Doctors can often qualify for a mortgage with a small or no down payment — but that deal may come with a high interest rate.
What is a physician mortgage?
A physician mortgage is a niche home loan that’s only available to doctors, dentists and recent medical school graduates. They often require low or no down payment and do not come with private mortgage insurance (PMI). The favorable terms of physician mortgages are designed to cater to the unique needs of new and established doctors who may be saddled with student loan debt.
Example: Dr. Dave Smith’s mortgage
Dave just graduated medical school last month. He’s been accepted into a surgical residency program at Johns Hopkins and wants to buy a $200,000 house in Baltimore, but he doesn’t have any pay stubs yet because he won’t start for another two months.
Dave applies for a physician mortgage, bringing a copy of his work contract, his medical degree and his student loan paperwork. The lender approves his loan, with a $10,000 down payment. The physician mortgage gives him time to close on the house and move in before his residency starts.
Features of a physician mortgage loan
Special features that differentiate physician loans from traditional mortgages include:
- No PMI. Avoid paying private mortgage insurance even if your down payment is less than 20%.
- Low down payment. Qualify for a home loan with a small down payment — some lenders even offer mortgages with no down payment.
- Qualify with student loans. Even with a high student loan balances, lenders will be lenient with a high DTI. Though your monthly payments are factored into your total loan amount.
- Lenient income requirements. If you’re just out of medical school, you can get a physician mortgage with a contract that states how much you’ll be making — even if you haven’t started working yet.
What are the drawbacks?
While they could help young doctors who may not qualify for a conventional mortgage, compare rates against other products and weigh the potential pitfalls before applying.
- Not offered by all lenders. If you want a physician mortgage, you may not have as wide a selection.
- Higher interest rates. Since physician loans are often the only option for some, lenders may take advantage of that fact by charging a higher interest rate.
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How to compare home loans for doctors
Consider the following features when comparing mortgages:
- Interest rates. Compare the rates offered by different providers and check them against conventional mortgage rates.
- Fees. Ensure you understand all the fees associated with the mortgage before you sign on the dotted line.
- Down payment. How much of the value of the property are you allowed to purchase? This varies between lenders, though physician mortgages often allow you to purchase a home without a large down payment.
- Timeline. If you’re starting a new job, some lenders require your contract to state that you’re starting within 30 days, while others will give you months to get settled.
Who is eligible for a physician mortgage?
Lenders will have varying requirements for who can qualify, but those who are typically eligible include:
- Medical doctors
- Dentists with a DDS or DMD degree
- Doctor of Osteopathy
Alternatives to a physician mortgage
While a physician mortgage has its benefits, there are other options out there if you qualify. Weigh them before deciding which loan product is right for your situation. Some of the more popular mortgages include:
- Conventional. These loans are offered by private lenders or Fannie Mae and Freddie Mac. With a conventional loan, you’ll have to pay PMI if you put less than 20% down.
- FHA. Insured by the Federal Housing Administration, FHA loans allow for lower credit scores and often allow for low down payments. But mortgage insurance premiums are required for the life of the loan and they often come with higher interest rates than conventional mortgages.
- VA. Available to active duty military members, US veterans and widowed military spouses. There’s no down payment, no PMI required and no minimum credit score requirement.
A physician mortgage can be a useful option for young doctors looking to buy their first home. But if you qualify, you may be better off with a conventional mortgage. To make sure you’re getting the best deal, compare a range of lenders and loan products before applying.
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