A Physician’s Guide to Mortgage Loans for First-Time Homebuyers

Getting a loan as a first-time homebuyer can feel like a daunting task. After all, it’s one of the biggest and most complex purchases that you’re likely to make. But getting a home loan as a new physician can also come with its own pitfalls. 

With possibly six-figure debt from undergraduate and medical school, it might be a little challenging to qualify for homeownership with more conventional loan programs. One alternative path is physician mortgage loans.

Here’s what you need to know as a physician making your first home purchase.

How being a physician and a first-time homebuyer is different

As a physician, being a first-time homebuyer might be more nuanced than other homebuyers’ experiences. This is often due to a higher amount of student loan debt from the long years in medical school and residency. 

Additionally, you might not have had the chance to build up a down payment because of delayed earnings. However, the good news is that programs aimed at professionals like doctors and other healthcare workers might help. 

Special loan programs for physicians often waive underwriting requirements related to student loan debt, and you might be able to qualify for 0% or other low down payment for a jumbo loan based on your employment prospects.

Loans for physician first-time homebuyers 

As you look around for the right loan for you, here are some types of loans that might make sense for physicians.

Physician loans

A physician mortgage loan is a type of loan designed for doctors and other healthcare professionals. These loans often come with different underwriting standards.

For example, it might disregard student loan debt from your debt-to-income ratio calculation. Additionally, these loans often allow doctors to put zero down on the house and without paying private mortgage insurance (PMI). 

Participating lenders that offer physician loans expect that professionals will have sufficient income later and are willing to waive some of the common requirements for getting a home loan.

Conventional mortgages

Conventional mortgages are those that meet requirements allowing them to be acquired by Fannie Mae or Freddie Mac. It’s possible to get them up to certain price limits set by the Housing Finance Agency. 

In many cases, you get a home with as little as 3% down. However, you normally need to have a credit score of at least 620 to qualify. Additionally, your student loans might make it harder to qualify for a conventional mortgage.

FHA

The U.S. Department of Housing and Urban Development offers Federal Housing Administration (FHA) loans usually designed for first-time borrowers without wealth. You can pay as little as 3.5% down, but you will pay an upfront funding fee and mortgage insurance premiums. 

There are price limits associated with an FHA loan, and physicians might actually get a better deal with a doctor loan program or conventional loan.

Other government-backed loan options include USDA loans and VA loans, both of which come with their own requirements. You can get a 0% down loan with either of these programs. USDA loans require that borrowers have low-income or moderate-income to qualify. For a VA loan, you’ll need an eligibility certificate from the Department of Veterans Affairs.

Loan eligibility requirements

Each lender has its own requirements for first-time homebuyer loans. However, in general, for the best mortgage rates and terms, you’ll need the following:

• Good credit, usually above 700.
• Proof of income (for physician loans, this could be an employment letter showing a start date within 90 days of closing).
• An acceptable debt-to-income ratio.
• Proof of assets (such as a savings account or investments).

The documentation required varies, so find out what you need ahead of time to avoid delays.

Down payment options for physician first-time homebuyers

There are down payment and first-time homebuyer programs designed to help you get money for a down payment. It’s also possible to get down payment help as a gift from a close relative.

Another option is getting a second mortgage immediately (sometimes called a piggyback mortgage) to cover what you need for the down payment, helping you avoid PMI.

In general, you can usually put as little as 3% down on a conventional loan, but you’ll pay PMI. Physicians with access to special doctor loan options might be able to pay 0% down without PMI.

State and federal credits for first-time homebuyers

In the past, there were federal tax credits for first-time homebuyers, but there isn’t a program that’s in effect currently. There’s a proposal to provide a tax credit at the federal level, but it hasn’t passed out of Congress as of writing.

However, some states offer tax credits for homebuyers. Check with your state’s housing agency, or talk to a mortgage broker about the possibilities. There might be income limits and other requirements, so make sure you qualify before claiming the credit.

Are physician loans right for you?

Before you decide on a physician mortgage loan, compare the available terms and other mortgage programs. Here are some things to keep in mind.

Assessing your financial situation

Pay attention to your current financial situation. Are you in a position to buy a primary residence? Even if you qualify for a bigger loan, do you want to make the monthly mortgage payments? Can you afford them without becoming house poor?

You need to be comfortable making your monthly payments, plus meeting your other budget obligations before you get any type of home loan.

Factors to consider before applying for a physician loan

Before you apply for a physician loan, make sure you’re ready to buy a home. Consider whether you can get a conventional loan with better terms or whether there’s another program that might work. Also, pay attention to whether you can get a home with a low down payment and no PMI. There are perks to getting a physician loan, and they can make it easier to get a mortgage without meeting some of the same criteria.

When a physician loan might not make sense

If you’re using a physician loan as an excuse to get a bigger house, and you’re not sure you can truly afford the payments, it might not be the best option.

Additionally, if you have a credit score below 700, you might not be able to get a physician loan. In that case, an FHA loan or other program might work better.

Deciding on a loan for first-time homebuyers

As a first-time homebuyer, it’s important to do your research and compare options. Look at different mortgage programs and compare the fees, interest rates and other loan terms. Compare conventional and government loans to physician loans and choose a mortgage program that works for your situation.