credit score. 

The debt utilization ratio is how much of the credit you are using compared to how much you actually have available. You want to aim to keep your credit cards below 30% of your available credit. This will have a positive impact on your credit score. 

As a reminder, you are entitled to a free copy from each credit bureau: Equifax, TransUnion, and Experian. You can monitor your credit for free at Credit Karma. It’s very important for you to review these each year. Not only will you find out what your score is, but you’ll also be able to identify red flags, which could come up in the loan underwriting process.

Before you apply for a loan, you should get the negative marks or errors removed if possible. By getting these taken care of, you can improve your overall credit score, which gives you an advantage with your interest rate and terms.

Another option to review your credit information for free is to contact your bank or your credit card company. Often times you’ll find this as a perk. Although the score won’t be exactly the same as what the mortgage lender will see, it’ll give you a good idea.

Check your score at creditkarma.com

DTI

The DTI (debt to income ratio) is also very important in the qualification process.

If you have an auto loan, student debt, credit cards with balances, then all of this will be examined.

As you begin the process of the loan applications, you should calculate your DTI on your own, so you have a general understanding of what the bank will be using.

List your monthly rent or mortgage payment, list any child or alimony payments, list any auto loans or any other products you have a monthly payment towards, student debt payments and finally list out your credit card payments (use the minimum payment). 

Add these items together and sum the total.

Take your total gross salary and divide by 12. This is your monthly gross income.

Divide the total of your monthly debts by your monthly gross income. This will give you your DTI percentage.

Monthly Housing +Monthly Debt Payments  = X

Total Gross Salary / 12 months = X

Total Monthly Housing + Monthly Debt Payments / Monthly Gross Salary = DTI %

Remember, the target ratio for the physician mortgage loans is 43% or lower. The lower the number, the better chance you will qualify.

If you have a high amount of credit card debt or a vehicle loan, and are still showing a $50,000 resident’s salary, then you could also run into issues with qualification.

The best scenario possible is for you to pay down as much of your credit card debt and car loans before you take on a mortgage. Not only will you put yourself in a financial situation, but it will help increase your chances of qualifying for a loan.

Self-Employment Requirements

For those of you who are self-employed, your salary requirements will look different. You will have to submit two year’s worth of income to show your salary is consistent and preferably has increased. 

For self-employed physicians, the lender will average these two years together when calculating how much house you can afford. Be prepared to present quite a bit of paperwork. This is where being organized will be very helpful. 

Self-employed physicians will also have to show a strong credit profile and a low DTI percentage, in addition to the more stringent salary requirements. Being self-employed doesn’t automatically remove you from the ability to obtain a loan. It only means you will have to show a consistent and stable work history. 

Can Locums Doctors get a mortgage?

If you’ve adopted the locums lifestyle then this is a very important topic for you. 

There’s good news and bad news. The good news is, you can still get a mortgage. The bad news is, you are considered self-employed so you will go through a more rigorous process. If you’ve been working as a locums physician for at least two years, then don’t let it stop you from trying to obtain a physician mortgage.

Why New Physicians Have Trouble Qualifying for Traditional Mortgages

Let’s talk about a scenario which isn’t as favorable for physicians. The truth is, a traditional mortgage can be hard for a physician to qualify for. Many of the basic factors and parameters which are in place can be hard for a doctor to land in.

The first is the income factor. As a resident especially, your income is limited. The second is lack of savings or assets. You’ve been working nights and weekends since college, barely scraping by. You’ve hardly had any time or money to create savings. 

The last is the high debt. Most physicians are carrying a tremendous amount of student loan debt, which automatically makes them less qualified for a traditional mortgage. 

That being said, it is possible for you to look at other options for loans. 

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Alternatives to Physician Mortgage Loans

As tempting as it may be to only focus on the positive features of the physician mortgage loans, it’s important you understand all of your options before committing. Just because you’re a physician, doesn’t necessarily mean the doctor mortgage loan is your best, or only option.

