6 Situations When Physician Loans Are a Good Idea

Doctors and dentists who qualify for physician home loans have a unique opportunity to get into real estate. In many cases, physician mortgage loans offer attractive benefits such as generous financing with no down payment or much smaller down payments than a traditional mortgage. 

Although it seems like a no-brainer on paper for qualifying medical professionals, are physician loans a good idea? In this guide, we’ll break down when it does — and doesn’t — make sense to get a doctor mortgage loan.

6 Times when a physician loan is a good idea

Getting a new home is a dream for many people, but it’s getting more competitive. Physician loans make homeownership more accessible for medical professionals. 

If you’re wondering whether physician loans are a good idea or not, here are some common scenarios where it makes sense to go this route. 

1. You have a high future earning potential

Doctors tend to have a huge earning potential compared to the general populace. The median annual salary for physicians and surgeons as of May 2021 was $208,000, according to the Bureau of Labor Statistics (BLS). 

Those in an in-demand specialty are likely looking at an even higher salary now. Given this high earning potential, now or in the future, physician loans can make sense. You might not make the big bucks yet, but lenders know that you’ll command a multiple six-figure salary soon. 

On one hand, you might not need to provide much — or anything — as a down payment to get this type of mortgage. However, you’re still responsible for the loan and need to make sure you can afford it. 

And “afford” means not just covering its monthly payment, but also comfortably saving and investing for the future, having an emergency fund, and having enough for discretionary expenses as well. If you’re confident that you can, physician loans can be a good idea. 

2. You lack significant down payment savings

If you don’t have much saved for a down payment, a physician loan can open up doors that might not be available elsewhere. Generally, a down payment of 20% is a smart idea to avoid paying for private mortgage insurance (PMI). 

But physician mortgages often don’t require any money down, letting you speed up your home-buying journey. Physician mortgage lenders offer these special programs with great perks and flexibility with the down payment. 

If you’re ready to buy a home, but you don’t have enough down payment funds, this could be a way to go. 

3. You’d rather invest your savings than put it toward a down payment

Let’s say you do have the money saved up for a large down payment but want to put it toward a different goal. For example, perhaps you’d rather invest this large sum of money in the stock market or into a 401(k) at work to ensure future-you is taken care of. 

Given that doctor loans offer down payment options that aren’t available to the general public, this is one way to get into real estate now, while supercharging your investments. 

4. You have student loan debt

Mortgage lenders evaluate debt as part of the mortgage process. This includes student loan debt, which for doctors, dentists, and other healthcare providers can be a significant amount. Sometimes your six-figure salary is matched with an equally impressive six-figure debt load. 

As part of the underwriting criteria, your debt-to-income ratio (DTI ratio) will likely be considered. If you’re putting a good chunk of money toward student loan payments, traditional lenders might not be as willing to offer financing. 

But with physician mortgage loans, lenders tend to treat student loan debt differently and with more flexibility. In some cases, they don’t include them toward your DTI, which can be a big win for you in securing a mortgage. 

5. You’re relocating for work

When you graduate from medical school, you might relocate and want to plant roots somewhere. But if you’re just starting out and have an employment contract, it might be tough to get a conventional loan. 

That’s where a physician loan can be a good idea. For those who are new to the profession, some lenders are willing to consider a formal job offer as qualification for an application approval. New doctors can qualify for this unique opportunity.

6. You found your dream home 

You’ve looked at a million Zillow listings and found your dream home. On paper, however, you might not have all your ducks in a row in terms of financing. In this case, a physician mortgage loan might offer you more flexibility and a chance to move quickly on a home offer compared to a conventional loan. 

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When a physician loan might not be a good idea

Like with any loan product, there are instances when it might not be the right time or the right situation to move forward. Below are some common reasons why physician loans might not be the right fit. 

You qualify for a traditional mortgage with better terms

Like with any loan, it’s best to shop around to make sure you’re choosing the most competitive option. There’s no doubt that physician loans have unique benefits. 

But if your good credit opens up lower mortgage loan interest rates and better terms with a traditional home loan, that’s something to consider. 

Higher interest rates skyrocket the total amount you’ll pay toward a home. Finding a loan that’s more affordable or with better terms can make sense. 

You won’t remain in your new home for very long

When searching for a home, don’t just think of the purchase price. You must allso consider closing costs and how long you plan on keeping the home. Homeownership adds up fast

Although physician loans are beneficial, they still might not be worth it if you’re only planning to stay a couple of years. If you plan to move in the near future, maybe reconsider. 

You’re not comfortable with being “upside down” on your mortgage

We’ve all seen the monumental gains in real estate over the last few years. But that doesn’t mean home values will only go up. If you go the physician home loan route and put nothing down, you’ll have no equity. 

If home values fall, your home loan could end up being higher than what your home is currently worth. That’s referred to as being underwater or “upside down” on your mortgage. 

If this idea gives you anxiety, it’s probably not a good idea to get a physician mortgage loan at a low, or no, down payment. 

You have a significant amount of high-interest debt

Dealing with high-interest credit card debt? Despite your desire to buy a home, it might be best to hit pause. It might not be wise to borrow a large physician mortgage when you already have high-interest debt on your plate. 

Focus on paying off high-interest debt first, and then consider a big investment like a physician mortgage loan. 

Factors to consider before applying for a physician loan

• Review your numbers. Look at total income, debt, credit score, loan amount and what a monthly mortgage payment would look like. 
• Assess risk. Are you comfortable putting next to nothing down? If you have funds, will you invest them or pay off medical school debt instead? How much will you borrow for your home, and how much can you afford? Look at your risk tolerance. 
• Compare physician loans with traditional mortgages. Check out interest rates for prospective physician loans vs. conventional mortgages, and compare fees, down payment requirements, terms, closing costs, perks and customer service. 
• Evaluate benefits. What are you getting out of a physician loan? If you score a home loan with nothing down, can you still save money and/or invest elsewhere? If student loans aren’t part of the underwriting equation, do you have a payoff plan? How much time or money can you save? And what are the potential costs of that? 

Physician loans might be a good idea for some

Physician loans are a good idea for many doctors and dentists who want to pursue homeownership. They provide an easy entry point into mortgage financing and can help you get started, when many other places may not offer the same flexibility. 

Just make sure you review all sides and compare options, so you know what you’re getting into.