How to Navigate the Doctor Mortgage Market in 2024: Changes in Rates and Lenders

Physician mortgage programs help doctors and dentists realize their dream of owning a home by removing conventional barriers, such as needing a large down payment and meeting strict underwriting requirements. 

But the physician loan marketplace ebbs and flows with ever-changing lenders, interest rates and loan terms. Here's what to keep an eye on for doctor mortgage rates in 2024.

Understanding the physician housing market in 2024

According to a Redfin housing market report, 2023 was the least affordable year for homebuying in recent years, with a median sale price of $408,806. An American making $78,642 (U.S. median income in 2023) would need to spend 41.4% of their earnings on housing if they bought a $408,806 home.

As shown below, this is a significant jump from previous years, where you might expect to spend around 25% to 30% of your income to buy a median-priced home.

Rapidly increasing property values, higher interest rates, limited inventory and overall inflation sidelined many first-time homebuyers in 2023. But after a year of record-high home prices and interest rates, prospective homeowners might have something to look forward to as we move into next year.

Are mortgage rates going down in 2024?

Looking back, mortgage interest rates plummeted in 2020 and 2021, with an all-time record low 30-year fixed rate of 2.65% in January of 2021. But rates quickly spiked in 2022 as the Federal Reserve began to battle against inflation, peaking at 7.79% in October 2023.

Fortunately, these higher mortgage rates began to decline in November 2023, thanks in part to more tempered inflation and the Fed’s decision to hold rates steady.

The Federal Open Market Committee (FOMC) — the monetary policymaking body of the Federal Reserve System — voted to keep the target range for the federal funds rate at 5.25% to 5.5% for its final meeting of 2023. This is the rate that U.S. banks and other institutions use to borrow and lend to each other overnight. It’s also indirectly the basis for consumer borrowing, including mortgage loans, as banks pass on higher (or lower) costs to their consumers. Additionally, committee members laid out projections for three rate cuts in 2024.

Therefore, as one major piece of the puzzle, mortgage industry experts are projecting a continued steady decline in mortgage rates in 2024, helping to improve affordability.

Some lenders are scaling back on physician mortgage loans

The physician loan marketplace responds to economic and housing market trends, similar to conventional conforming mortgages. Physician mortgage loan interest rates can be comparable to conventional rates. But they tend to be slightly higher considering they have serious perks, such as:

• No or low down payment requirements.
• No private mortgage insurance (PMI).
• Flexible underwriting (e.g., ability to use an employment contract as proof of future income).
• High loan limits without the interest rate hike of a jumbo loan.
• Favorable treatment of student loan debt. 

However, each physician mortgage lender will have its own eligibility requirements and loan products. For example, some physician home loan programs only offer adjustable-rate mortgage (ARM) options, which isn’t ideal if you prefer a fixed-rate mortgage. Additionally, some only work with doctors (MD, DO) and dentists (DMD, DDS), while others serve physician assistants, nurse practitioners, veterinarians and other medical professionals.

Physician mortgage loans are primarily used as a marketing tool to attract the business of high-income earners with a stable career trajectory. This means lenders are constantly entering and exiting the physician loan marketplace based on changes in marketing strategy and economic pressures.

For example, we saw a major push for physician loan programs when interest rates were super low. But recently, some lenders (e.g., KeyBank and Huntington Bank) have reduced their involvement with physician home loans.

For some, this translates to altering eligibility requirements, such as the professions they serve, or introducing other program limitations. For others, it might mean putting their physician home loan program on hold indefinitely.

Less competition in the physician home loan marketplace can significantly impact overall loan terms and program availability for physicians.

A silver lining for high interest rates: Mortgage interest can be deductible

Although mortgage interest rates are expected to decline in 2024, it’s highly unlikely they’ll return to pandemic-era lows any time soon. But having a potential 6% to 7% rate comes with a hidden upside: your mortgage interest can be deductible. 

If you itemize your taxes — which most physicians do considering how much they pay in state and local taxes — you can deduct any paid mortgage interest, providing a potential benefit in the current high-interest rate environment.

This also holds true for conventional mortgages, but it’s particularly beneficial for physician home loans, considering you won’t have PMI tacked onto your monthly payment. Therefore, most of your mortgage will be deductible as most of your payment will go toward interest at the beginning of your payoff.

Finding the best doctor mortgage rates in 2024

With physician mortgage lenders frequently changing eligibility requirements and program offerings, it can make it difficult to track down your options. In some cases, using a different type of home loan program could be beneficial based on your financial situation and unique qualifications.

For example, if you or your spouse are a veteran, a VA Loan might be a better bet if you have a service-connected disability. Otherwise, mortgage lenders sometimes provide incentives, which can make a loan program more attractive. So, it’s best to speak with a knowledgeable mortgage lender to discuss loan options and eligibility, including credit score and other financial requirements.

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