Let’s consider all the loans which are available to you.

Conventional Loans

A conventional loan is the most common mortgage option. 

Chances are, your neighbors and your friends have a conventional loan. There are very few requirements for borrowers, making it an enticing option. You have to have a credit score of at least 620, a stable income history, and a DTI of 43% or less. 

Another benefit to conventional loans is the lower the down payment requirement. 

You typically only have to put down 3-5%. Keep in mind though, a conventional loan will charge PMI if you put less than 20% down. 

Conventional loans are not backed by federal entities, the way the FHA or VA loans are. This means the requirements are going to be more strict. You will also see most lenders charging more for conventional home loans with higher interest rates.

Conventional loans can be grouped into a Fixed-Rate or Adjustable Rate category. 

Fixed-Rate Mortgage

As discussed previously, a fixed-rate loan will have the same interest rate throughout the entire life of the loan. It will not be subject to market fluctuations or any other outside factors. A fixed-rate is a great way for you to lock into a low rate, no matter how long you choose to finance.

The fixed-rate loans are typically available in 15 and 30 year terms. You can also find them in 10 or 20 year terms as well. The lower the number of years you choose, then the lower the interest rate will be. 

A fixed-rate loan is great for those of you who plan to stay in your home as long as possible. This way you’ll lock in your low rate, and you won’t have to worry about the payment changing from one year to the next. If the interest rates go down after you purchase your home, then you could consider refinancing your remaining loan balance. 

Adjustable Rate Mortgage

The alternative to the fixed-rate mortgage is the adjustable rate mortgage. With this loan, the interest rate will change over time. Not only is this an option for a conventional loan, but this is also a very common option for a physician mortgage loan.

The most common adjustable rate option is the 5/1 ARM, but you can also find mortgages with a 3/1 ARM, 7/1 ARM, or a 10/1 ARM.

An ARM is an interesting combination of a fixed-rate and adjustable-rate loan. For instance, a 5/1 ARM means you will have a fixed interest rate for the first 5 years of the loan, then a variable rate each year after the 5. Interest rates will then be recalculated once a year, which means your payment could continue to increase over the years. 

ARMs can be difficult in your overall financial plans. Since the payment can fluctuate from year to year, it makes it challenging to maintain a budget. The change in payment could be minimal, or it could be significant, depending on your market. 

Despite this, many borrowers like the ARM option because typically the interest rate is lower for the initial years. It could even be an ideal option if you know you’re going to be in your home for less than the time period of the fixed-rate portion. 

Is a 10-1 ARM a Good Idea?

You may hear about a product such as a 10-1 ARM. You can also find 5-1 and 7-1 versions too. ARM is short for Adjustable Rate Mortgage. A 10-1 option would allow you to lock into a fixed-interest rate for the first 10 years of the loan. The interest rate will then change once a year for the remaining life of the loan.

To answer the question, likely not, the 10-1 is not the best idea in the current market. The main reason why is the interest rates on the 10-1 ARMs are currently higher than 30-year products. You will be paying a higher interest rate on a product you could potentially need to refinance in 10 years. The same can be said for the 5 and 7 year versions too. 

As with all mortgage products, the rates change all the time, so it pays for you to do your homework. 

Is a Fixed-Rate Mortgage or an Adjustable-Rate Mortgage Better?

The answer to the question about a fixed-rate versus a variable one really depends on the economy. In today’s current economy, you are better off with a fixed-rate mortgage. The reason is because the rates are hitting historical lows. It would seem more likely for the rates to increase in the future, not decrease.

An adjustable rate mortgage could be attractive if it’s lower than any fixed-rate options you’ve been presented. It would also be something to consider if you know you will be in your property for a shorter period of time versus your forever home. 

FHA Loans

An FHA loan means it’s backed by the Federal Housing Authority, which insures the loans to the lenders.

These loans are generally targeted to borrowers who have lower credit score. Typically conventional loans are available for people with a score of 620 or higher, but the FHA loans require a 580 credit score. 

