If you’re currently a doctor or about to become a medical doctor (MD, DO, or sometimes DPM) or in some instances a dentist (DDS or DMD), you could qualify for certain home loans designed specifically for doctors. These medical mortgages offer advantages and benefits that a conventional loan often does not.
What Is a Medical Mortgage or Physician Mortgage Loan?
A medical mortgage, sometimes called a physician loan, is a special home loan available only to medical professionals. Some lenders also consider dentists and veterinarians for this loan, but most commonly it’s for incoming or practicing physicians.
Medical mortgages main features are that it requires no PMI (private mortgage insurance), has flexible DTI (debt to income) requirements, and enables you to qualify without showing two years of income. Because doctors frequently have large sums of student debt early in their career, they may not always have the liquid assets other professionals do for a down payment.
Furthermore, data shows that doctors generally have a very good track record for paying back education loans in full. Because doctors generally have a decent amount of income, lending institutions are more likely to make allowances since they aren’t taking on a risky borrower.
Differences in Conventional Loans and Doctor Mortgage Loans
The main differences between a medical mortgage loan and a conventional loan are that medical loans do not require a PMI, they have a flexible DTI (debt to income) ratio, they will accept low to no money down payments, and they have flexible employment and income requirements. Let’s look at these main features of a medical mortgage closer.
Advantages of Medical Mortgage Loans
- Eliminates Private Mortgage Insurance (PMI)
- In a typical conventional or FHA loan, to qualify for no PMI you need to provide at least a 20% down payment. Because most future doctors graduate with a six-figure student loan debt, the majority of their liquid assets go towards paying down these loans for many years and they are often unable to come up with this lump sum.
- No Need to Prove a 2-Year Income History
- Because the path to becoming a doctor requires years of schooling followed by years of internships and residencies, it’s not always easy for prospective buyers to show a 2+ year income history, a requirement for most conventional loans. But, because the future earning potential of doctors is so high, this requirement is often waived if you can prove you have a secure job.
- Reduces the Influence of Your Debt to Income Ratio (DTI)
- Conventional or FHA loans calculate your ability to pay back your loan by factoring in your DTI. If it is deemed too high, meaning too much of your monthly income goes towards paying previous loans, you will not be approved. This is commonly based on a calculation of 1% of your outstanding balance on the debts you bring to the loan. For doctors, this number can be quite high. Average medical school debt is 200K-250K, so a conventional lender would assume you are making payments of $2,500 a month toward this and that would be counted against your DTI.
- Allows You to Qualify Before Beginning a New Job
- This ties in with the waiving of the 2+ year income history. Many lenders for medical mortgages will accept an employment contract as proof of income. For example, if you are moving from a residency to a permanent position, you may be able to close on your loan before you actually start your new job as long as you can provide proof of upcoming employment.
- Less stressful compared to FHA and conventional loans
- Because of the lowered thresholds for down payments and DTI ratio, most physician loans are able to close faster and the general process is smoother.
Medical Mortgage Programs Available
There are a number of banks and lenders who provide options for physician loans, but below you will find some of the more well-known institutions and their practices. All medical mortgage lenders will have slightly different requirements. It is recommended that you explore your options and get quotes from multiple lenders. Working with a home loan specialist is advisable as they can assist you with streamlining the process of your home purchase.
Medical Mortgage Lenders
- Key Bank: Key Bank is one of the largest banks in the U.S. and found mostly in the western United States. They will accept 5% down payments for homes valued up to $1 million, no PMI, and provide options for fixed or variable rates.
- TD Bank: One of the ten largest banks in the U.S. and more prevalent in the eastern states, TC Bank is able to offer some borrowers 0% down for purchases up to 750K, no PMI, and provides refinancing loans as well as home loans.
- TCF/Chemical Bank: A great option for borrowers located in the midwest, TCF or Chemical Bank provides options for 0% down on purchases up to $1 million, no PMI, and allows future income to be used for up to 3 months after closing.
Medical Mortgage Home Loan Specialists
- Homes for Heroes™: This program covers more professions than just doctors (nurses, emergency workers, and teachers to name a few) and is a great option for doctors-to-be to find a home loan. This program works with borrowers to reduce lending fees and offer rebates after purchase (usually .7% of the purchase price). The company reports that most users save $2,400 on average when they work with their specialists. If you are looking into a medical mortgage, start with Homes for Heroes.
Physician loans are a great option if you’re looking to buy soon after finishing your schooling, and know that you will have the majority of your income tied up in school debt for many years to come. Working with the specialists at homes for heroes allows you to save money on your home purchase. They will work to streamline the process and maximize your savings.