Physician Construction Loans: What Are They and Who’s Eligible?

With such a competitive housing market, some doctors and dentists might prefer building a new home versus fighting for an older existing house. Plus, building offers more flexibility and freedom to customize your home and will hopefully result in less maintenance and repairs in the first few years.

As a hidden perk of being a doctor, you have access to physician construction loans that provide low down payment options to build the home of your dreams.

What’s a physician construction loan?

A physician construction loan functions as a combination of a physician mortgage program and a construction loan. It has special terms and competitive interest rates that aren’t available to the average homeowner. Instead, physician construction loans are reserved for medical doctors (MD, DO, DPM), dentists (DDS, DMD) and other select qualifying professions to finance the construction of a new primary residence.

Similar to a doctor home loan, a physician construction loan doesn’t require an extensive work history — allowing young doctors, dentists, medical residents and fellows to build their dream home well ahead of a traditional timeline. It also doesn’t require the borrower to carry private mortgage insurance (PMI), regardless of their down payment amount.

Additionally, mortgage lenders who offer physician construction loans understand that six-figure student debt is often needed to complete medical or dental school. Therefore, they treat student loan debt more favorably when calculating your debt-to-income ratio (DTI), which can result in getting approved for a higher loan amount.

If you request a quote from a physician construction lender with the widget below, in the additional details section, include some comments about the type of project you're interested in so you get the most relevant information.

---

---

How does a physician construction loan work?

Physician construction loans are typically short-term loans (e.g., one to three years) that can be used to finance the costs associated with building a home, including the land, materials and labor. Once the building project is complete, it can be converted to a physician home loan that can be paid on a traditional mortgage timeline.

That being said, construction loans aren’t cut-and-dry, as there are a variety of scenarios that come into play when building a home.

Therefore, the type of physician construction loan used will depend on the mortgage lender, as well as the specific project being financed. For example, you might use:

• A construction-to-permanent loan. This option combines two loans into one by funding contractor and material expenses via a construction loan that then transitions into a traditional fixed-rate loan after the construction period ends. Therefore, it prevents needing to pay for two rounds of closing costs.
• A construction-only loan. This option is intended to be used only to complete the building of your home. Once complete, it must either be paid off in full or refinanced into a traditional mortgage loan for more permanent financing.

The physician construction loan you need will depend on your personal finances, building timeline and the lender you’re interested in working with.

Physician construction loan financing: How much can you borrow?

The maximum loan-to-value (LTV) for a physician construction loan will vary by mortgage lender and building situation. For example, your down payment requirement might change depending on whether you previously paid for the land with cash and, therefore, already have equity in the property.

But you might expect to see a loan-to-value ratio schedule such as:

• Up to $750,000: Maximum 95% LTV
• $750,000 to $1 million: Maximum 90% LTV
• $1 million to $1.5 million: Maximum 85% LTV
• $1.5 million and up: Maximum of 80% LTV

Physician mortgage lenders will use a variety of financial factors, as well as the project itself, to determine how much financing you’re eligible for. This will include evaluating your income, credit score, DTI, available cash reserves and project details.

7 banks offering physician new construction loans

There are many doctor loans to explore. However, not all mortgage lenders offer programs that allow for new builds.

Here are some reputable lenders to reach out to discuss options for physician construction loans:

1. Alerus Financial

Doctors and dentists in Minnesota can apply for a loan with Alerus Bank while in residency or during their first two years of practice.

A special underwriting program is available for professors and physicians with a medical diploma and a current license for such loans.

States available: AL, AZ, CA, CO, CT, FL, ID, IN, IA, KS, KY, MD, MA, MI, MN, MO, MT, NE, NV, NM, NC, ND, OH, OR, PA, SC, SD, TN, TX, UT, WA, WI, WY and DC

Read our Alerus Financial review for more information.

2. BankMD

For medical doctors and dentists throughout the country, BankMD offers physician mortgage loans with low down payments. The lender also has a construction loan program available.

You may be able to qualify more easily since BankMD excludes student debt when calculating your DTI ratio.

States available: AL, AK, AZ, AR, CA, CO, CT, DE, DC, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NC, ND, NY, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY

Learn more from our BankMD physician mortgage loan review.

3. Citizens

The Citizens Doctor Loan Program is a loan program designed for physicians, dentists, dental students, and dentists with doctor's degrees. In addition, a construction loan option is available to borrowers.

With Citizens, you can exclude student loan debt from the DTI ratio or use your IBR payment instead.

States available: CA, CT, DC, DE, IL, IN, KS, KY, LA, MA, MD, ME, MI, MN, MO, MS, NC, NH, NJ, NY, OH, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA and WV

Want to learn more? Read our Citizens physician mortgage review.

4. First Citizens Bank

When building your home, First Citizens Bank can help you secure funding. The construction loan program is designed for medical professionals and is open to the construction of primary residences.

You can qualify for a lower rate by setting up autopay from a First Citizens checking account.

States available: FL, GA, MD, NC, SC, TN, VA, WV and WI

Visit the First Citizens Bank physician mortgage review to learn more.

5. First National Bank 

MDs (Doctors of Medicine), DOs (Doctors of Osteopathic Medicine), dentists, veterinarians and podiatrists are eligible for First National Bank's Doctor Loan program. H-1B and green card holders are also encouraged to apply.

If you have an employment contract and are waiting to start, closing up to 90 days prior is possible. However, you must be less than ten years out from training to qualify for the lowest down payment options. If you’re over ten years, you’re eligible with a slightly higher down payment amount.

States available: FL, GA, SC, NC, TN, VA, WV, OH, PA, MD and DE

For more info, visit our First National Bank review. You may also contact Josh Feldman.

6. Regions Bank

The construction-to-permanent loan program at Regions Bank can help you finance your new home. The program is open to MDs, DDSs, DOs, certified pharmacists, nurse anesthetists, nurse practitioners, physician assistants, veterinarians, chiropractors, optometrists, podiatrists and licensed attorneys.

To help make qualifying easier, certain deferred student loan payments are excluded from your debt-to-income ratio.

States available: AL, AR, FL, GA, IA, IL, IN, KY, LA, MS, MO, NC, SC, TN and TX

Read our Regions Bank review

Conclusion

Physician construction loans can be used to purchase land and finance the cost of building a new home. But they’re only available to qualifying dental and medical professionals who generally have credit scores in the 700s and adequate cash reserves (e.g., 10% of the total cost to build in addition to your down payment).

Although physician construction loans can provide a low down payment solution for building with no PMI, they’ll likely have higher rates than conventional loan financing, considering construction projects are high-risk.

Additionally, if your lender is using a two-time closing process, know that the interest rate you’re quoted at the beginning of the process might be different from the rate on your final mortgage, as interest rates can change significantly during the time it takes to build your home.

Construction loans come with many variables and moving parts over the course of your build. Therefore, it’s best to speak with multiple lenders who can guide you through your mortgage options, as well as prepare you for the unknown (e.g., appraisal issues, changes in income, how builders are paid, etc.).

We encourage you to reach out to our partner physician mortgage lenders to discuss loan options unique to your situation.