The credit score requirement drops even lower (to 500) if you put at least a 10% down payment. With these requirements, many people assume the FHA loan is only for first-time borrowers. Truthfully, this isn’t the case. 

You can qualify for an FHA loan at any time – even if you have previously owned a home.

The biggest drawback to the FHA loan is the upfront charge of PMI of 1.75%, in addition to the monthly PMI you would be responsible for. The monthly PMI will be charged for the entire life of the loan – not just when there is a significant change in the loan to value ratio. 

The down payment requirement for FHA loans are low, which makes this an attractive option. You can get in for as little as 3.5% down, depending on your situation. If you put down less than 20%, then you will also be subject to a mortgage insurance premium (MIP), which is similar to the monthly PMI. 

The interest rates for FHA loans tend to be higher than conventional loans. 

An FHA loan would only be considered a better option for you if you didn’t meet the credit requirements. You would want to run the financial scenario carefully, compared to the physician mortgage loan if you are choosing between FHA and a doctor loan. 

VA Loans

Hands down, the best mortgage option – whether you’re a physician or not – is the VA loan.

This loan is only available to former or current members of the military. Similar to the physician mortgage loan, the VA loan does not require a down payment. 

Although the government is not the lender for a VA loan, a certain percentage of the loan is backed by the government. This makes it an attractive product for both the borrower and the lender. 

With VA loans, you will not be charged for PMI either. The interest rates on VA loans are very competitive, and similar to conventional loans. There are not any extra premiums for VA loans.

If you have the choice between a VA loan and a physician mortgage, then a VA loan will almost always be the better choice for you.

Difference Between VA loans and Physician Home Loans?

Some of you reading this may be eligible for both a VA loan and a physician home loan. There are a few similarities but key differences as well.

Both loans offer low or no down payment options for you. You can also avoid paying PMI with either a VA or physician loan. Lastly, you have a little more leniency with the credit score requirements.

Where the two loans differ are with the interest rates and fees. VA loans can be subject to an addition funding fee – as much as 3.3%. This can be a significant amount if you are taking on a large mortgage. However, VA loans typically have lower interest rates, especially compared to a physician mortgage loan. 

Once again, you will want to do your homework and talk to several lenders. It’ll be even more important for you to get all the facts from multiple people if you are in a situation where you qualify for both loans. 

Is a physician loan a conventional loan?

No, a physician mortgage is not considered a conventional loan. The definition of a conventional loan is a loan that is NOT secured by the Federal Housing Administration (FHA) or Veteran’s Affairs (VA) or the USDA. Because a conventional loan is riskier to the lender, you are required to put down 20%, or pay the PMI.

Make Sure You Compare Mortgage Products

The bottom line, with so many choices, you need to make sure you compare as many products as possible. The physician mortgage loan – even with the many perks – may not be the best for your financial situation.

Do you like charts? Here is a quick way to compare loan products. Of course, you’ll want to do as much homework as possible for your financial situation. You’ll also need to confirm additional fees for your mortgage – those can add up quickly. 

Compare Mortgage Products

As you can see, there are multiple options available to you, you’re not limited to only the physician mortgage loan. But having so many options can also make it a little more difficult to choose the exact product which is right for you.

Physician Mortgage Calculator – Estimate Your Monthly Payment 

Here is a physician mortgage calculator that will help you estimate your payments. You want to understand the exact amount you will pay over the life of the loan with interest, as well as any additional fees (PMI, closing costs, etc.). 

A few things to remember. Doctor loans do not have Private Mortgage Insurance, so make sure to put a 0 in that field. If you need help understanding the taxes, use 1% of the purchase price and put that in the Property Tax field. This calculator is assuming that you have excellent credit (700+) and that you are buying a single-family house.

You also need to carefully consider how much money you are willing to put down. Not only will this impact your monthly payment, it’ll help build equity sooner. 

