FHA vs. Physician Loans: What to Know and How to Choose

When buying a home, one of the biggest considerations is the type of mortgage to get. If you have a medical degree or work as a healthcare professional, you might have additional home loan options on top of what might be available to others.

Depending on your situation, you might get better loan terms from a physician loan or an FHA loan instead of choosing a conventional mortgage. Here’s what you need to know as you decide between an FHA vs. physician loan.

What’s a physician mortgage loan?

A physician mortgage loan, sometimes called a doctor loan, is designed to make home buying easier for healthcare professionals. In general, it can be difficult for a doctor or other medical professional to qualify for a conventional loan.

Many doctors, dentists, veterinarians and others might not meet the lender’s debt-to-income ratio (DTI) requirements, because of the high amount of medical school student loan debt they carry. Additionally, new doctor might not meet lender income requirements.

A physician mortgage loan relaxes underwriting requirements for certain professionals. Eased criteria can mean:

• Excluding student loans from mortgage DTI calculations.
• Waiving the private mortgage insurance (PMI) requirement for those with less than 20% down.
• Low or no down payment requirements.
• The ability to get a higher loan amount, including a jumbo mortgage.

If you’re hoping to get more house for your money, especially early in your career, doctor mortgage lenders are willing to work with you. Many lenders recognize that certain medical professionals will likely have higher incomes later, along with relatively stable careers. As a result, medical professionals with higher student debt are seen as acceptable risks and lenders are willing to help them become homeowners.

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What’s an FHA loan?

The Federal Housing Administration (FHA) encourages homeownership by offering special loans for those who might have difficulty qualifying for a conventional mortgage. Through this program, the FHA backs lenders, guaranteeing loans.

In general, an FHA loan has the following traits:

• Relaxed down payment requirements, as low as 3.5%.
• Ability to get a home with a lower credit score.
• Permanent mortgage insurance payment to help offset the risk.

FHA loans generally come with loan amount limits, based on the conforming loan limits in your local area.

FHA loan vs. Physician loan

When deciding which type of loan is best for your next real estate purchase, consider the basics and other factors, like closing costs. Make sure you read through each loan’s terms and ask the lender questions before making your decision.

Here are some basic physician loan vs. FHA loan differences to consider.

Borrower qualifications

In many cases, the biggest difference in borrower qualifications is the credit score requirement. With an FHA loan, you can get a loan with a credit score as low as 500. Most physician mortgage lenders require you to have at least 700, although some might allow you to borrow even with a slightly lower credit score.

You must provide proof of a stable income in both cases. However, with a doctor mortgage loan, an employment contract might be enough to qualify. With an FHA loan, must have more than a contract or employment letter to access financing.

Property qualifications

For both types of mortgages, emphasis is placed on using the property as a primary residence. An FHA loan lets you get a property with up to four units. Depending on the lender, physician home loans might also allow you to get a multi-unit property.

You must live in your FHA property as a primary residence for at least a year to reap the benefits. Doctor loans might have different requirements, and in some cases, you might be able to use a physician mortgage to purchase an investment property.

Down payment

Both types of loans offer low down payment options. With an FHA loan, you must pay at least 3.5% down if you have a credit score of at least 580. With a credit score of between 500 and 579, lenders require 10% down.

Doctor loans often offer a range of 0% to 10% down, depending on the lender, the home’s purchase price and other factors. If you’re highly qualified, you might be able to qualify for a bigger mortgage with a 0% down payment.

Private mortgage insurance

Doctor loans don’t require PMI. With an FHA loan, you’re stuck paying a form of insurance backed into your monthly mortgage payment for the life of the loan. You can’t avoid mortgage insurance if you get an FHA loan

DTI

An FHA loan allows for a relatively high debt-to-income ratio of up to 43%. However, depending on your student loan payments, you might still be better off with a doctor loan.

Most lenders that offer doctor mortgage loans exclude student debt from DTI calculations, which is helpful if you don’t have much debt beyond student loans.

This can make getting either type of loan easier than getting a more traditional mortgage.

Related: FHA Student Loan Guidelines: What You Need to Know

Maximum loan amount (LTV)

With a doctor mortgage, you can get up to $2 million (or more) with many lenders. With an FHA loan, you’re limited by the conforming loan limits in your area. Your home purchase price matters more with an FHA loan, especially if you want access to jumbo loan amounts.

Income history

Check with your loan officer for more information, but in most cases, a doctor mortgage is more flexible than an FHA loan. You need to show income history when getting the FHA mortgage, but many doctor mortgage options only require showing you have a job lined up.

Cash gifts (for example, for the down payment)

You can get cash gifts to help you with closing costs and your down payment with both types of mortgages. Check with the lender and find out what they accept and if first-time home buyer programs are available to help you.

1099 contractors

Depending on the lender, self-employed medical professionals might qualify for either program. Not every doctor mortgage program allows this, though. Additionally, you might need to complete an income audit with an FHA loan if you’re a 1099 contractor.

Find out the requirements before moving forward.

Physician loan vs. FHA  loan: How to choose

As you compare different program types, be sure to read disclosures, check the fine print, and repayment terms and compare fixed-rate vs. adjustable-rate mortgages. Talk to your realtor and loan officer to compare all your options. And, of course, see if you can avoid a higher interest rate by choosing one type of loan over another.

When does a doctor loan make sense?

For the most part, a physician mortgage is likely to make sense if you want a larger loan amount and a 0% down payment. If you have a high credit score and can get a doctor mortgage, you can also avoid PMI.

Even if you plan to get a smaller mortgage, a physician mortgage program can help you pay less in PMI and see fewer down payment requirements.

When an FHA loan might be better

The FHA loan might make more sense if you have a lower credit score and can’t qualify for a doctor mortgage loan program. However, you might have to settle for a smaller home loan, and it’ll result in greater costs in the form of the required down payment and mortgage insurance payments.

Conclusion

Carefully consider your options before deciding on an FHA vs. physician loan. Review your budget and real estate needs. Chances are, one of these loans can help you buy a home if you don’t qualify for a conventional mortgage.