Are Physician Home Loans the Right Solution for You?

Published May 27, 2023

A physician home loan is a specialized mortgage designed to help physicians overcome the unique financial challenges they face early in their career.

It’s no secret that the physician's financial journey is different from most careers. Physicians we’ve worked with have shared that they feel or have felt “financially behind” their peers once they begin practicing. With a large amount of student debt and lower residency salaries, buying a home can seem daunting for many physicians early in their career. 

Some lenders are aware of this. They recognize that this generally high earning career has a different financial start than others. Many institutions offer a way for physicians to take out a home loan with fewer restrictions than a normal mortgage.

What is a physician home loan?

A physician home loan is a specialized mortgage designed to help physicians overcome the unique financial challenges they face early in their career. Not all physician home loans are the same, benefits and restrictions will depend on the program the lender has put in place. Some of the benefits these loans may include:

  • Lower down payment requirements: Some lenders may offer physician home loans with no down payment or as low as 3% down.

  • Fewer restrictions on income: Because a physician’s financial trajectory is so distinct, these mortgages may not have the same income restrictions that a conventional mortgage would.

  • No mortgage insurance, even with a down payment under 20%: Some lenders may waive Private Mortgage Insurance (PMI) requirements for borrowers who put down less than 20% on their home purchase.

  • Fewer restrictions on debt-to-income ratios: Some lenders may not include student loan payments in their debt-to-income ratio calculation.

  • Opportunities to get started then refinance: If the physician home loan has a higher interest rate, it may make sense to refinance to a more conventional mortgage with lower interest down the line.

How does applying for a physician home loan work?

The application process for physician mortgage loans is similar to that of traditional mortgages. You will need to provide documentation of your income, employment history, and credit score, as well as details about the property you intend to purchase. 

Some lenders may also require additional documentation related to your medical degree and residency training. However, the application process for physician mortgage loans is often streamlined and may include additional benefits such as pre-qualification and expedited processing times. 

As with any mortgage application, it's important to carefully review the terms and conditions of the loan, including the interest rate, fees, and repayment schedule. With the right preparation and guidance, applying for a physician mortgage loan can be a straightforward and rewarding process that can help you achieve your homeownership goals.

Who is eligible for a physician home loan?

Physician mortgage loans are typically available to those who have completed their residency training and are in the early stages of their careers. Some lenders may place a time limit on how far out of school or residency a physician can be to take out this type of loan. Some institutions also offer these loans to other high earning professionals such as dentists, podiatrists, veterinarians, etc. These loans are generally available for residential homes, not for investment properties.

Eligibility requirements may vary depending on the lender and the specific loan program, but medical professionals who are just starting their careers and may not have a significant down payment or established credit history may find a physician home loan to be a helpful solution when looking to purchase a house.

What are the drawbacks of taking out a physician home loan?

While they offer many benefits that can help make homeownership more attainable for physicians, there are also some potential drawbacks to consider before deciding if this type of loan is right for you.

  • Higher interest rates: Some lenders may offer higher interest rates for physician home loans compared to traditional mortgages.

  • Limited lender options: Physician home loans are not as widely available as traditional mortgages.

  • Potential for negative equity: A low down payment can lead to negative equity if the value of the home decreases or if the borrower owes more than the home is worth.

  • Higher overall cost: While physician home loans may offer benefits like lower down payments and no PMI, they may end up costing more overall due to higher interest rates and longer repayment terms.

It’s important to analyze your specific situation and take a look at different benefits available to find out what the best option is for you.

When is the right time to take out a physician home loan?

Because some lenders only offer these loan opportunities up to about ten years out of training, the time to take out a physician home loan tends to be earlier on in your career. The debate on buying vs. renting, especially, while paying off loans is a growing topic. However, if you’re looking to take advantage of the low down payment requirements and planning to stay in one place for a while (ie. after residency), this can be a great option for buying a home early on in your career. You can always look to refinance that loan as your income grows.  

It’s worth taking the time to review your goals and how this type of loan may influence them over time before choosing to take one out. An Earned advisor can help you create a financial plan to get a better idea of whether a physician home loan is right for you.

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