You can definitely work with a mortgage broker who can run the different scenarios for you. Remember though, the quotes from a broker will be based on their fees and terms. You can compare products, but ultimately the quotes can be different from lender to lender.

Another option is to have your fee-only advisor run the scenarios with you. Your financial planner can help you weigh the pros and cons of the various options, and then you can pick the mortgage which makes the most sense for you.  

Should You Purchase a 15-year or 30-year mortgage?

One of the most common questions when it comes to mortgages is whether you should go with a 15 or 30-year product. Interest rates are usually much more favorable for the 15-year product, but your monthly payment will be quite a bit higher. 

And of course, like so many other financial scenarios, the answer on which is best depends on your personal scenario. However, there are a few points you can review to help you decide

The first is your cash flow. A 15-year mortgage will obviously have a higher payment, which could limit your monthly cash available. Calculate the payment and make sure you’re also factoring in your other debts. If your mortgage (and other debt) is above 50% of your take-home pay, then it’s too much. 

If a 30-year mortgage payment would help you stay under the 50% take-home pay scenario, then you are probably better off with the 30-year – even with the higher interest rate. Remember, you can always refinance at a later date if terms become more favorable or your income increases.

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How a Mortgage Affects Your Taxes

You will want to verify everything with your tax professional, but a mortgage can impact your taxes. You will have the opportunity to deduct your mortgage interest as well as property taxes. There may be other tax advantages for you with home ownership. Make sure you discuss with a qualified professional to make sure you’re aware of all the opportunities.

Make Sure You’re Ready to Buy

Before you decide to make one of the biggest purchases of your life, you need to make sure you’re in it for the right reasons.

According to Mark A. Fitzpatrick of Fifth Third Bank, “Because of COVID, now is a good time to buy from an interest rate standpoint. It’s the lowest we’ve ever seen and they might go even lower. So if you’re looking to buy a home right now, my best recommendation would be to be prepared. Get your financing ducks in order and start looking at desirable properties.”

It is tough when you’re a resident, or starting your medical career, to not look around and compare yourself to others. If you have friends who aren’t in the medical field, chances are they’ve purchased a home and working on settling down. 

You may think you need to purchase a home in order to prove you’re capable of settling down – it’s simply too big of an investment to base the decision on what you “think” you should do. 

Taking out a doctor loan is a major commitment. Not only financially, but also a commitment of your time.

Financially speaking, you shouldn’t purchase a home unless you’re planning on staying in the home for at least 5 years. When you purchase a home, the mortgage is structured so almost all your monthly payment is going towards interest and not your principal balance. 

In addition to the interest of the loan, you are also responsible for all the fees associated with the mortgage. Fees such as appraisals, closing costs and moving expenses are all due in the beginning, which makes the costs add up very quickly. 

Unless you live in a really hot market and your property value explodes immediately, chances are it’ll take years for you to recoup the upfront fees and interest. 

Make Sure You’re Ready to Take on the Extra Costs

In addition to money, it takes time to take care of a home. You will be responsible for all repairs and maintenance. And trust me, nothing ever breaks when it’s convenient for your paycheck. 

Whatever home you do purchase, it’s super critical to also have an emergency fund in place. Since you’ll be the one responsible for a new water heater or AC unit when they break, you’ll be thankful you have the funds to pay for it. 

When analyzing the cost of the home, don’t forget to factor in all the fees associated with owning a home. You have insurance costs, taxes, HOA dues, home repair and maintenance, lawn care, furniture, and utilities – and there’s more. 

Owning a home is an expensive proposition, even if you purchase less than what you’re approved to buy. 

Make Sure You’re Ready to Stay Put

The last point you want to consider before purchasing is how much you want to be tied to the area. 

If you have any thoughts of moving after you complete your residency, then you’re better off waiting to purchase. Again, it’s hard to recoup your money if you live in a home less than 5 years.

