If you’re a doctor, or even a resident, or even a veterinarian, getting a mortgage can be a little bit easier thanks to so-called physician mortgages offered by most major lenders.
Just about every bank offers a special mortgage program for doctors, including large commercial banks like Bank of America and small local credit unions.
The names of these programs, along with the guidelines and perks, will vary from bank to bank. They’re also not heavily advertised, so you may have to do some digging to find all the details.
But they all seem to have two things in common; large maximum loan amounts and high loan-to-value ratios (LTVs).
My assumption is lenders are keen to offer these loans to future doctors because they’ll be good clients with lots of assets, ideally kept with the bank. In fact, you may need a prior banking relationship to get approved.
What Is a Physician Mortgage?
In a nutshell, it’s a home loan designed specifically for doctors that has unique features traditional mortgage loans may not offer.
But we’re not just talking medical doctors (MDs). These loan programs are often available to a wide range of disciplines, including dentists, orthodontists, veterinarians, ophthalmologists, and even pharmacists and lawyers.
If you have any of the following licenses, you might be able to take advantage of one of these specialty programs:
Additionally, you can often be a resident, fellow, or practicing physician to qualify. So they’re pretty flexible in terms of where you’re at in your career. This is especially true if you’ve yet to start a new job, but have an employment contract in hand.
Banks and lenders know you’ve got a lot of earnings potential if you’re going to be a doctor, even if you don’t have the down payment funds necessary to buy your first home. Or even the pay stubs to document your income.
It’s a common problem, thanks to the high cost of medical school, and the fact that doctors, like anyone else in school, don’t get paid the big bucks until they’ve completed their training.
Instead of saving for a down payment, they might be busy paying off costly student loans.
Compounding this is the fact that someone who will be highly compensated in the near future might be looking at an expensive home purchase.
That’s why physician mortgage programs tend to allow for higher loan amounts than typical loan programs, along with higher LTVs. Those are certainly the two main distinctions.
Doctors Can Often Get a Mortgage with No Money Down
In fact, many of these programs will allow doctors to get a mortgage with no money down, something most individuals can’t readily take advantage of.
You might see something like 100% financing up to $750,000 or $850,000 loan amounts, and just 5% down for $1 million-dollar loan amounts, assuming you have a decent credit score.
That’s a non-conforming loan amount (jumbo) with zero down payment requirement. Good luck finding that elsewhere.
Additionally, doctors might be able to get that level of financing without private mortgage insurance (PMI), which is typically required for a loan amount above 80% LTV.
The hitch is that even if PMI isn’t explicitly required on high-LTV mortgages, it’s generally just built into the rate. So instead of say a mortgage rate of 3.75%, you might pay 4% instead. You’re just charged a different way.
They Understand Your Employment Situation Better
Another perk is that the bank or lender (or credit union) offering this type of loan should have a better understanding of your situation.
Instead of wondering what documentation they’ll need to get your loan approved, they’ll likely be familiar with paperwork requirements and the handling of student loan debt when it comes to your DTI.
Ideally, this means you’ll stand a better chance of getting approved for a mortgage with fewer snags or gotchas.
This can be really important if you’re relocating to a new city and trying to nail down living arrangements.
As far as loan options go, just like normal mortgages you can generally get a fixed-rate loan or an ARM. Some doctors may favor ARMs because of the lower monthly payment, and the fact that they may sell or refinance before the initial fixed period ends.
Speaking of, because the terms of a physician mortgage may not be as attractive as a typical mortgage, it might make sense to go with an ARM.
After all, you might move up to an even larger home once you’re more established, you could relocate to a different city for a new position, or perhaps you’ll just be able to pay down a large chunk of your mortgage balance early, making the type of loan less significant.
Consider Traditional Mortgage Options Too
It should also be noted that the more flexible guidelines associated with a doctor mortgage don’t come free of charge. While the lender is probably happy to offer financing to a well-qualified borrower, they will often charge a higher interest rate in exchange.
Once you are able to pay down your mortgage, it could make sense to look into refinancing to a traditional mortgage, especially if your LTV is low enough to avoid mortgage insurance and most pricing adjustments. These loans typically do not have a prepayment penalty.
If you’re paying down a mortgage at 95% or 100% LTV, chances are you’re paying a lot more in interest than you otherwise would with a lower LTV mortgage, such as one at 80% or less.
Also be sure to shop both traditional and physician mortgages to determine which is the better option. You might not need to get a mortgage via one of these special programs if you have down payment funds available, or even a gift for down payment from a relative.
Doctor Mortgage Loans in Review
- Allow for large loan amounts (up to $1 million+)
- Often don’t need a down payment
- Typically do not charge PMI
- Flexible qualifying guidelines with regard to student loans
- Generally need good credit (720+) to qualify
- Mortgage rates may be higher than traditional loans
- Both fixed and adjustable-rate options available
- Can be a resident, fellow, or practicing physician
- Ability to obtain financing before your job starts