There’s no doubt getting a medical degree is expensive. In fact, 75% of medical school graduates have debt — and the average amount of that debt is $190,694, according to the Association of American Medical Colleges.
With that kind of debt, it can be difficult for doctors to feel like they’ll be able to move forward with their lives, said financial planner Ryan Inman. “Important financial milestones like buying a house feel out of reach without some sort of help,” he pointed out.
However, there’s help available for doctors. Physician mortgage loans can offer a path to homeownership, even as you work to repay your six-figure medical school debt.
What are physician mortgage loans?
Physician mortgage loans are home loans with special terms offered only to doctors. If you prove you’re a doctor, you can get a mortgage with favorable terms, even if you’re burdened with student loan debt and aren’t making a lot of money.
Inman, who is married to a doctor, focuses his fee-only financial planning practice on helping physicians manage their money. He thinks a doctor mortgage loan can be a great way for some physicians to get a head start on homebuying. In fact, he and his wife, Taylor, bought their first house using that kind of loan.
“Banks offer these home loans specifically to physicians coming out of training,” said Inman. “My wife was finishing her residency, we didn’t have a ton of money, and we had a load of student loan debt.”
Despite those limitations, the bank lent them a little under half a million dollars and accepted a low down payment of 5%.
“It was a great deal for us, and it allowed us to buy a decent house in San Diego without the need to eat ramen all the time,” said Inman.
How to qualify for a doctor mortgage loan
You don’t have to do much to get a doctor mortgage loan, according to Doug Crouse, who specializes in physician mortgage loans.
“These are portfolio loans, meaning they aren’t going to be sold to another servicer like Fannie Mae or Freddie Mac,” said the mortgage professional. “Each lender has its own qualifications, but there are some general requirements that you should meet.”
Here’s what to focus on when applying for a doctor mortgage loan, Crouse said.
- Proof of medical degree
- Signed contract indicating that your job as a doctor will start within 60 to 90 days
- FICO score of 700 (although some lenders will go as low as 680 and others lenders will require 720)
- Deferred student loans
- A debt-to-income ratio (DTI) of 45% or less, not including student loans
“Most lenders offering doctor mortgages don’t include student loans in the DTI, so even though your official DTI might be higher than that, it won’t matter because your medical school debt isn’t even counted,” Crouse said.
Advantages of physician mortgage loans
Getting a doctor mortgage loan provides a quick path to homeownership for physicians by providing a mortgage with competitive terms that wouldn’t be typically available to nondoctors in similar circumstances.
Like Inman’s wife, Crouse’s wife is a physician and the Crouses have taken advantage of physician home loan programs.
“A lot of the time, you can get 100% financing and you don’t even have to pay private mortgage insurance,” Crouse said. “Plus, you get the same mortgage rate as everyone else with good credit.”
It all has to do with what lenders consider a good risk.
“Doctors are considered very low-risk borrowers,” said Crouse. “If my wife lost her job today, she’d have more offers by six o’clock tonight.”
Inman agreed. “Banks that offer doctor home loans know that physicians, even in low-paying specialties, are going to make plenty of money,” he said. “Very few doctors default on their mortgages, and that means special treatment to some degree.”
One of the biggest advantages, though, is the fact that private mortgage insurance (PMI) isn’t charged on such loans, even though many physicians don’t have a 20% down payment saved up for a first home.
“Taylor and I saved about $400 a month just by not having to pay that PMI,” Inman said. “As a result, we could put that money to better use.”
On top of that, they had access to good rates.
“With a conventional mortgage setup, in our situation, we’d have to pay a higher interest rate to make up for our high level of student loan debt and low down payment,” said Inman. “A specialized physician home loan meant that we got the best possible interest rate.”
|Physician mortgage loan||Conventional mortgage loan|
|Mortgage rate for 700 FICO score||Best rate available||Might not qualify for best available rate|
|PMI needed for down payment of less than 20%||No||Yes|
|DTI includes student loan payments||No||Yes|
|100% financing||Yes, up to $750,000||Yes, but it can be difficult to find and the rates might be higher|
|Current employment required||No, as long as there is a signed employment contract||Yes|
Downsides to physician mortgage loans
There aren’t many downsides to a doctor mortgage loan, according to Crouse and Inman.
However, Crouse said getting a physician mortgage is not a good idea if you think you’ll move again in less than a year.
“If you have a low down payment or no down payment, you probably won’t have time to build up equity,” Crouse said. “You’d have to bring money to the closing.”
Instead, Inman recommended staying put for at least three to five years after using a doctor mortgage to buy a house. He and his wife were able to sell their home in San Diego and use the built-up equity to put a 20% down payment on their next house — thus getting rid of the need for a special physician home loan.
It might not be necessary to keep using these special loans to buy subsequent homes, and it might not even be in your best interest over time.
Inman said many lenders are willing to approve doctors for large loans. “Just because a bank tells you that you can do something, it doesn’t mean you should,” he said.
Like other borrowers, doctors also can get in over their heads when offered the chance to buy an expensive home. Inman encourages his own clients to avoid mortgage payments that account for more than 50% of their monthly take-home pay.
Should you get a doctor mortgage loan?
Crouse and Inman believe physician mortgage loans can be a valuable tool for young doctors who are getting their first homes.
Depending on the situation, doctors often are ready to put down roots and start families when they finish residency, said Inman. The favorable terms available on physician mortgages can go a long way toward helping them buy a home that would otherwise be out of reach at the time.
It’s important, however, to carefully consider your situation and be realistic when buying a home with a doctor mortgage, cautioned Crouse.
“A doctor mortgage can allow you to move on your financial and life goals without the limitations of a conventional mortgage,” said Crouse. “But like [any other] home purchase, you need to be careful and only buy the house you can afford.”