All these things being said, home ownership definitely has its benefits! You’re in control, you have a place of your own, and you have the potential to make money off the sale one day. But you should never purchase a home unless you go into it with your eyes wide open. It’s too expensive to gamble with your finances if you’re not ready.

How to Choose the Right Doctor Home Loan Lender

So you’ve weighed all of your options, spoken to your fee only financial advisor, and you’re ready to start the physician mortgage loan process. Now you have to find a qualified lender to work with, which can be a challenge. Not all banks or credit unions have a physician mortgage loan program. 

The same way you’re done your due diligence with picking the type of mortgage, you need to put the same thought into choosing a lender. 

Quick Tip: For a comprehensive physician loan review, check out our list of lenders by state below.

Which Bank is the best for a home loan?

The first step you could take is to start with the bank you currently have a checking and/or savings account through. Ask if they have someone who specializes in these types of loans, and then start with this person. The likelihood of this being the most optimal solution is low, but if it does work out, then it will save you some time and effort.

As you really begin to narrow down your list of potential lenders, you will want to work with someone who understands the ins and outs of the physician mortgages. This is not a conventional loan, therefore you need someone with experience and a bank that has a competitive product.

Look for someone who is accommodating to your schedule too. You work odd hours and you can’t always return phone calls when you’re in the middle of a procedure. Make sure you’re working with someone who understands your schedule limitations, and is familiar with your irregular hours.

Your career trajectory is unlike most other professions. You should work with someone who understands how different your path looks, versus someone who has chosen a different career. 

Going Through the Pre-Approval Process on a Doctor Loan

Around 3 months before you start to purchase your home, you want to go through the pre-approval process with a potential lender. The reason you want to do this so far ahead is because your credit will be pulled, and you do not want too many inquiries to show up as you finalize your mortgage.

As you nail down your list of potential lenders, you need to work with one to start the pre-approval process for the loan. You can use the lender for the pre-approval process only – you are not obligated to use them for the loan. 

The pre-approval process is where the lender verifies your information (such as income, debt, etc.) and give you feedback on how much house you would qualify to purchase. 

You can get a pre-approval letter from a lender before you ever put in an offer on the house. Then, once you have finalized your choice of a home, you need to also finalize your choice for a mortgage lender. If you’re still struggling to find a lender, then you could also reach out to a mortgage broker, who deals with a large number of lenders. 

Getting pre-approved is an important step in the process of applying for a doctor loan. You will quickly find out if there are any potential hiccups before you put an offer on the home. 

Not only will you be ready for any obstacles, it also shows the home sellers that you are a serious buyer. It could help you with getting your offer accepted, versus someone who hasn’t already been pre-approved. 

Getting Quotes from Lenders

You will receive a lot of information from mortgage lenders. Ultimately there are a few qualities you want to look for to know if you are making the right decision on a lender. 

Closing costs: The exact amount the lender charges to process and complete your loan.

Interest rate: How much interest you’ll pay.

Customer service: Lenders should respond to you in a timely and friendly manner.

Multiple Physician Loans: Choose someone who has helped process multiple physician mortgages. This is an area you will want the additional expertise, if possible.

Getting quotes from multiple lenders will help you make the best financial decision for your circumstances. You will be surprised how different terms can be from one lender to the next. 

And remember, what the lender initially offers you doesn’t have to be the final offer. You can negotiate, the same way you do for the purchase price of a new home. If there is a particular lender you want to work with but their interest rates or closing costs are higher than other quotes, then give the lender a chance to match the other offers.

Answers to Your Physician Mortgage Questions

As you move along the process with the lender, there are several key points you need to solidify the answers to.

Verify the fees and closing costs: Mortgages aren’t free to process! Make sure you understand all the fees you will be responsible for paying. Doctor loans occasionally have higher fees than conventional mortgages.

Verify a prepayment penalty: You could be in a position to pay off your mortgage sooner than you think. You want to make sure you have the ability to pay off early without facing a penalty. 

