Your Guide to Physician Loans vs. Conventional Loans

Navigating various mortgage programs can feel like a daunting task, especially since the home buying process can be so time-consuming and confusing.

However, it’s worth noting that healthcare professionals have access to special mortgage programs. Many lenders offer products aimed at helping medical professionals (and even other professionals, like lawyers). As you go through the process, if you’re a doctor or have some other advanced healthcare degree, don’t forget to ask about physician mortgage loan programs. Here’s what you need to know about a physician mortgage versus a conventional mortgage.

What is a physician mortgage loan?

Some mortgage lenders offer special programs aimed at those with advanced degrees in different healthcare fields. Depending on the lender, different medical professions that might benefit from these loan programs include:

• Medical doctors
• Surgeons
• Dentists
• Veterinarians
• Podiatrists
• Nurses
• Nurse practitioners
• Physical therapists

Because medical school and other schooling can be costly, these professions might not be able to immediately afford the monthly payments that come with homeownership, especially if they have student loans.

A physician loan is not classified as a conventional loan due to its unique characteristics tailored to meet the specific financial needs of medical professionals. Unlike conventional mortgages, physician loans often come with lower down payment requirements, no private mortgage insurance (PMI), and more flexible underwriting guidelines. These advantages make them a distinct and advantageous borrowing option for physicians, dentists, and other eligible healthcare professionals.

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What is a conventional loan?

On the other hand, conventional home loans are considered “regular” mortgages. They often require higher down payments, and you must put down at least 20% to avoid being required to pay private mortgage insurance. Different underwriting requirements, such as debt-to-income ratio (DTI), are often stricter with conventional mortgages.

The high amount of student loan debt from medical school and other training programs, plus the lower income at the beginning of a career (particularly during a residency or fellowship), makes it difficult for doctors and others to qualify using conventional loan eligibility requirements.

Physician loan vs. conventional loan

When deciding which type of loan to get, it’s important to explore your options to see if you might be able to benefit from a physician loan program. Here are some of the basic differences that can help you determine what might work best for you.

Borrower qualifications

With a conventional mortgage, you just need to meet the credit score requirements and show regular and stable income. You need to be able to demonstrate that your DTI is within an acceptable range. Underwriting requirements will focus on whether you can comfortably make your mortgage payment along with your other debt obligations.

Doctor loan programs, though, are a little different. First of all, you need to have a degree that the lender considers eligible for a physician loan program. However, every lender is different regarding what they consider eligible degrees. Most lenders accept MD, DMD, DO and DDS degrees. Some accept DVM, CNA, NP, DPM and other degrees. A medical resident or fellow might also qualify.

Find out which degrees qualify for the programs you are considering. Debt and income requirements are a little looser with these borrowers because there’s an expectation that advanced degrees in healthcare fields come with high debt.

Property qualifications

In general, conventional loans can be used for a number of purposes with different types of property, including fourplexes and second homes. However, depending on the physician home loan program, you might be limited to a primary residence. Some doctor loan programs do allow you to get a fourplex or build a new home, but it isn’t guaranteed because it depends on the lender. Additionally, most doctor loans won’t let you use your mortgage for an investment property.

Down payment

Often, with a physician loan, it’s possible to get financing with 0% down for up to $1 million. Some physician loan programs offer 0% down for only up to $500,000 or $750,000, but the reality is that many doctor loans allow borrowers to put a relatively small amount of money down and get a large loan.

With a conventional loan, you might be able to get a mortgage with the HomeReady program for 3% down; however, you’d still have to pay PMI. On top of that, if you had a jumbo loan, you’d need a bigger down payment. Physician mortgage programs allow you to put much less down for larger loans.

Cash gifts

You can use cash gifts for both conventional and physician loans. Check with your lender for the process to use cash gifts to make your real estate purchase.

Private mortgage insurance

Most conventional loans require you to pay PMI if you put down less than 20%. On the other hand, doctor loans don’t usually come with PMI, no matter how much you put down.

Even if you get an FHA loan, you must pay mortgage insurance premiums. A VA loan doesn’t come with PMI, but you do have to pay a funding fee. Physician mortgage loans are often considered valuable simply from the ability to avoid any type of mortgage insurance.

DTI

When qualifying you for a loan, lenders look at your debt-to-income ratio. This represents how much of your monthly income goes toward loan payments. You generally need to have a DTI of 43% or less with a conventional loan. Some lenders will qualify you with a higher DTI (and charge a higher interest rate), but it can be difficult. Plus, your student loan payments are included in your DTI.

Physician mortgage loans often exclude student loan payments as part of your DTI. As a result, you can qualify for a higher monthly mortgage payment with a doctor home loan.

Maximum loan amount

Conventional loans have maximum loan amounts based on what’s considered “normal” for your area. For example, for a conventional mortgage to be conforming — meaning that it can be bought by Freddie Mac or Fannie Mae — it generally needs to be less than $647,200. There are exceptions in counties with higher costs, but in most areas, you’re limited on how much you can borrow at a maximum.

Doctor loans allow you access to what would be considered jumbo loans without the extra qualifying requirements that you would normally go through.

Income history

You usually need to show income history for a conventional mortgage. However, an employment contract or other proof of work is often accepted since healthcare professionals don’t have the same income history. This makes it easier to become a homeowner, even if you might not otherwise qualify.

1099 contractors

It can be difficult for a 1099 contractor to get a conventional home loan. Some lenders, though, are more flexible with their physician mortgage programs. If you’re in private practice and self-employed as a healthcare provider, you might have an easier time getting a doctor loan than a conventional mortgage.

Physician loan vs. conventional loan: how to choose

Deciding on a physician loan versus a conventional loan depends on your personal financial situation and what matters to you.

Start by considering why you want a doctor mortgage loan. Are you hoping to make a home purchase but don’t have the income history or a large down payment to make it work? Are your student loans holding you back on the DTI requirement?

A physician loan can make sense if you’re having trouble with conventional underwriting requirements. If you can handle the monthly payments and expect an increased income to manage the high loan amount (or pay it off sooner), a doctor loan can get you started building equity faster.

On the other hand, if you qualify for a conventional loan and can get better terms, this might make more sense. A regular mortgage might mean a smaller house but also a lower loan balance.

Regardless, make sure you compare your loan options. Look at closing costs and disclosures, review your budget and your repayment plan for your student loans, and consider refinancing your student debt if it will make a difference. Like all financial decisions, you need to run the numbers and figure out what makes sense for you.

The bottom line

Doctors and other healthcare professionals with advanced degrees have challenges when buying a home. High levels of debt and a shorter income history can work against them. However, these professionals are also expected to have high incomes later.

As a result, if you are a doctor or other medical professional, you might have access to better terms, including a lower interest rate and fewer underwriting requirements with a physician mortgage loan. Review your options and choose the best one for you.