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Leverage a Physician Loan in the Current Housing Market

Thao Ring

Oct 26 2021

3 min read

With the overwhelming influx of new homeowners taking advantage of low interest rates, and existing owners increasing their spaces to accommodate homeschooling and remote work, we can’t seem to escape the media frenzies of the housing market. Luckily for those in the medical field, residents, fellows and attendings in the early years of this career can leverage a physician loan. A physician loan is a great option to consider when buying a house that offers an advantage in this competitive market.

What are Physician Loans?

Physician loans, often referred to as doctor loans, are special mortgage programs specifically designed for doctors. While most lenders require Private Mortgage Insurance (PMI) for conventional loans with down payments under 20%, those in the medical field that qualify can finance up to 100% of this loan without incurring PMI costs. This is a significant savings, as PMI amounts are charged annually and can cost an average of 0.3 to 1.5%.

Physician loans typically exclude certain deferred student loan payments from a recipient’s debt-to-income ratio (DTI) and often accept post-residency contracts as a means of employer verification. With a more favorable treatment, physician loans can make it easier to purchase a home in the early years of a medical career or while in residency and fellowship.

Most mortgage companies only approve doctor loans on existing homes used as primary residences. In other terms, you cannot use a physician loan on new-home construction or investment properties.

Minimum Down Payment

Most physician applicants can borrow up to five times their income, albeit, some lenders may offer a higher amount depending on your financial profile. Below is a breakdown of typical offers:

100% maximum financing up to $750,000
95% maximum financing up to $1 million
90% maximum financing up to $1.5 million

Not All Loans Are Created Equally

Most lenders offer adjustable-rate mortgages (ARMs), while some offer a fixed-rate mortgage based on the loan amount. As always, terms and conditions are subject to underwriting.

Closing Costs

Physician mortgages have the same average closing costs that a standard loan does. The average closing cost nationally is around $2,000, depending on the value of the primary residence.

The Pros and Cons of Physician Loans

Pros:

Minimum down payments
Favorable underwriting treatment
Can obtain a mortgage while in residence or early in your career

Cons:

Large monthly payments
Only available for existing homes and primary residences

Main Takeaways

Physician loans help make it easier for doctors to purchase a house early in their career. By overlooking these recipients’ debt-to-income ratios, medical field professions can purchase a house and take the next step in their life goals. For more information on physician loans or other loan opportunities, please contact the Sikich Financial team.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

About the Author

Thao Ring

Thao Ring, CFP®, is a financial advisor with over 17 years of experience in financial planning and wealth management. Thao specializes in helping clients through all stages of the financial planning process. Working closely with individuals, families and small businesses, she provides comprehensive financial planning, investment portfolio management, retirement income planning and estate planning solutions uniquely designed to meet specific, individual needs.