Additional points: Mortgage points are basically fees you pay directly to the lender, in exchange for a lower interest rate. Verify if this option is available to you and if so, the amount available. Lenders typically limit the amount of points you can purchase, especially with doctor loans.

Interest Rate: Not only are you verifying the interest rate, but also whether it’s a fixed or variable rate for your loan.

Common Mistakes with Physician Mortgage Applications

You may be sold on the idea of getting a physician mortgage, you’re ready to go and get started on the paperwork. But before you jump in, here are some common mistakes with the application process. 

You want to avoid these pitfalls before you go down the path of purchasing a doctor loan.

Not Paying Enough Attention to the Credit Report

Not only is your credit score is extremely important, but the number of open (or closed) accounts will also be scrutinized. 

Making timely payments and having a solid credit history will be your absolute best bet. You will need to demonstrate to the lender you have the ability to handle credit and make your payments on time.

But be warned – even if you have a 780 credit score, if you are late on anything in the past 24 months, then you could possibly be disqualified.

Again, this is why you need to monitor your credit report before you start the application process. You want to review all of the elements, not just your actual credit score. 

Taking on New Debt Before You Buy

You’re tempted to get ready for your big home purchase by going out and shopping all new items. You can’t wait to take out credit for the new set of appliances, big screen TV’s, and nice furnishings for your new home. 

But before you go on a shopping spree, you need to exercise patience. Whatever you do, do not go out and charge any large purchases before you close on your home. 

You want to keep your debt utilization and number of accounts as clean as possible. I know it’s tempting to want new things, but you need to save up and pay cash for these items after you close on your home.

Underestimating Your Student Loan Repayments

You might be tempted to ignore the amount of your student loan repayments, since they aren’t factored into the DTI. But just because the lender isn’t scrutinizing your loans, doesn’t mean you should forget the amount your owe.

You do need to be aware of how much you can afford to pay in both a mortgage, and the amount you will be paying towards loans each month. Obviously your loan obligations will not disappear once you buy a home. 

Make sure the mortgage payment you are quoted allows you plenty of room to make your loan obligation on time.

Not Picking the Right Lender

You want to make sure you’re working with someone who understands the nuances of a doctor loan. This isn’t the time to rely on the recommendation from your buddy at the gym.

The physician mortgage loan process can be tricky, and it’s quite different than the conventional loan process. Make sure you’re working with someone who has specific experience in the physician mortgage world. Someone like Mark understands what you need. “It’s important to know that physicians are different from you and me, Ryan. Their availability is limited, their training is specific, and for those who are self-employed versus working for a health system, they have very detailed needs. The last thing they need is a complicated mortgage process. It’s important that their mortgage lender work doctor’s hours and not banker’s hours,” states Mark Fitzpatrick of Fifth Third Bank.

A Major Decision Deserves Major Thought

You probably already realize how much thought and decision-making buying a home really entails. And for you, whether or not to use a doctor loan is another element you have to think just as hard about. Home ownership is about more than a financial investment. It’s also about creating stability, putting down roots, and building a life.

Before you venture down the road of home ownership, you need to ask yourself a few tough questions. Make sure you are up for the challenge of the commitment to owning your home. Your “to-do” list will become a mile-long once you purchase a home. Even brand new homes take a lot of work with maintenance and furnishings.

Be realistic about committing your time as well as your resources to a house. If you can barely cover your minimum payments for credit cards and student loans, then I would strongly encourage you to think twice. Buying a house before you clean up your financial house is a recipe for disaster. 

Ultimately, it’s you and your family’s decision, no matter how much you feel like other people are trying to sway you one way or the other. 

At the end of the process, when you know you have compared all of your options for mortgages and lenders, you’ll rest easier knowing you made the best decision you could. By doing all of your homework up front, you have potentially saved yourself thousands of dollars over the years.

I hope this guide helped you understand if a physician mortgage is right for you. If you’re just getting started on your financial journey or want to learn more about how to get informed on managing your finances, check out our other free blogs:

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Ryan Inman